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Conflicting Messages

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To the knee-jerk narrative that the Fed would hike rates as America became official after posting 295,000 jobs in February, I say hold your horses. With a closer look at the evidence, it is clear this is not even mediocrity- 22,000,000 is the real unemployment number. The current level is down eight million from the highest level, but it is still six million above pre-recession levels.


Moreover, there is the lack of inflation underscored by a lack of wage growth and price decreases. No matter how it is sliced and diced, using the headline, core or price indexes, it is hard to argue that deflation is not a real issue.

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Even with more people working, people aren't taking the bait when it comes to credit. Sure, they keep taking out student loans and buying cars, but January credit card debt actually went down. Overall, credit increased at its slowest pace since November 2013.

Thus, the day after the European Central Bank (ECB) announced the official launch of their Quantitative Easing (QE) program, our market got hit…

The stage is set for a serious tug of war this week. The reason is all the conflicting messages from last week’s session.

So, gold got hit throughout QE in America and the narrative switched to it being the Armageddon investment.

Randgold Resources, Ltd (GOLD)

Then, there are bonds, which have been a juggernaut, but are beginning a breakdown. The 10-year scooted up to a 2.25% yield.

The ten-year yield is gaining momentum to the upside; this could have major ramifications with long awaited rotation into equities. This has been a winning trade for so long; however, it is going to take more upside pressure to get big money investors out. In fact, I have been hard-pressed to find any experts that are looking for a move beyond 2.4% on the upside. More than half of the experts I spoke with see a move back to 2.0% or lower.


10-Year Yield

As a result, the popular bond trade iShares 20+ Year Treasury Bond (TLT) sold off 4.7% in the past five days, although it is still up 15.9% this past year. Many hedge fund managers have held this trade as a counter to their woeful equity investing performance.

iShares 20+ Year Treasury Bond TLT

Then, there are the utilities, which stumbled 3.3% and are off 7.9% for the year.

Dow Jones Utility Average Index (DJU)

On Friday, there were no winners in the market, which is the way it goes when panic spreads. I am not convinced the Fed will hike rates, but on that note, I wish they would and get it out of the way.

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