By: Kent Engelke | Capitol Securities
In my view, consensus now believes 3% plus growth is gone forever, interest rates will remain around current levels until eternity and secular stagnation will be the everlasting buzz word.
The bond market has been in a thirty year bull market and after almost eight years of slow and anemic growth in the face of massive global stimuli, it is no wonder the above is perhaps the consensus view.
But is this about to change? I can write volumes about the Global Establishment and its propensity to redistribute wealth via tax and regulatory policy. I can slow write volumes about The Electorate who is rising up against the Establishment, as evidenced by Brexit, Trump, Italy and perhaps now France and The Netherlands.
Change is the only constant. Vitriol and animosity accompanies change as old power bases are destroyed and new ones created.
Friday, the all-inclusive BLS labor report is released. Historically, a 4.8% unemployment rate is inflationary. To date, wage inflation has been virtually nonexistent. Is this result of an anemic labor participation rate (LPR)? I must write there is wage inflation on either end of the spectrum.
Will wage inflation accelerate if growth rises to the level that the vast majority of the sentiment surveys and infusion indices are suggesting? If wage inflation does occur, I will opine the complacency in the bond market will be shattered.
In my view, because of technology, ETFs and Dodd Frank, liquidity is challenged in many parts the bond market. Perhaps the only certainty to write is if growth and inflation surprises on the upside, bond market complacency will be shattered.
Trading yesterday was quiet with most markets insignificantly lower.
Last night the foreign markets were mixed. London was down 0.19%, Paris down 0.04% and Frankfurt up 0.12%. China was down 0.05%, Japan down 0.47% and Hang Sang up 0.43%.
The Dow should open quiet ahead of perhaps a great transition in monetary policy. The last rate cycle was 11 years ago. Wow! Considering the dramatic changes in the bond market, perhaps amplified by the dearth of experienced participants, it may be a rude awakening. The 10-year is off 7/32 to yield 2.55%.