On Friday, the 10-year Treasury bond finished yielding 2.12% after starting the session up to 2.20%. The reason it was slammed was yet another lackluster economic report; this on the latest read of the Manufacturing PMI Report (ISM). The last couple of weeks of the year had that holiday vibe; sort of nothing matters, so let's ignore it. Yet early morning rallies faded and on Friday, the market couldn't ignore more signs of trouble coming out of the economic doldrums.
Interestingly, the plunging prices paid component should have been a reason to celebrate, but its rapid decline rattled folks who understand the negative implications.
Bonds See No Recovery
Every year, since 2009, experts have called for the bond rally to fizzle, and every year they have been wrong. So, as experts are known to do, these same experts double down until it is unrealistic that any average investor could still be solvent.
Be that as it may, I suspect bonds could finally see yields spike and big money rotate into equities, but the year is going to be long with lots of twist and turns.
For now, I will let the bond market tell me what is happening rather than second-guess the action.
Where's the Money?
One reason people may feel the economy is not moving or passing them by is that money is not flowing through society with the velocity it once did. Only after Reagan and Bush tax cuts did money circulate in the economy at a faster and deeper speed- or velocity.
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The irony of greater velocity is that it is the first part of a move that generates inflation. However, in this case, people are dealing with so many aspects of their lives inflating that perhaps the velocity of money will result in fatter paychecks- an inflation we all enjoy.
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