Market update; Thoughts on inflation and bond yields

End of inflation? Here’s when experts think gas, housing prices could stabilize in California – Sacramento Bee.

https://www.sacbee.com/news/politics-government/article256814347.html

You and I know that we shouldn’t put any credence into the so-called expert predictions, as they never seem to be correct. This is why I’ve always instructed the reader to take the contra, by default.

However, I am predicting much lower housing price and rent rate GROWTH over the next 12 months. I cannot emphasize enough how important it is that the federal government is reining in its spending.

Check out the large net short position of the 10-year UST futures of the large and small speculators, which includes hedge funds as well as Joe six-pack.

https://snalaska.us/cot/current/charts/TY.png

The once large net short position of the speculators in the long Bond futures has diminished quite a bit, as they have shifted their focus to the shorter duration USTs in anticipation of Fed fund hikes.

https://snalaska.us/cot/current/charts/US.png

This is why we see a growing net short in the 10 years futures. But as I have always said in the past, we should take the contra.

The once large spending bills that were being contemplated have been scaled back or eliminated, and this is fixed income bullish.

This also signals a clearer path to higher asset prices, which of course, include stocks, bonds, and real estate. The killing of the BBB bill is probably the most important development in the asset markets over the past six months

While  President Biden signed the National Defense Authorization Act (NDAA) today, allocating $768 billion to the Department of Defense for the 2022 fiscal year, this type of spending is not as inflationary as direct transfers of social spending. Much of the defense spending is shifted overseas or remains in the financial shell. The legislation sailed through both houses of Congress as a number of deficit hawk legislators dropped any pretense about spending concerns and voted for the bill.

Even Sen. Manchin voted for the NDAA package.

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3 thoughts on “Market update; Thoughts on inflation and bond yields

  1. I am glad that Manchin came against the Build Back Better bill. This bill stinks for several reasons:

    1) It increases funding to the IRS for increased tax collection. Why should the most hated organization in this country get more funding to harass taxpayers.

    2) Discourages investment by making it harder for people to contribute to Roth IRAs. They want to take away the ability for most people to roll over traditional IRAs to Roth IRAs.

    3) There are many other hidden tax increases in this bill. I am against higher taxes period.

    Check out this website to see all the hidden tax increases:
    https://taxfoundation.org/build-back-better-plan-reconciliation-bill-tax/

    1. In order for quantitative easing to continue being viable the powers need to somehow sterilize the money that is spent. The deficits can be huge under QE, but the money cannot reach the end user in a direct manner like the covid stimulus or like democratic welfare largesse. Perfect means to flood the world with dollars and to help keep them offshore is by boosting defense spending. Much of the money that is spent ends up overseas and is outside of the domestic price equation. Prior to covid, the monetary and fiscal authorities were key to spread the Dollars around the world. We can go back to OPEC at the 70s, all of the defense spending during the Cold War and after, the dollarization of the Western hemisphere that started under Bush Senior, the offshoring of the manufacturing sector to China in return for them accepting dollars, etc.

      If the authorities want to continue using QA they need to rein in domestic “domestic” spending.

      As for all the changes to the tax laws, I don’t really get myself in a lather. One of the primary reasons I’ve always recommended investment real estate is because investors can make a ton of coin and pay hardly any taxes.

      The tax changes, which are extensively designed to tax the wealthiest end up burdening those of moderate means. The CPAs and tax accountants make a ton of money conjuring up new ways to avoid paying taxes. If someone has a few thousand dollars to throw at their CPA, they will invent ways to avoid paying taxes.

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