Minyan Mailbag: A Bold Prediction
It's like I have ESPN or something...
Normally I try to avoid the prediction business. People will simply assume you got lucky if you were right and one tends to look like a jackass if wrong.
That being said, I'd wager a dollar bet that rates next year go over 5.5, maybe to 6 and higher. No one has that in their models right now. But that is, I think, going to be the minimum necessary for the U.S. to keep up with others as they raise across the board. As much as reality has failed to get in a bid in the last several years, I think inflation is already on pace to be more like 5% annualized at the very least. The reality of that is only now slowly dawning on the masses.
The danger in seeing such things early, as I said recently to Todd, is that you will conclude 'done' far too early once the crowd starts to 'get it'. This is going to be a long and bumpy night.
I too am not in the prediction game. I try to assess what is happening on a macro and micro basis to build volatility positions. Directional trading has little edge for me, the hardest part as you mention is being too early (too late is a non-sequitor).
Global imbalances are acute and non-sustainable. U.S. interest rates are certainly not at equilibrium and wait to see how the Fed and other central banks decide to deal with this quandary.
I think right now short term rates are rising in the U.S. as the market (foreign lenders) are forcing them higher, demanding higher rates for the enormous debt they buy. I think longer U.S. rates are staying under control only because the Fed is monetizing: printing money to keep the U.S. markets liquid and buying bonds with it.
If the Fed continues to print no matter what, we could see U.S. rates rise precipitously when the market is fed up. If the Fed allows market forces to take back what is rightfully theirs, we could see rates actually fall as deflation really kicks in.
It will be interesting.
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