Turning the focus to a key note
As a banker, I have a natural tendency to focus on interest rates. The U.S. 10 Year Treasury Note, in particular, is a number I turn to regularly for helping to shape my opinions and views on where our economy may be tracking. Just last month, in fact, I wrote briefly on this treasury yield, which at the time hovered just above 2%. Well, fast-forward a few weeks, and it has since dropped to below 1.8%. So what’s this telling us? Two things:
1. The market does not believe that there will be any significant inflation on average over the next ten years. This flies in the face of official statements and moves such as the December rate hike. It also suggests that many market participants are back in the business of return of capital instead of return on capital.
2. The market also does not believe that there will be significant economic growth over the next ten years. That’s a long time, and while this impact is closely connected to the first, there are clear doubts that economic activity will employ many more people—thus driving up wages.
So, today, right now, it feels as though the market isn’t necessarily forecasting a crash or complete collapse. It’s possible I suppose, but I feel strongly that more dire market prices would have already surfaced. Instead, the multiples in the stock markets and the price of core commodities are being reset to reflect this viewpoint of no growth and no inflation.
Speaking at a conference recently, I joked that I wanted to update all of my charts every hour to stay current in this market. By the time you read this piece, will prices be even lower? Will the market have finally taken a break? For now, I’ll just wait, watch and listen to the daily market price whispers.