Good Monday AM,

There is really no good news to share about bonds (unless you are shorting them). Last week was brutal (for no real reason I can see). Thursday was the worst of it. Traders just following each other and not the data. Spending is falling off a cliff (see the graph below). Each attempt bonds make to improve, they fail and the prices fall again. The yield on the 10-yr Treasury is now up to 2.84, with the next stop being 2.96. I’ve checked and this has been the steepest decline in bond prices (which equals a jump in rates) ever. A year ago we were under 1%. As for the smaller and less attractive Mortgage Bond Market, it too is not in good shape as it clings to the last support line. If we break down here, we could see another 100 bps drop quickly. It is a very light news week with mostly housing numbers being released. Today the NAHB housing index was released, and it dropped. As for locking, continue to play defense, we are navigating uncharted waters.

People are spending a whole lot less. As a result, GDP could be flat this quarter. Fed raising interest rates and selling assets will drive us into negative growth.

Here is an excerpt from a real world pragmatic approach to inflation.

The strength measure that matters for most dollar users is not how many euros or pounds they can buy, but rather how much stuff their cash can purchase. It is the dollar exchange rate against stuff that matters. Luckily, we have a name for that too — inflation. 

This chart is the CPI index inverted, showing the accelerated devaluation of the dollar in recent years. Slowing the drop in this line is the Fed’s real target. Later this week we will hear from Fed Chair Jerome Powell, who is likely to confirm that we are in for some rapid policy tightening. Currency markets have already reacted, but the only thing that really matters is whether the central bank can end the crash in the dollar vs stuff. 

Please remain safe and healthy, make today great.