On Monday Dagnino wrote an article on the Bond Market. He is right. His takeaways in his own words:
- The markets have been tightening by raising the cost of long-term money. The Fed cannot do anything about it. They cannot lower interest rates because they are at zero percent.
- More debt (stimulus) cannot overcome the tightening caused by rising bond yields.
- The business cycle is much closer to the end of Phase 2 (strong growth phase) than the beginning of Phase 1 (beginning of the expansion phase).
The most important point is that third bullet: when we hit end of Phase 2 the economy will overheat and begin to top off. The market generally leads the economy by 6 months. So it is important to keep careful watch on things. Individual stocks and individual sectors will lead and roll over earlier than others. In the meantime inflation should continue to climb.