Intelligence > Experts Column > 3.14-The Morning Call: Watching Stocks while we should be watching Bonds.

3.14-The Morning Call: Watching Stocks while we should be watching Bonds.

By Editing NAI
03/14/2017 11:33 p.m.

The Dow and S&P are going down.There's concern about the Rate Hike.It's virtually priced in. The 10 year Treasury is at +2.623%. Consider that the low was in July of 2016 at +1.366%. They've come a long way. Bill Gross has said that +2.6% is Resistance. The December high yields were a tad above that. If the yields don't rise above these levels then that rejection will take yields back down. Bond prices will rise. We are at the cusp. If yields carry further up from here, then we have a change in direction. The 30 year downtrend in rates will be over. Bill gross says that it will be the start of a Secular Bear market for Bonds. We agreed in Focus 2017. The consensus is that yields would rise to the +2.80% range. We suspect that it will overshoot. It may take a look at +3.0%. We still view this as "Normalization".

The PPI final demand rises +0.3% in February. It was +0.6% in January. +0.2% in December. Final Demand Services were up +0.4%. The price index of Final demand Goods was up +0.3%.  Our read is that Inflation is still picking up. Trump is a "Real Estate" guy. Inflation has been very good for Real Estate. Inflation has helped anyone who built using Debt. We assume that Trump used lots of it. ( From the Chinese?) Remember that one doesn't go bankrupt without Debt.

Uncertainty about Brexit is dissipating. PM May has said that she will invoke article 50 by the end of this Month. We were not surprised that there's going to be a second Scottish Referendum. We expect that they will choose Europe.

China pairs up Retail sales for January and February to eliminate the Lunar New Year Effect. They were up +9.5%, a tad below estimates. Industrial Production was a tad shy at +6.3%. Fixed Asset Investment was +8.9%. Last year ( full year) it was +8.1%. The Leadership has declared that China will be self-sufficient within a Decade. It's a nice goal. It's a nice headline. We don't believe it for a second. What it does signify is that China has a bunch of Growing to do.

Invest the Money.

Regards,
 

Edward Pennock, CFA, Founding Partner

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