Dimon Says: Get ready for 5% 10-year yield

If you don’t believe me, believe Jamie Dimon.

“I think rates should be 4% today,” the JPMorgan Chase CEO said this week, referring to the yield on the benchmark 10-year Treasury note. And if that wasn’t strong enough, he added, “you better be prepared to deal with rates 5% or higher — it's a higher probability than most people think.”

The question shouldn’t be, “Is he right?” Instead, it should be: “Why aren’t rates that high already?”

The 10-year yield ended last week at 2.95%, about unchanged from the previous week, although it did cross over into 3.0% territory for about a day before falling back. It started this week at 2.93% -- after Dimon made his comments.

Just about every Federal Reserve comment and economic and supply-and-demand figure screams that the yield on the 10-year should be at least 100 basis points higher than it is today. Yet the yield remains stubbornly at or below 3%. Continue reading "Dimon Says: Get ready for 5% 10-year yield"

Inflation - Getting Back To Normal

George Yacik - INO.com Contributor - Fed & Interest Rates -
 inflation


So now, suddenly, out of nowhere, inflation has reared its ugly head, and the financial markets are starting to believe it.

On Wednesday the Labor Department reported that the consumer price index rose a higher than expected 0.5% in January, 2.1% compared to the year-earlier period. The all-important core rate, which excludes food and energy prices, rose 0.3% for the month, 1.8% versus a year ago. While not exactly hitting the Federal Reserve’s revered 2.0% annual inflation target, it was apparently close enough to create more jitters in the bond market, with the yield on the U.S. Treasury’s benchmark 10-year note immediately climbing seven basis points to 2.91%, its highest level in more than four years.

The very next day, Labor reported that the core producer price index rose 0.4% for the month and 2.2% year-on-year, which pushed up the yield on the 10-year another basis point, to 2.92%.

I’m not exactly sure why this recent surge in inflation should come as such a big surprise to anyone, but it surely has, witness the tremendous amount of volatility in the financial markets in just the past two weeks. The tipping point seems to have been the release of the January jobs report, the highlight of which wasn’t the change in nonfarm payrolls and the unemployment rate, which they usually are, but the 0.3% (2.9% annualized) growth in wages, which was the strongest year-over-year gain since June 2009.

That seemed to finally catch everyone’s attention that yes, contrary to what the Fed has been telling us for the past four years, inflation really does exist. Now we have more verification. And it’s probably only going to exacerbate.

And who do we have to thank for this new-found inflation? Continue reading "Inflation - Getting Back To Normal"

Ladies and Gentlemen: Gridlock Is Good

George Yacik - INO.com Contributor - Fed & Interest Rates


One of the marvels of the continued bull market in stocks this year – and to a much lesser extent in bonds, too – is that it’s taking place in spite of what appears to be a tremendous amount of dysfunction and conflict within the federal government. But it’s perhaps more accurate to say that the bull market continues to motor on because of, rather than in spite of, the gridlock.

Leave it to the Republican Party to create government gridlock single-handedly – without any assistance from the opposition party. Here is a party that controls both houses of Congress and the presidency and yet still manages to screw things up.

Then again, maybe it’s wrong to think of Donald Trump as a Republican president. Rather, perhaps the correct way to think of Trump is as America’s first Third Party President, who just happened to use the machinery of the Republican Party to get elected, but is no more a Republican than Ross Perot was.

Quite clearly there are three active parties, or factions, in Washington, and all of them are aligned against each other – the Republicans, the Democrats, and the White House. Continue reading "Ladies and Gentlemen: Gridlock Is Good"

Don't Let The Headlines Fool You

George Yacik - INO.com Contributor - Fed & Interest Rates


Back in 1925 President Calvin Coolidge famously said, “The business of America is business.” Apparently, this is still true even if the current administration more closely resembles the Five Families rather than the worthy successors to Silent Cal.

Even as President Trump’s new communications director is “front-stabbing” his White House colleagues and Republicans in Congress can’t get anything done about health insurance reform except make themselves look foolish – and without any help from the Democrats – the economy seems to roll on regardless. Last week the Commerce Department reported that the American economy grew at an annual rate of 2.6% in the second quarter, the first full quarter of Donald Trump’s presidency. That was up sharply from the first quarter’s downwardly revised 1.2% rate and the second strongest rate in the past eight quarters.

That managed to happen thanks to some extent from the hope and anticipation of major health insurance and tax reform, not their actual enactment. Imagine what might happen if our lawmakers actually do what they’re supposed to be doing and those things become reality?

A more pertinent question for this column is: Is that growth rate strong enough to get the Federal Reserve back to raising interest rates again and start its “balance sheet normalization program,” i.e., trimming its $4.5 trillion securities portfolio? Continue reading "Don't Let The Headlines Fool You"

Time For The Fed To Take It Easy

Lior Alkalay - INO.com Contributor


The Fed’s June rate decision is coming up this week and the consensus bets are overwhelmingly tilting towards a rate hike. According to the CBOE Fed Funds rate probability chart, the probability the Fed will raise rates at the next meeting is 91.3%. Thus, suggesting that market participants are almost certain a rate hike is coming. Furthermore, there is also growing consensus that the Fed will also start trimming its balance sheet as early September. However, a deep dive into the mechanics of the US economy suggests that the Fed should ignore the consensus, and even its own outlook, and take a step back from tightening. And it all starts with the puzzling discrepancy between inflation and housing prices.

Home Prices Heat as Inflation Cools

Upon the surface, the latest fall in the US Core inflation rate, from 2.3%, four months ago to 1.9%, and the latest surge in US housing prices (as reflected by the Case-Shiller Index) present a somewhat puzzling divergence between the US inflation outlook and housing prices. Nonetheless, those two contradicting developments are closely intertwined, both to each other and to the Fed’s monetary policy. And, to illustrate the link between the two, we must dive into the US Treasury market. Continue reading "Time For The Fed To Take It Easy"