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.