We just came off a month, where for the first time since April 2020, both the U.S. unemployment rate went up and capacity utilization rates went down . Available supply is now outpacing demand by a three-to-one margin as the output gap begins to widen. The 8.3-per-cent inflation rate is set to melt like an ice cream bar on a Houston sidewalk in the middle of July. Rents? Please, a lagging indicator and already yesterday’s story.
In the bond market, the front end is getting killed, and the real rate shot up 24 basis points to 1.56 per cent. It was last there in April 2010 and consistent with a further squeeze on the market multiple to 14x. We get a recession hit to EPS, and we are talking about the S&P 500 sliding below 3,000. Wait for it.
The big problem is the surge in the corporate cost of both debt and equity capital, because one can make a reasonable bet that capex is about to join residential construction in the deep contraction environment. The day the straw breaks the camel’s back is the day you will have regretted dumping your long bonds just because the Fed was busy taking the carry away in the ninth inning of the economic and market cycle — keeping an eye on those inflation expectations will win the day.Article content
First blame BoC; now blame the Feds. Why don’t we blame ourselves 4 allowing the housing market to take us to the brink. Let’s not loose sight of the inflation we’re fighting & stop dancing around it as if there’s somehow some workarounds.