1/ Several measure of markets— (relied on by global investors and policy makers)
—are showing curious signs.
Take the “Fed Model”:
bond yields move in line with earnings yield (inverse P/E).
If bond yields📈 stocks📉 to provide a higher yield to compete with bonds....
—are showing curious signs.
Take the “Fed Model”:
bond yields move in line with earnings yield (inverse P/E).
If bond yields📈 stocks📉 to provide a higher yield to compete with bonds....
2/ YET:
US bond yields are up recently (+should drive USD higher, attracting inflows)—
while US stocks are at peaks (and USD got weaker)
Since the .com bust the Fed Model proved questionable...
US bond yields are up recently (+should drive USD higher, attracting inflows)—
while US stocks are at peaks (and USD got weaker)
Since the .com bust the Fed Model proved questionable...
3/ Rising rates ought be bad for US equities (adding to interest expense, burden to service debts, raise more cash, etc)
Indeed bond yields 📈on employment data which implied future inflation—which implied higher yields + higher interest rates + stocks 📉
Meanwhile...
Indeed bond yields 📈on employment data which implied future inflation—which implied higher yields + higher interest rates + stocks 📉
Meanwhile...
4/ Meanwhile for past year correlation of USD to spread of Treasuries over German Bund was (+).
This month it went (-)
Maybe investors see weakening dollar (in face of rising deficit + inflation) + thus rising bond yields and push into equities with assets (as inflation hedge)
This month it went (-)
Maybe investors see weakening dollar (in face of rising deficit + inflation) + thus rising bond yields and push into equities with assets (as inflation hedge)
5/ If rates rise it may be b/c of anticipation of inflation (demand for yield to offset it) OR optimism + risk-taking (as investors sell-off bonds & drive yields 📈)...
My own *contra* view...
My own *contra* view...
6/ My own *contra* view:
EVERYONE expects rates to rise.
A shock (by definition unexpected) sees a flood of investors into perceived safe Treasuries (driving their yield down) + USD rising + Fed SLOWING their tightening to offset dollar rise + help other countries
Rates FALL.
EVERYONE expects rates to rise.
A shock (by definition unexpected) sees a flood of investors into perceived safe Treasuries (driving their yield down) + USD rising + Fed SLOWING their tightening to offset dollar rise + help other countries
Rates FALL.
