I am a nervous Bull on Treasuries. My longer term thesis calls for lower rates due to deflationary fears. The increasing value of the dollar I don’t think jives with the Hyper-inflationary conditions that people are expecting from the Bond markets message BUT it could signal Cost-push inflation. It is definitely something I am keeping my eye on. Even though I expected YoY PPI and CPI to increase due to the extremely low readings the year prior, this report was a little above my expectations.
Looking at TNX, 3.69 is the level that I am looking at. It’s the area of a trendline that’s been in place since June and after that, a pretty big deal at 3.70, which is a trendline that’s been in place since, June of 2007. Even more alarming is the large inverted head and shoulders that once broken at a trend line of 3.80, would be a very bearish signal for Treasuries.
I would be a nervous holder of Treasury ETFs at this point and would have my finger nearby the trigger to start selling.
My thesis stands at Treasures going up in value as the starker reality is known that we will not be coming out of this in a V-shaped like fashion but in fact might double dip into recession (a scenario similar to Japan’s…look at where their bond yields stand…and they have way more debt than we do). However, we might double dip back into recession along with with cost-induced inflation that would place the economy in a stagflation scenario (something that I considered a while back..See archive 5/20/2009). However this Stagflation scenario would not be a persistent event. Higher interest rates would add another enormous headwind to the economy and would in essence serve as a vice for any further growth. As soon as the global economy started growing, the fact that there is so much debt out there (Treasuries, etc) coupled with fears of inflation would immediately push up rates and cap the recovery, a short of stealth Stagflation in that the danger is always there upon any sign of growth.
Yet other possibilities are that the market is giving us is a signal of no-confidence in the administrations ability to use the cash in an effective manner and to Bernanke’s machinations OR it’s the markets confidence in the world economy but not the USs. An interesting time indeed.
Upcoming Key Macro Events
- 43rd G7 Summit in Sicily, Italy May 25, 2017
- OPEC meeting in Vienna May 25, 2017 Vienna Saudi Arabia has expressed support for maintaining production cuts.
- NATO summit (Trump/Macron to meet) May 25, 2017 Brussels, Belgium
- Montana Special Election May 25, 2017
- (TENT) Article 50 negotiations to begin June 1, 2017 Mrs. May’s letter will pave the way for Britain to leave by March 2019
- D-day anniversary June 4, 2017 at 3:30 pm – 4:30 pm 1944
- Deadline for U.S. Mexican sugar dispute June 5, 2017
- Brazilian Electoral Court rules on Dilma-Temer ticket June 6, 2017
- UK general election June 8, 2017
- 1st Round French Parliament vote June 11, 2017
- Phillippines Independence Day June 12, 2017 Does Rodrigo Duterte visit one of the disputed South China Sea islands, Pag-asa, to celebrate?
- FOMC meets on interest rate policy* June 13, 2017 – June 14, 2017 Summary of Economic Projections and a press conference by the Chair.
- 2nd Round French Parliament vote June 18, 2017
- Brexit talks begin? June 19, 2017
- Georgia's 6th District special runoff election June 20, 2017
- Deadline for notification of participation in Obamacare exchanges in 2018 June 21, 2017 Obamacare exchanges in 2018
- TENT: U.S. Commerce Department Trade deficit report June 30, 2017
- TENT: Deadline for National Security review on core industries June 30, 2017 Ross, the US commerce secretary, promised to wrap up the special investigation by the end of June.
- (TENT): Deadline for Greek debt payment (IMF review) July 1, 2017
- TENT Thaad deployed in South Korea?? July 1, 2017 South Korea??
- G20 Summit in Germany July 7, 2017 – July 8, 2017 Do Trump and Putin meet?
- TENT: 100-day trade investigation China/U.S. due July 20, 2017 During their visit at Mar-a-lago, Chinese officials instigated a “100-day plan” on trade between it and the U.S. to include “way-stations of accomplishment.”
- FOMC meets on interest rate policy July 25, 2017 – July 26, 2017
- Last Congressional Business day before August Recess July 28, 2017
- TENT: Decision to proceed on suit regarding legality of Obamacare Gov't Subsidies August 21, 2017
- (TENT) Catalan Referendum for independence August 31, 2017
- (TENT) Xiangshan military forum August 31, 2017
- FOMC meets on interest rate policy* September 19, 2017 – September 20, 2017 Summary of Economic Projections and a press conference by the Chair.
- German Bundestag elections September 24, 2017
- (TENT) U.S. Gov't Spending Bill due September 30, 2017
- FOMC meets on interest rate policy October 31, 2017 – November 1, 2017
- China's Singles Day November 11, 2017
- FOMC meets on interest rate policy* December 12, 2017 – December 13, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT) Italian National Elections January 1, 2018
- Fed: Yellen's term expires February 3, 2018
- Chair Yellen's term ends (if not reappointed) February 3, 2018
- Fed: Lockhart (Centrist to slighly dovish) retires? February 28, 2018
- Fed: Fischer's term expires June 12, 2018
- Austrian general election due by Sept 2018 September 1, 2018