A week ago, powered by strong jobs numbers bond yields began to rally, but since then, it is back down and is gaining momentum. Obviously, there is a knee-jerk move into bonds that has paid off for years; is there another message? I am not sure, but I think its nuts for the average investor to hand over cash to the federal government in return for 2% or $2.00 for each $100 lent. Nevertheless, this is big money at work and is presumably smart money.
I still do not think it’s about deflation, although free-falling crude does speak of the unknown.
That is the irony of last week, where the Dow suffered its worst loss since November 2011. All the official news was good news.
Heck, some might even say it was great news. Consumer sentiment surged, retail sales were better than expected and most earnings are still besting consensus.
Going into the weekend, we had to take one last hard look at crude oil. Yesterday, it broke under its last real support point at $60, and unless something drastic happens fast, several expert observers are saying crude could move back to the lows of 2009. (It began trading last night at $57.50.)
As someone that looks to the past for guidance in the future, I continue to worry, not about cheap gas- what it says about the economy.
Each day, there is more evidence that things have simply changed. The rule of thumb was that the Gross Domestic Product (GDP) and oil consumption moved hand in hand.
Interestingly, just as we were officially coming out of the recession, the GDP began to rebound, but our consumption has fallen hard and it has not recovered.
So, is this a demand story and not a proxy for deflation around the corner? Maybe this time it is different.
Moreover, I do see a snapback rally in crude oil, but I just can't put a finger on the bottom.