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DoubleLine's Gundlach Warns U.S. Treasury Yields Headed Higher
6% that soon is hard to imagine. I’d think we’d experience a serious recession before that level was reached - causing rates to fall back some. But G is pretty smart. Wouldn’t bet against him either.
Bonds have had a lackluster year due to rising rates.
@hank- I dunno... that's three years out (2021)... lots can happen between now and then.
Edit: I asked this in another post a few days ago, but that post sort of lost interest, I guess. Gonna try again:
General question: If "US consumers will be paying more because of the tariff war, isn't that effectively the same thing as a decrease in their take-home pay"? And if that's correct, won't that eventually have the effect of reducing national consumption, retail purchasing, and business income? Since an increase in prices will effectively reduce the disposable income of consumers, it would seem that this would be so.
Also, wouldn't the increase in prices be tantamount to an increase in inflation? If that's true, wouldn't this eventually also have an effect on interest rates, as the Fed moves to adjust for that inflation?
It seems to me that this whole scenario might have long-term consequences that we haven't really considered. Whether Mr. Trump actually considers and understands the possibilities, I'll leave to your judgement.
@msf- Am I off-base on this? Would appreciate your perspective.
@hank et al A list of real time returns I review. Somewhat relative to Mr. G and future rates, one see's this (in the list) when equities have a stellar day and bond prices move up nicely, too. Strange days, sometimes.
Click on the "%chg" column to sort the returns for today.
General question: If "US consumers will be paying more because of the tariff war, isn't that effectively the same thing as a decrease in their take-home pay"?
Yes
And if that's correct, won't that eventually have the effect of reducing national consumption, retail purchasing, and business income?
Yes
Also, wouldn't the increase in prices be tantamount to an increase in inflation?
Yes
If that's true, wouldn't this eventually also have an effect on interest rates, as the Fed moves to adjust for that inflation?
No - At least not at first. This is different from the more typical “demand-push” type of inflation where consumer demand for goods and services outpaces supply, driving prices higher. Under that (more common scenario) debt is often expanding to fund the spending and leading to an overheated economy. It’s that excessive borrowing that Fed rate hikes are normally designed to curtail. In the case of tariffs, however, we have a loss of purchasing power (ie inflation) due to rising taxes (a tariff = a tax). So, as you seem to suggest, we might end up with the worst of both worlds - a slowing economy along with rising costs of living.
It seems to me that this whole scenario might have long-term consequences that we haven't really considered. Whether Mr. Trump actually considers and understands the possibilities, I'll leave to your judgement.
Agree - As a (too frequent) consumer of Bloomberg, the talking heads I hear almost daily seem nearly 100% in agreement that the tariff war unless halted will have real negative consequences. I hear that from those on the “right”, those on the “left” and those in the “center”. Virtually no knowledgeable business person or economist I’ve yet heard thinks imposing / raising tariffs a good idea. -
Omitted Earlier: As Old Joe suggests, I think, not all of the increase in prices would come from the tariffs themselves. Consumers in many cases may opt to purchase similar items made outside the countries on which tariffs have been imposed (presumably from U.S. based suppliers). So, to some extent the price inflation will come from actual increases in product pricing. That’s a bit of a gray area. It’s not inflation from taxation, but not exactly what you’d term demand-push inflation either. Not sure what to call it. “Insane” comes to mind.
@hank et al A list of real time returns I review. Somewhat relative to Mr. G and future rates, one see's this (in the list) when equities have a stellar day and bond prices move up nicely, too. Strange days, sometimes.
@Catch22. You often produce some of the most complete and interesting charts. I’ve no idea how you came into all these statistical wonders.
Bonds bumped higher today. Even PREMX (emerging markets bond) had a nice bounce. But equities outpaced. Non-Dollar assets, including gold, perked up.
Ehh - I pay little attention to the numbers nowadays. I think we’re deep into “bubble-land” - and when and how it ends is anyone’s guess. Fun while it lasts I suppose. And it may run a lot longer. At 72 I ‘m not going to expose a lot of the nest egg to risk. When things are going well, as they seem to be now, everybody who buys into the euphoria finds a way to justify it: Success has a thousand fathers, and failure is an orphan.
