I know, right? There's nothing at all redeeming or joyful in this revelation. Please tell me they at least wear berets or something.
since vigilant bond holders have probably fouled up a number of their schemes.
Bond king Bill Gross agrees with the primacy of the 10-year Treasury rate in determining the pricing of nearly every asset class, and warns that if it rises much higher – specifically above 2.6% – then a secualr bear market will have begun:
in his latest monthly investment outlook he takes a more practical view of what Trump's policies would mean for markets, and specifically the one variable he believes is the key for market action going forward. Specifically, he is focusing on what he thinks is the critical resistance level of the 10Y yield, which will set the tone for virtually every other asset class, from stocks, to FX and, of course, to rates. But before he goes into that, he points out a tangent on the difference betweeen secular stagnation and actual growth, which he notes is the difference between 2% growth and 3% growth and defines it as “critical” namely that “3% growth rates historically have propelled corporate profits to a somewhat higher clip because of financial and operating leverage dependent on higher growth. 2% or less typically has smothered corporate profits” How does this fit into markets? "The critical question of interest rates and the future level of the 10-year Treasury is challenging" noting that “It is the key to interest rate levels and perhaps stock price levels in 2017” and then segues into what he dubs his "only forecast for the 10-year in 2017." To wit:(Source)If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.
Adam Taggart wrote:
How does this fit into markets? "The critical question of interest rates and the future level of the 10-year Treasury is challenging" noting that “It is the key to interest rate levels and perhaps stock price levels in 2017” and then segues into what he dubs his "only forecast for the 10-year in 2017." To wit:(Source)If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.
Snydeman -
Gross’s position is explained here:
he points out a tangent on the difference between secular stagnation and actual growth, which he notes is the difference between 2% growth and 3% growth and defines it as “critical” namely that “3% growth rates historically have propelled corporate profits to a somewhat higher clip because of financial and operating leverage dependent on higher growth. 2% or less typically has smothered corporate profits”My read is that he calculates that a 10-year rate in excess of 2.6% will raise borrowing costs high enough to cap economic growth at 2% (or less). When growth is lower than 3%, Gross observes that corporate earnings get "smothered". Since stocks are priced on future earnings expectations, stock prices should come down. Similarly, bondholders worry more about getting repaid when a company's profits are in jeopardy, so they demand higher rates, which bring bond prices down. This is why the Weighted Average Cost of Capital (WACC) is so important. The valuation of nearly every asset class is subject to it.