I am going to share my thoughts about what has been happening in Israel and Gaza, but before doing so, I am going to approach it from a very different angle initially, and then I will apply it to the situation at hand.
The Virtues of Fossil Fuel
I am reading a fascinating book called Fossil Future: Why Global Human Flourishing Requires More Oil,
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I was definitely in the camp that once the yield curve inverted, we were headed for a recession within a year or so. The spread between the 10-year Treasury and 2-year Treasury yields went negative (inverted) in early July 2022.
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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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Beans the Cat
Heather and I have ended up with a rescue kitten. I won’t go into the circumstances, but his name is Beans. This is what he looks like.
As you can see, his eyes are very intense.
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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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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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Fed Chairman Jay Powell understandably garnered a lot of attention after the Fed meetings concluded last week, which resulted in the first pause in rate hikes after 10 consecutive increases. At the same time, to manage expectations, the Fed dot plot forecasts two more interest rate hikes before they’re done for this cycle.
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