Diversion from the Inversion


Hey folks. 

Since my Toys-R-Us post, not much has really changed.  Still banging around 2.9, data still not stellar, Fed still hell-bent of hikes, long end still resisting.  If I go back to some of my posts 2-3 years ago, there are things that have changed, pockets of some economic hope.  At the same time, the very basis for my unmitigated, unwavering bullishness in bonds remains; technology and information. 

Unless the internet goes away, unless every machine is shut down, the very anchor on price and wage growth remains and dare I say strengthens it’s grip on inflation, and therefore; persistently low-ish rates.  As far as I’m concerned, everything else is a diversion.  I recall the reasons we boomed out of the dot.com bust; home prices, inheritance, historically low rates, intra-year tax cuts.  All transitory influences on spending. 

Note the big exclusion; WAGES.  Here we are, nearly two decades later.  In nearly the longest, yet unimaginably lumbering recovery the free world has ever seen.  What is driving us?  Home prices, tax cuts, stock prices. Familiar?  Note what is missing, yep, WAGES.  So how is now different?  Why is now different?  See every post I’ve ever done.  I don’t believe it is.  It’s a diversion, some noise from the reality of a new economy.  One that generally doesn’t support long term inflation and further creates a wealth gap that doesn’t support sustained and widespread growth. 

What does this mean for mortgage rates?  We always want to play protect, but on longer term basis I’ll just say I like the way things are shaping up.  So will there be an inversion?  It looked for some time like the Fed learned from the mid 2000’s, but perhaps they didn’t.

-Philip Mancuso

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