"Gundlach told Reuters he was still forecasting 6 percent on the 10-year yield by the next presidential election or a year after."
That will be bad for stocks, funds and the economy.
David
I doubt we see the 10 year at 6% but retirees would love it and drool all over themselves. Can you imagine what CD rates would be with the 10 year at 6%. Even now with the 10 year a tad over 3% you can get 3.40% on a five year CD, a bit more on a 10 year. A five year ladder at around 3.05%.
I finally bought that vacation home in the mountains last week and that has drastically changed things going forward for me with CDs and money markets being part of my end game. I mean when I can now just buy CDs and still grow my nest egg after living expenses and taxes why take the risks of stocks and bonds. Never thought I would ever go for CDs, but then never thought I would be 71 either.
Congratulations on your success and buying the mountain home. I have admired your ability to trade. For me, I've had to build principal through compounding and organic growth over time. Although, I've made some money through my spiffs my real money has come to me form being invested for the long term in a diversified portfolio. Like you, I'm finding current interest rates attractive enough to were I'm growing my position in my money market funds and expanding my CD ladder to a bigger percent of my overall portfolio along with trimming my equity exposure.
I was up in the Highlands of North Carolina earlier in the month vising friends. Is that anywhere close to you?
@msf- Am I off-base on this? Would appreciate your perspective.
I think @hank did a pretty good job responding. I've got just a couple of additional thoughts.
To put one of hank's comments more tersely, when I first read this thread a while ago, my reaction was: so that's how we get stagflation. A condition I never really understood, and still don't, but it seems like this is one way to go down that path.
The other is that adding taxes (in the form of tariffs or sales tax or ...) do create price inflation (as opposed to increasing money supply) when they're broad based. As this set of tariffs has become. But when narrowly focused, the price effect should be muted.
For example, the excise tax on cigarettes is high and focused on getting people off of smoking. There are alternatives, so that people may not feel the price hike (if they do give up smoking).
With 25% steel tariffs, I thought about car manufacturers shifting to aluminum, with "only" a 10% tariff. An added benefit would be lighter vehicles. But as this WSJ article notes, with Trump rolling back mileage standards, the benefit of using aluminum (which is still more expensive) is diminished. And there are other options, like carbon fiber. So there are substitutes that could dampen the steel tariff impact on prices in some industries. https://www.wsj.com/articles/more-aluminum-cars-not-so-fast-1501473660
Long seen as a lighter but far more expensive alternative to steel for automotive manufacturers, aluminum has enjoyed a surge as engineers scramble to shave weight amid tighter emissions standards. ...
The new study projects North American light vehicle aluminum content at 520 pounds per vehicle in 2025, up sharply from today’s mix but down from a previous forecast by Ducker in 2014 for 547 pounds per vehicle by then.
Despite these studies, and the reality of increased aluminum usage, it's hard to forget the Chevy Vega aluminum block engine of the '70s for anyone who owned a Vega. (I know someone who did.) https://www.popularmechanics.com/cars/a3762/4293188/
I’d never doubt the wisdom of @Junkster. Thanks for checking in. A second home in the mountains sounds like a great place for reflection (a different approach to getting high).
After 70, I think one’s thinking with regard to investing begins to change (with the notable exception of one board regular). Those of us who’ve been around the block a few times know that while all markets do eventually recover after sharp or prolonged sell-offs, the time for full recovery can vary from a few months (rare) to a few decades (also rare).
Can’t speak for anyone else. But at 72 (and of average health for the age) I wouldn’t have whatever it takes to dive head-first into risky assets should prices fall appreciably (making them attractive again). The time horizon necessary just isn’t there. So my thoughts are to: (1) spread risk around - even if some of the assets won’t keep pace with equities, (2) go heavier on assorted / diversified income-producing investments, (3) adjust spending to account for lower expected returns.
