Juggling Dynamite

Born of inflation mania and rampant speculation, the latest downturn in risk markets has been telegraphed by declining global inflation expectations (below since 1995) and falling Treasury yields since the end of March 2021.

As noted in my partner Cory Venable’s chart from the end of June (below), the US 10-year Treasury yield broke under 1.50% last month, down from 1.74% on March 31st.  With a rapid move to 1.20% yesterday, our yield target of sub-1% remains probable (green box area) as goods spending subsides from a COVID-fevered pitch.

Canadian Treasury yields follow suit, with Canada’s 10-year yield closing at 1.147 yesterday from 1.417 last month and 1.67 on March 19th.  Cory’s end of June chart below highlights our sub-1% yield target here as well (yellow band) as government bonds rise.

This is about growth/inflation expectations and risk assets that have wildly overshot all reasonable financial prospects.

Economist David Rosenberg said he agrees with North American monetary policymakers on one thing: concerns about runaway inflation are overblown. Here is a direct video link.

Government bonds and the US dollar are soaring today as risk markets tank across the board.  Deflationary forces are taking the upper hand once more.  Just the facts:

“Industrial production is lower now than in March 2008…we may want to start connecting the dots between what happened in 2008 and what’s happening now and viewing it as one longer-term episode where we still have to fix what’s wrong.”

Carl Weinberg, chief economist and managing director at High-Frequency Economics, warns of a global slowdown that could end up in a recession.   Here is a direct video link.

This far-reaching discussion is worth a listen…some humour too.

In an exclusive interview that runs for nearly two hours, Grantham explains why he believes we’re in the late stages of another great bubble and his expectations for when it will come unravelled. He also explains why others fail to act in the face of bubbles, and we discuss some of the assets best placed to weather the storm. Here is a direct audio link.