"Trees don't grow to the sky". I am very sympathetic to your view in the very short term but there are long term implications that are not currently priced in the market.
Current stance of monetary policy is very accommodative in your scenario. Really doubt inflation will be around 2.25% as implied by 5 year breakeven. Fed funds priced at 3.5% in the long run. I am afraid we are approaching peak real yield. FED doesn't have the guts to raise to what is needed and interfere with next year election.
We are not living in a new era of productivity. This is just unstainable fiscal spending on steroids in a decade when US fiscal imbalances will really start to show in the numbers. Markets showing already signs of panic when it comes to supply. How can this be sustained consistently without implementing de facto real yield curve control? Can't really see real yield staying positive. Surely an environment where equities perform better than bonds. Not sure about crypto and gold as combination of positive nominal rates and negative real rates is a very different environment compared to last decade. Very bullish USD in the near term but just looking at purchasing power parity how can stay this high vs JPY and EUR?
Really interesting times. This is a new market environment and market participants will test multiple narratives over and over again. Rules of the game have changed. Better to stay open minded!
Thanks for sharing your thoughts. Really appreciate the time you dedicate to produce such good quality content. All the best!
What you write is easily compatible with Peter Zeihan's analysis. U.S. is now in a historically unprecedented phase of re-industrialization. Add cheap energy to that, and understand that only the U.S. (and New Zealand) have good demographic perspectives, and then the nay-sayers' doubts become quite unattractive.
" if we indeed see market turbulence, the front end of the yield curve should then catch a bid as investors switch from equities to bonds in a flight to safety. "
@florian, you mention the market turbulence in sep/oct is likely due to liquidity drain from corporate bond issuance. Wouldn't that also hurt bond?
Another excellent note! Do you have any thoughts on what the "breaking point" is for the U.S. economy in terms of an increase in longer-term interest rates? Much has been written about looming credit defaults in commercial real estate and among highly leverage corporate borrowers (public and private). Is it fair to say that you think the positive impacts from economic growth and rising earnings will tend to outweigh the drag from future credit events?
"Trees don't grow to the sky". I am very sympathetic to your view in the very short term but there are long term implications that are not currently priced in the market.
Current stance of monetary policy is very accommodative in your scenario. Really doubt inflation will be around 2.25% as implied by 5 year breakeven. Fed funds priced at 3.5% in the long run. I am afraid we are approaching peak real yield. FED doesn't have the guts to raise to what is needed and interfere with next year election.
We are not living in a new era of productivity. This is just unstainable fiscal spending on steroids in a decade when US fiscal imbalances will really start to show in the numbers. Markets showing already signs of panic when it comes to supply. How can this be sustained consistently without implementing de facto real yield curve control? Can't really see real yield staying positive. Surely an environment where equities perform better than bonds. Not sure about crypto and gold as combination of positive nominal rates and negative real rates is a very different environment compared to last decade. Very bullish USD in the near term but just looking at purchasing power parity how can stay this high vs JPY and EUR?
Really interesting times. This is a new market environment and market participants will test multiple narratives over and over again. Rules of the game have changed. Better to stay open minded!
Thanks for sharing your thoughts. Really appreciate the time you dedicate to produce such good quality content. All the best!
Thank you, really appreciate the feedback! Higher real growth might solve a lot of issues in unexpected ways...
Excellent, thought-provoking post, many thanks!
What you write is easily compatible with Peter Zeihan's analysis. U.S. is now in a historically unprecedented phase of re-industrialization. Add cheap energy to that, and understand that only the U.S. (and New Zealand) have good demographic perspectives, and then the nay-sayers' doubts become quite unattractive.
Thank you. That’s a great way to summarise it
This was a brilliant piece. Appreciate and admire your hard work!
I suppose the growth of US comes at the expense of growth of Chine-Europe, then how this helps to multinational Large Cap-Tech?
" if we indeed see market turbulence, the front end of the yield curve should then catch a bid as investors switch from equities to bonds in a flight to safety. "
@florian, you mention the market turbulence in sep/oct is likely due to liquidity drain from corporate bond issuance. Wouldn't that also hurt bond?
I meant corporate tax payments in this specific case!
This is gold!
Thank you :)
Really appreciate your analysis and writing. Thank you!!
Thank you Paul, really appreciate it!
Another excellent note! Do you have any thoughts on what the "breaking point" is for the U.S. economy in terms of an increase in longer-term interest rates? Much has been written about looming credit defaults in commercial real estate and among highly leverage corporate borrowers (public and private). Is it fair to say that you think the positive impacts from economic growth and rising earnings will tend to outweigh the drag from future credit events?
Thanks. Agree with your conclusion in last line