That's funny, @msf. By the time the Vega was making its mark as one of the worst cars ever, I had long before sold my last American car. A colleague, however, had the misfortune of buying a used Vega in the mid-70's; needless to say it did not turn out well. GM at the time embarrassed itself with its diesel engines, also.
Thanks @Old_Skeet, appreciate the kind words. I know the Highlands area having hiked there a few times. But I am up in the the northwest corner of the state around Boone/Banner Elk. All I hold now in addition to money market is IOFIX which I have on a tight leash. With both short and long term rates riding I don’t want to go too far out with CDs hoping for higher yields there further down the road. Also, don’t want to get too tied up there whenever the next market debacle comes along. I am hoping that debacle will be in junk bonds
@Hank, I was advised by most everyone to rent and not buy a vacation home. But I have been renting for many years now during the summers and just don’t enjoy the “feel” of a rental. I want something I can put my own personal touch on and feel more at home. Also, seeing far too many of my friends succumb to this disease or that and figured I better spend some of my money while I can still enjoy it.
@Ted. Since I won’t be around here for awhile, if the S@P does hit 3000 this year let me in advance bow down from afar at your feet. Great call if if comes to pass as we are very close.
Otherwise best of health and good fortune to everyone else. Will be back after the next market debacle however long thst may be before it occurs.
@Junkster: Welcome to North Carolina. One of my favorite places in your area is the Mast General Store. In the fall my wife usually drive the Parkway. From Bone we venture over to the Blowing Rock / Lineville area and then on over to Asheville. On Saturday in Cat Square there are a lot of blue grass musicians that perform. I'm sure you will enjoy the area as it has a lot to offer.
A colleague, however, had the misfortune of buying a used Vega in the mid-70's; needless to say it did not turn out well. GM at the time embarrassed itself with its diesel engines, also.
I have purchased 3 brand new GM products in my life (out of more than a dozen new vehicles). Each and every one of them embarrassed itself right out of the gate. Very nice products when new and as long as they work right. But lots of problems. The first I unloaded after about 6 months. And the other two (one of which I still own) both proved unusually expensive to maintain.
Seems to me some manufacturers have gone back to aluminum block engines with good results (not sure which ones). But - Yeah - I guess the Vega was crummy - even for a GM product. Can just hear the sweet “song and dance” their technicians would have perfected back than to try and dissuade unhappy Vega owners that there was nothing inherrently wrong with the vehicle and that the problems were all in their head!
Comments
"Gundlach told Reuters he was still forecasting 6 percent on the 10-year yield by the next presidential election or a year after."
That will be bad for stocks, funds and the economy.
David
Bonds have had a lackluster year due to rising rates.
Edit: I asked this in another post a few days ago, but that post sort of lost interest, I guess. Gonna try again:
General question: If "US consumers will be paying more because of the tariff war, isn't that effectively the same thing as a decrease in their take-home pay"? And if that's correct, won't that eventually have the effect of reducing national consumption, retail purchasing, and business income? Since an increase in prices will effectively reduce the disposable income of consumers, it would seem that this would be so.
Also, wouldn't the increase in prices be tantamount to an increase in inflation? If that's true, wouldn't this eventually also have an effect on interest rates, as the Fed moves to adjust for that inflation?
It seems to me that this whole scenario might have long-term consequences that we haven't really considered. Whether Mr. Trump actually considers and understands the possibilities, I'll leave to your judgement.
@msf- Am I off-base on this? Would appreciate your perspective.
A list of real time returns I review.
Somewhat relative to Mr. G and future rates, one see's this (in the list) when equities have a stellar day and bond prices move up nicely, too.
Strange days, sometimes.
Click on the "%chg" column to sort the returns for today.
A nice broad based/overview list
Take care,
Catch
Bonds bumped higher today. Even PREMX (emerging markets bond) had a nice bounce. But equities outpaced. Non-Dollar assets, including gold, perked up.
