Inflation is Causing Tectonic Shifts
Even if stock investors are acting as if nothing happened along the road they are walking, they will soon wish they had not missed the obvious.
Yesterday when stocks crashed hard, I wrote the following caveat to their epitaph:
Whoa! Delusions broken. At least, for today, but give investors a wisp of faint hope tomorrow, and greed may go from free fall to free floating again.
Indeed, the faintest wisp was all they got in today’s PCE inflation report, but that was all it took to send them deliriously positive in a state of euphoria and denial again. That won’t likely last long, foolish as it is, because the road is likely to be more than bumpy from here on out on the inflation front—more like jagged—and because bond investors today refused to give up the tougher edge they took yesterday with the bond vigilantes holding out for better returns. Never underestimate the foolishness and denial that undergirds this stock market, causing investors to miss the obvious signs on each side of them.
… Because, as I also wrote yesterday …
The 2YR yield is now getting very close to 5%. At those levels Treasuries will be seriously sucking money out of stocks for the practically free ride of doing nothing but sitting home with zero risk and clipping interest coupons. Those days won’t be long in coming.
That is what we saw today in bond action as yields continued to rise. A few articles in the news today highlighted how bond traders are now demanding higher yields from US Treasuries and not letting go of the reins…
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