My Ridiculously Specific Expectation for 10-year Interest Rates

By Michael Ashton

I try to stay away from making predictions. I don’t see the upside. If I am right, then yay! But after the fact, predictions often look obvious (hindsight bias) and it is hard to get much credit for them. By the same token, if I am wrong then the ex post facto viewer shakes his head sadly at my obtuseness. Sure, I can make a prediction with a very high likelihood of being true – I predict that the team name of the 2019 Super Bowl winner will end in ‘s’ – but there’s no point in that. This is one of the reasons I think analysts should in general shy away from making correct predictions and instead focus on asking the correct questions.

But on occasion, I feel chippy and want to make predictions. So now I am going to make a ridiculously specific prediction. This prediction is certain to be incorrect; therefore, I just want to observe that it would be churlish of you to criticize me for its inaccuracy either before or after the fact.

Ten-year Treasury rates will break through 3% for good on May 10, and proceed over the next six weeks to 3.53%. As of this Thursday, year/year core CPI inflation is going to be 2.2% or 2.3%, and median CPI over 2.5% and nearing 9-year highs. At that level of current inflation, 3% nominal yields simply make no sense, especially with the economy – for now – growing above trend. Two percent growth with 2.5% inflation is 4.5%, isn’t it? There is also no reason for 10-year real yields to be below 1%, so when we get to that 3.53% target it will be 1.08% real and 2.45% expected inflation (breakevens).

Continue reading My Ridiculously Specific Expectation for 10-year Interest Rates

Jolted! Job Openings Leap By 472,000 To All-Time High 6.55 Million

By Anthony B. Sanders

The monthly JOLTS report for March revealed an additional 472k job openings in the US economy. That brings that grand total of US job openings to 6.55 million.


The JOLTs measures the number of specific job  openings in an economy. Job vacancies generally include either newly created or unoccupied positions  (or those that are about to become vacant) where an employer is taking specific actions to fill these positions.

Continue reading Jolted! Job Openings Leap By 472,000 To All-Time High 6.55 Million

Problems Are Emerging

By Heisenberg

Well, first thing’s first.

Donald Trump sent 11 tweets by 3:00 p.m. ET, a truly impressive “covfefe” tally, that included this batshit ramble about Lisa Page and Peter Strzok:

Yes, “what a total mess.” And for Christ sake, will someone please teach him what a proper noun is or, more to the point, what a proper noun isn’t?

But this was the one that mattered:

Continue reading Problems Are Emerging

Bi-Weekly Economic Review: Oil, Interest Rates & Economic Growth

By Joseph Calhoun

The yield on the 10 year Treasury note briefly surpassed the supposedly important 3% barrier and then….nothing. So, maybe, contrary to all the commentary that placed such importance on that level, it was just another line on a chart and the bond bear market fear mongering told us a lot about the commentators and not a lot about the market or the economy. As I said last month, despite the recent run up in rates, the economic landscape hasn’t changed that much. Since the beginning of the year, nominal growth expectations have risen, with both inflation and real growth expectations up slightly. But taking a little longer view, those expectations are no different today than they were at the end of 2015 or the fall of 2013. Call it what you will – secular stagnation or the new normal – but it is still with us. And I see no evidence that the US economy is about to break out of the 1.5% to 2.5% growth range we’ve been in for most of that period since 2013.

The economic data since the last update was a little weaker and the markets reflect that with both nominal and real interest rates down ever so slightly. From the bigger picture perspective, if we are to break out to a new higher growth range, we’ll have to raise productivity and so far, as the most recent report showed, we aren’t. There is some anecdotal evidence that investment may rise – if you believe the companies talking about capex on their conference calls – but like Godot, the hard evidence continues to be a no show. If companies do indeed start investing more then maybe productivity will rise and we can break out of these doldrums for good. But right now it just isn’t happening.

Continue reading Bi-Weekly Economic Review: Oil, Interest Rates & Economic Growth

Chart Of The Week: US Dollar Index

By Callum Thomas

This week it’s the US Dollar Index.  Unless you’ve been living under a rock (or maybe that saying should be updated – unless you’ve been living out of range of wifi), you will have noticed 2 key things about the US dollar index: 1. The US dollar bull market seemed to end at the end of 2016; and 2. A violent short-squeeze kicked off in April.

But while I certainly would agree that it has all the classical signs of a short-squeeze, I would be quick to point out that there may be a little more to it than that.  The chart of the week comes from a report on the outlook for the US dollar (which also dealt with the implications for crude oil prices).  The chart shows my composite yield support indicator for the US dollar against the DXY, with a substantial gap… “the alligator’s jaws”.

Continue reading Chart Of The Week: US Dollar Index

Pushing Against the Big Wave

By Kevin Muir

One of the greatest traders of all time, yet probably one of the least well known, once said, “win or lose, everybody gets what they want out of the market.” Easy for Ed Seykota to say as he sits on his deck overlooking Lake Tahoe sipping a nice California cab. Yet as I struggle to make sense of this great game we all love to play, I wonder if maybe Ed is correct. I know his comment might seem a little preachy, but the older I get, the more I realize that a trader’s biggest obstacles lie in the dark recesses of their thoughts, not in the day-to-day zigs and zags of the markets.

So I wonder. Not only do we all get what we want, but do we only see what we want to see?

The other day, one of the biggest bond bulls out there posted the following chart:

Continue reading Pushing Against the Big Wave

Wealth-Destroying Zombies, Report 6 May 2018

By Keith Weiner

The hot topic in monetary economics today (hah, if it’s not an oxymoron to say these terms together!) is whither interest rates. The Fed in its recent statement said the risk is balanced (the debunked notion of a tradeoff between unemployment and rising consumer prices should have been tossed on the ash heap of history in the 1970’s). The gold community certainly expects rapidly rising prices, and hence gold to go up, of course.

