Despite the fact that Treasury bond ladders did not lose money during the most recent secular bond bear market (date range is arbitrary), the returns were inadequate to cover inflation (which averaged more than 4 percent ). It's worth noting that bond ladders in all terms generated identical results. Bond ladders have internal mechanisms that … Continue reading Bond ladders for rising rates →

The chart below shows the 10 month trend in the S&P 500 and the spread between 1 year and 20 year treasuries. As spreads increase on inflation concerns, market participants will push the 20 year yield higher. This means trouble for stocks. The spread may top out in a range of 2-4%. Currently the spread … Continue reading Watch out for an increasing yield spread →

The fundamental relationship that is widely accepted today–that interest rates, particularly long-term rates, 1are directly affected by the rate of inflation–was not apparent during the first two-thirds of the past century. This historical reality creates significant implications for the use of historical interest rates prior to the 1960s…or casts doubts as to the relationship between … Continue reading The relationship between rates and inflation →

Changes in short-term interest rates by the Fed have no effect on stock market P/Es on their own…unless the Fed fails to regulate inflation or avoid deflation. Increases in short-term rates are meant to keep inflation, which drives P/Es and long-term interest rates, at a stable pace. Short-term rate cuts, which are often used to … Continue reading The yield spread continues to reflect easy monetary conditions →

Wave: 5 Day Trimmed Mean (70%) - 35 Day Trimmed Mean (70%)

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2021 is 11.0 percent on May 7, down from 13.6 percent on May 4. After Tuesday’s GDPNow update and subsequent releases from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and the Institute for Supply Management, the nowcasts … Continue reading GDPNow: 11% →