Today one of the greats in the business said we are now in a radically different market.
“The Fed Safety Net Is Gone”
October 9 (King World News) – Here is a portion of today’s note from legend Art Cashin: An Update From The Mortgage Maven – My good friend and rate guru, Barry Habib, was kind enough to update his assessment of the outlook for yields and bonds. Here’s part of what he wrote.
The pattern that was expected in my last missive came to be. A brief move lower, a break above 3.117%, followed by a move to 3.25% shortly thereafter.
So where do we go now?
The 10-year yield is currently testing a very important ceiling at 3.25%, which goes back to July of 2011. A break above this ceiling suggest a move towards the next two ceilings, located at 3.63% and 3.75%! Both from 2011. The 3.75% ceiling looks very formidable, with 3.63% being iffy.
The trend lines for the yield are pointing higher at a very steep slope, so a catalyst would be needed to slow down the selling in bonds and rise in yields. There is a lot of underlying weakness, as the selloff in bonds is in the face of big stock declines. It would likely be much worse if stocks were moving up and drawing money out of bonds.
A major cause of this is that the Fed safety net is gone. Didn’t take long – right after October 1. Along with ECB buying cuts.
Here is the interesting thing – more volatility ahead for yields rising and less volatility for them falling! That’s because without a safety net, yields will behave more normally. Its’ been a long time, but the Fed buying has muted the selling in bonds and rise in yields. That’s gone now. And when bonds were rallying, the Fed buys juiced it. That’s gone too. So the rally will be less than we have been accustomed to, and the sell off’s will be deeper. It will feel different, but it is finally now going to be “normal”.
For the first time in a long time – I am getting concerned about Real Estate. Still lots of positives, but the headwinds are blowing stronger.
A word from the wise is to be heeded.
Overnight And Overseas – In Asian equity markets, Japan reopened after its holiday with a drop equal to about 350 points in the Dow. The recently turbulent markets in China closed with just fractional changes. India saw a moderate loss.
In Europe, markets are a bit calmer as Italy seems to go off full alert. Equity markets are all seeing modest losses.
Among other assets, Bitcoin slipped slightly and is trading just below $6660. Gold is little changed and continues to trade below $1200. Crude is a touch firmer with WTI trading just under $75. The euro is slightly weaker against the dollar and yields are up a tick up or two.
Consensus – Bonds reopen but yields remain near highs. European markets remain nervous although with small changes.
Stay alert and very, very nimble.
***KWN has now released the audio interview with Rick Rule discussing the gold, silver, uranium, crude oil and interest rate markets and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
ALSO JUST RELEASED: Felix Zulauf & Fred Hickey On Gold, Plus A Stunning Look At Commodities CLICK HERE TO READ.
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