Will interest rates rise? We don’t think it’s so obvious. Before we discuss this, we want to make a few observations. Rates have been falling for well over three decades. During that time, there have been many corrections (i.e. countertrend moves, where rates rose a bit before falling even further). Each of those corrections was viewed by many at the time as a trend change.

They had good reason to think so (if the mainstream theory can be called good reasoning). Armed with the Quantity Theory of Money, they thought that rising quantity of dollars causes rising prices. And as all know, rising prices cause rising inflation expectations. And if people expect inflation to rise, they will demand higher interest rates to compensate them for it.

The quantity of dollars certainly rose during all those years (with some little dips along the way). Yet the rate of increase of prices slowed. Nowadays, the Fed is struggling to get a 2% increase and that’s with all the “help” they get from tax and regulatory policies, which drive up costs to consumers but has nothing to do with monetary policy. Nevertheless interest rates fell. And fell and fell.

Continue reading Wealth-Destroying Zombies, Report 6 May 2018

Which Hunt?

By James Howard Kunstler

It was refreshing to read the response of Federal Judge T. S. Ellis III to a squad of prosecutors from Robert Mueller’s office who came into his Alexandria, Virginia, court to open the case against Paul Manafort, erstwhile Trump campaign manager, for money-laundering shenanigans dating as far back as 2005. Said response by the judge being: “You don’t really care about Mr. Manafort’s bank fraud. You really care about getting information that Mr. Manafort can give you that would reflect on Mr. Trump and lead to his prosecution or impeachment or whatever.”

Judge Ellis’s concise summation was like a spring zephyr clearing out a long winter’s fog of unreality in our national politics — the idea that Mueller’s mission has been anything but the Deep State’s ongoing crusade to nullify the 2016 election. In the meantime of the past year, Mueller has been additionally burdened by obvious misconduct in the FBI and its parent agency, the Department of Justice, which makes Mueller himself look like the instrument of a cover-up, or at least a massive organized distraction from the misdeeds of the Deep State itself.

Continue reading Which Hunt?

Slow Boiling Bull Frogs


The following is part of the Market Sentiment segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 498. I’ve given it a funny name that would be less funny for a lot of people if the scenario actually plays out.

Slow Boiling Bull Frogs

Last week we reviewed Commercial Hedgers data that was bullish for the stock market and other sentiment data points that were not. The picture was mixed and our view was that a bounce (to short into, if you are bearish) was likely.

Refining that a bit, we reintroduce the ‘M’ retest possibility. It’s not a call or even a favored outcome since the stock market is still generally below markers like the SMA 50 and a series of declining highs. But as Apple showed us last week, this pig can scream higher at any time that animal spirits get unleashed.

One problem for longer-term bulls is that unlike the big, ultimately bullish event in 2015-2016 today’s SPX has not seen a corresponding rise in the VIX as the market has declined. The off-the-cuff interpretation of that is complacency that is out of whack with the flat to negative price action over the last several weeks.

spx, vix Continue reading Slow Boiling Bull Frogs

Old Roach Motel

By Doug Noland

One hundred and six months. The current expansion, having emerged in the aftermath of the collapse of the mortgage finance Bubble, is now the second-longest on record (lagging only the 120-month 1990’s Bubble period). The unemployment rate dropped to 3.9% last month, the lowest level since the 3.8% print in April 2000. Corporate earnings are at unprecedented levels and stock prices only somewhat below records. Home prices in most markets are at all-time highs. U.S. GDP is forecast to expand 2.8% this year, just below 2015’s (2.9%) 12-year high.

We should be leery of prolonged expansions. The longer a boom, the greater the opportunity for deep-rooted structural impairment. Back in 2013, I proposed the concept of “Government Finance Quasi-Capitalism.” This was updating previously updated Hyman Minsky analysis. Minsky’s “Stages of Development of Capitalist Finance” seems especially relevant these days:

Minsky: “In both Keynes and Schumpeter the in-place financial structure is a central determinant of the behaviour of a capitalist economy. But among the players in financial markets are entrepreneurial profit-seekers who innovate. As a result these markets evolve in response to profit opportunities which emerge as the productive apparatus changes. The evolutionary properties of market economies are evident in the changing structure of financial institutions as well as in the productive structure… To understand the short-term dynamics of business cycles and the longer-term evolution of economies it is necessary to understand the financing relations that rule, and how the profit-seeking activities of businessmen, bankers and portfolio managers lead to the evolution of financial structures.”

Continue reading Old Roach Motel

Financials First Crossover

By Tim Knight

As brutal as this day has been, the big picture still hasn’t changed: lower lows, lower highs, and a general downtrend (although, God almighty, I am really sick and tired of all these “fight backs” the bulls are pulling off). For a little perspective on this, here is the triple-bullish on financials fund, symbol FAS, on which I own January 2019 puts. As you can see, we finally got our first bearish crossover on the two faster moving averages for the first time in God knows how long……..


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The Horsefly Cometh

By James Howard Kunstler

You can see where this Mueller thing is going: to the moment when the Golden Golem of Greatness finally swats down the political horsefly that has orbited his glittering brainpan for a whole year, and says, “There! It’s done.”

It suggests that Civil War Two will end up looking a whole lot more like the French Revolution than Civil War One. The latter unfurled as a solemn tragedy; the former as a Coen Brothers style opéra bouffe bloodbath. Having executed the presidential swat to said orbiting horsefly, Trump will try to turn his attention to the affairs of the nation, only to find that it is insolvent and teetering on the most destructive workout of bad debt the world has ever seen. And then his enemies will really go to work. In the process, they’ll probably wreck the institutional infrastructure needed to run a republic in constitutional democracy mode.

Continue reading The Horsefly Cometh