Ehh - I pay little attention to the numbers nowadays. I think we’re deep into “bubble-land” - and when and how it ends is anyone’s guess. Fun while it lasts I suppose. And it may run a lot longer. At 72 I ‘m not going to expose a lot of the nest egg to risk. When things are going well, as they seem to be now, everybody who buys into the euphoria finds a way to justify it: Success has a thousand fathers, and failure is an orphan.
Take care
I finally bought that vacation home in the mountains last week and that has drastically changed things going forward for me with CDs and money markets being part of my end game. I mean when I can now just buy CDs and still grow my nest egg after living expenses and taxes why take the risks of stocks and bonds. Never thought I would ever go for CDs, but then never thought I would be 71 either.
Congratulations on your success and buying the mountain home. I have admired your ability to trade. For me, I've had to build principal through compounding and organic growth over time. Although, I've made some money through my spiffs my real money has come to me form being invested for the long term in a diversified portfolio. Like you, I'm finding current interest rates attractive enough to were I'm growing my position in my money market funds and expanding my CD ladder to a bigger percent of my overall portfolio along with trimming my equity exposure.
I was up in the Highlands of North Carolina earlier in the month vising friends. Is that anywhere close to you?
Wishing you continued success.
Old_Skeet
To put one of hank's comments more tersely, when I first read this thread a while ago, my reaction was: so that's how we get stagflation. A condition I never really understood, and still don't, but it seems like this is one way to go down that path.
The other is that adding taxes (in the form of tariffs or sales tax or ...) do create price inflation (as opposed to increasing money supply) when they're broad based. As this set of tariffs has become. But when narrowly focused, the price effect should be muted.
For example, the excise tax on cigarettes is high and focused on getting people off of smoking. There are alternatives, so that people may not feel the price hike (if they do give up smoking).
With 25% steel tariffs, I thought about car manufacturers shifting to aluminum, with "only" a 10% tariff. An added benefit would be lighter vehicles. But as this WSJ article notes, with Trump rolling back mileage standards, the benefit of using aluminum (which is still more expensive) is diminished. And there are other options, like carbon fiber. So there are substitutes that could dampen the steel tariff impact on prices in some industries.
https://www.wsj.com/articles/more-aluminum-cars-not-so-fast-1501473660 Despite these studies, and the reality of increased aluminum usage, it's hard to forget the Chevy Vega aluminum block engine of the '70s for anyone who owned a Vega. (I know someone who did.)
https://www.popularmechanics.com/cars/a3762/4293188/
After 70, I think one’s thinking with regard to investing begins to change (with the notable exception of one board regular). Those of us who’ve been around the block a few times know that while all markets do eventually recover after sharp or prolonged sell-offs, the time for full recovery can vary from a few months (rare) to a few decades (also rare).
Can’t speak for anyone else. But at 72 (and of average health for the age) I wouldn’t have whatever it takes to dive head-first into risky assets should prices fall appreciably (making them attractive again). The time horizon necessary just isn’t there. So my thoughts are to: (1) spread risk around - even if some of the assets won’t keep pace with equities, (2) go heavier on assorted / diversified income-producing investments, (3) adjust spending to account for lower expected returns.
Regards
@Hank, I was advised by most everyone to rent and not buy a vacation home. But I have been renting for many years now during the summers and just don’t enjoy the “feel” of a rental. I want something I can put my own personal touch on and feel more at home. Also, seeing far too many of my friends succumb to this disease or that and figured I better spend some of my money while I can still enjoy it.
@Ted. Since I won’t be around here for awhile, if the S@P does hit 3000 this year let me in advance bow down from afar at your feet. Great call if if comes to pass as we are very close.
Otherwise best of health and good fortune to everyone else. Will be back after the next market debacle however long thst may be before it occurs.
Regards,
Ted
Seems to me some manufacturers have gone back to aluminum block engines with good results (not sure which ones). But - Yeah - I guess the Vega was crummy - even for a GM product. Can just hear the sweet “song and dance” their technicians would have perfected back than to try and dissuade unhappy Vega owners that there was nothing inherrently wrong with the vehicle and that the problems were all in their head!