U.S. TIPS market signals rising concerns about disinflation
Slowing global growth, particularly because of weakness in Europe, as well as a surging dollar and plunging oil prices, have spurred selling in TIPS since late summer, disrupting a comeback they had enjoyed in the first eight months of the year.
TIPS breakevens have been collapsing since early August. In the last three weeks, following the Fed's most recent meeting and an unexpected monthly drop in the benchmark U.S. Consumer Price Index on the same day in mid-September, the downward momentum in breakevens has been at its most intense since the financial crisis.
Last week, for instance, 10-year breakevens, a gauge of where inflation will be in a decade, fell to their lowest since late 2011. They dropped below the key 2 percent level targeted by the Fed at the end of last month. On Friday, they ended at 1.97 percent.
Only last week, the International Monetary Fund downgraded its forecast on global growth this year to 3.3 percent from the 3.4 percent it previously expected, and gave worryingly high probabilities for recession and deflation in Europe.
Recently, though, another factor has emerged to exert more pressure on the inflation outlook: plunging oil prices. Global oil prices late last week hit their lowest levels since 2010 and are now down 25 percent since June.
DYI Comments: No doubt deflation for Europe has already arrived and has the high probability of exporting retreating prices here in the U.S. Look for corporate bond prices to go soft (especially junk bonds), conversely, the best credits in the world, Treasury bills, notes, and bonds, especially the 10 and 30 year to move up smartly in price as interest rates decline in lock step with disinflation / deflation expectation. If this foretells recession with corporate earnings falling off this sky high stock market its wings will be clipped by 45% to 60%. The flight to quality would be immense dropping interest rates to levels that the most ardent bond bull would only dream of achieving. In a scenario as this our sentiment indicator for long term bonds would move from Delusional to Max-Optimism ending the bond bull market of a lifetime since Sept. 1981 when 10 year Treasuries peaked at 15.32%.
Market Sentiment
Capitulation
Continuing with this possible scenario short term bond yields will bottom out awaiting higher rates especially what DYI has described as the roaring twenties (2020's) as Boomers exit the work force but still consuming creating a labor shortage. This labor shortage along with the massive strains on Social Security and Medicare the roaring twenties will be marked as a decade of labor shortages, high taxes and high inflation.
DYI
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Detroit demolishes its ruins: 'The capitalists will take care of the rest'
Detroit is knocking down 200 houses a week, with 40,000 to go and $1bn in the program. The city’s controversial plan aims to bring more wealthy investors but critics say will drive out black residents
Lawrence Payne walks past two abandoned houses in the Six Mile Gratiot neighborhood of Detroit. The city has an estimated 78,000 abandoned buildings across its 142 square miles. Photograph: Andrew Burton/Getty Images
Shervonne Colvin is ecstatic. This spring, one streetlight was turned back on at the end of her block. Last month, almost one third of her block was razed to the ground by demolition trucks.
That would hardly excite most city dwellers, but Colvin doesn’t live in just any city. She lives in Detroit, where municipal neglect has become customary. Detroit has been the unwitting star of a photo subgenre christened “ruin porn”, with fans in all corners of the world – except in its native hometown. Two years ago – the same year Forbes named Detroit the most dangerous city in America – local media reported that abandoned homes had become dumping grounds for dead bodies.
Good riddance to that, say residents.
DYI Comment: Whether or not Detroit achieves economic growth doing away with the urban blight is an total God Send for those living there. The demolition of 200 homes per week is at threshold where the citizens of Detroit are able to see some achievement taking place with a city so use to set backs, corruption, and incompetency. This is nothing more than a breath of fresh air.
Typical ruins that can be found in Detroit. By cleaning up the blight Detroit can move onto other pressing problems.
DYI
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