More by the Same Author
2011-02-07 Strong News and Stronger Markets by Charles and Louis Vincent Gave of GaveKal
Bears have little to munch on right now: economic activity is bouncing back strongly, jobs are being created (albeit at a slow pace), global trade is soaring, the great majority of companies are reporting better than expected sales, and US profit margins are making new all-time highs. Given this plethora of good news, financial intermediaries are responding coherently and once again expanding their balance sheets.
2011-01-20 Signs of Returning Pricing Power by Charles and Louis Vincent Gave of GaveKal
Six months ago, many feared the US was experiencing a ‘double dip’ recession. And with core price measures already quite weak, there were renewed fears of a deflationary spiral. Inflationary expectations according to TIPS were falling fast. In response, the Fed stepped in aggressively, providing QE1.5 in early August, and then talking up QE2 in late August. Inflation expectations started to recover, and are now back to more normal levels—with five-year expectations back at about 2%, and l0 and 20 year expectations back to around 2.5%. And the TIPS market may indeed be right.
2010-12-17 Will Rising Bond Yields Threaten the Recovery? by Charles and Louis Vincent Gave of GaveKal
Bond yields are not rising because of rising inflationary pressures. Instead, bond yields are reacting to a stronger growth outlook. Leading up to mid-August, bond markets were pricing in a scenario of structurally sub-par growth and persistent resource slack. Amid super-easy money conditions, the joy over economic momentum might quickly morph into fear of a surge in velocity and inflation. But as we described, this does not seem to be the message from the bond markets today.
2010-10-15 A Turn in the Bond Market? by Charles and Louis Vincent Gave of GaveKal
The weak dollar policy forces central banks everywhere to accumulate U.S. Treasury bonds. And with the U.S. registering yet another high current account deficit, one might expect foreign central banks to keep showing up on the 'ask' side of the market. Between the record low TIPS yields, the action of the 30-year bonds, and the overall market valuations, it seems that the bond market rally has come to an end.