Friday, September 25, 2015

Chart du jour

The news at times seems overwhelmingly bearish. To paraphrase the consensus: China's economy is slowing down; China's currency has been devalued; commodity prices are falling, devastating the commodity producers; the Brazilian stock market is melting down; low oil prices are killing the oil producers; the Fed is gearing up for liftoff, which will boost the dollar and further crush commodities and emerging market economies; the Middle East is in shambles, with millions of immigrants flooding into Europe; Iran is going to get the bomb; US stocks are down almost 10% from their May highs; nerves everywhere are frazzled.

Amidst all this depressing news are two gems: U.S. GDP growth has been picking up and real yields on TIPS have been rising. Is the U.S. actually swimming against the tide and making progress? Seems incredible, but it might be true. This chart says it all:


Over the past two years, US GDP growth has accelerated to a 2.65% annualized pace, up from a 1.7% annualized pace two years ago. At the same time, real yields on TIPS have also increased. Real growth is up, and the bond market's confidence in future real growth (as embodied in TIPS yields) is up. Sometimes the news can color our perception of reality; this might be one of those times.

8 comments:

Lawyer in NJ said...

"Iran are going to get the bomb;"

Unless we are going to war, yet again, they are much less likely to get the "bomb" with this deal than without it. That's just a fact. And a war, according to most sources, would only set them back a couple of years, unless we are prepared to occupy the country, and of course, we are not.

Beyond that, I love the charts and the optimism.

marcusbalbus said...

atlanta fed says nyet

mlinden said...

Your optimism is great. However, as stated before I believe, charts and graphs show history and past performance. Predicting the future based on trends and current data is difficult at best. We are in a volatile market. The swings seem to show that. And as you stated, there is a lot of news out there that makes people nervous. To the 'Lawyer in NJ', sounds like you might be related to Neville Chamberlain.

William said...

Cash beats stocks, bonds for first time in 25 years

"Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked.

Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat.

http://www.marketwatch.com/story/in-a-quarter-century-cash-had-never-beaten-stocks-bondsuntil-now-2015-09-25

marcusbalbus said...

grannis's does not operate in a real capital markets role any more. if he did, he'd know the DCM in HY is in the beginning innings of a major dislocation, initially focused on commodities and emerging markets, as is EM fx and debt. the US won't stay insulated long from the deflation that is erupting in these and other markets. go long my friends.

William McKibbin said...

Yes, but consider the implied trend line for both -- the trend is grim indeed...

Johnny Bee Dawg said...

I don't mind bombing Iraq's nuclear operations every 2 years from now on, if Lawyer is correct in saying that's how long it takes them to rebuild them. No need for this treaty. Keep the sanctions on, too.

1991 was a really good market year, by the way.
I like when cash has already been beating other asset classes. Nice setup.

Benjamin Cole said...

TIPS market putting inflation at 1.09% next five years....