I have written continuously over the last year or so about critical yields for the 10 and 2-year Treasuries such that if they were breached, the probability of them going higher would be quite elevated.
Looking at the following 10-year Treasury chart,
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Given China’s importance to the world economy, I wanted to focus this week’s post on some of the challenges China is facing in the short and long term.
China’s Economy
From an investor perspective, there is very little optimism that China’s economy will experience stronger growth after severely disappointing in the wake of its Covid reopening.
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Fed Chairman Jay Powell spoke last Friday at the Jackson Hole conference for Central Bankers. He was pretty clear that the Fed would remain vigilant in its fight against inflation.
The economy is doing better than the Fed expected,
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You know Covid destroyed supply
Stimulus exploded demand
Inflation ran
The Fed cried
(What does the 10-year do?)
Break on through
To the other side
The 10-year Treasury yield broke through to a new cycle high and is now back above where it last peaked in 2008.
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Last week the CPI report was released. One can see that shelter is now by far the biggest component of inflation. Non-Housing Services are growing at a moderate rate while Core Goods prices are declining.
This chart shows how CPI excluding shelter has been moderating quite significantly,
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This will be a rather short blog following up on last week’s focus on key levels for the 2 and 10-year Treasury yields.
I’m a bit tired as last night (Thursday), I had a flight connection through D/FW Airport to return home to Orange County.
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One of the things I’m constantly reminded of from playing tennis is the power of consistency. If you can play each facet of the game reasonably well, you don’t have any glaring weaknesses, and you have the anticipatory skills and speed to have effective court coverage,
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Milton Friedman famously said that “Persistent inflation is always and everywhere a monetary phenomenon.” I have never been much of a monetarist because I thought there were many other factors influencing inflation, particularly demand factors, technological innovation, demographics, and the presence or absence of animal spirits among investors and capital providers.
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Last week’s ADP payroll report really rocked the bond and stock markets. It was further support for the Fed to remain tighter for longer. This chart shows how strong private employment growth was.
On the other hand,
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Last week was my birthday, and I chose to celebrate it by heading to my home in the desert to check out some work that had been done and to play tennis. This picture from my car dashboard shows a couple of pieces of interesting information.
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