Market Snapshot February 9, 2018

brown kitchen

Good Friday A.M.,

 

If you blinked or slept (I do neither), you missed the government shutdown overnight. Not to worry, President Trump started his day earlier than normal and signed the new budget and turned the government’s lights are on again… this time for maybe 2 years. Groundhogs day in the markets. Stocks getting the snot beat out of them (and since they have dropped 10%, are now in a correction) and bonds getting little love. The Dow is trading in a 700 point range today (up 350 to down 350 and is currently down 350). The 10-yr is holding firm at 2.82 and does not want to budge. Mortgage bonds are outperforming the 10-yr and are +16bps but I sense that is just an equalizer from yesterday where mortgage bonds under-performed treasuries. The Fed commentary this week has been hawkish. Raise rates, reduce the balance sheet in almost unison. While we are seeing a little pause here in the mid 2.80’s, the pundits are still calling for a date with 3.03% on the 10-yr note. That would push rates up another .125% – .25%. but would also be a pivot point to rebound from. I don’t think it is likely we will get much past 3.03 (if we get there at all) but I would weigh that possibility.  Limited data today with the only report being wholesale business inventories. It came in higher than expected (double) which will likely translate into higher Q4 GDP.

 

Interesting observation from Dan Rawitch (who is normally an upbeat guy) today… did you know that private debt currently dwarfs government debt and is higher than it’s ever been. How long do you think America can or will be willing to carry this debt load. What happens when America either willingly (because the economy is good and they choose to pay off debt) or forcibly, because the economy is bad and they default, begins to deleverage? It has to happen. Deleverage is a turbo-booster for deflation and this is precisely what the FED has been fighting again for the last decade. So, when I see wage growth grow slightly and frankly to far lower levels than we’ve seen in the past, I do not see this as a sign of inflation or an increase in GDP. It could very well mean the opposite, given the debt America (not just the government is holding).

 

Most important thing to keep in mind during volatility… no one has a crystal ball. Second most important thing, think for yourself… the herd is not typically correct.

 

Enjoy the weekend and first make today great!