42.2 Real Yields Near Record Lows say Economy’s Awful
Real yields recently hit RECORD lows. Yes, inflation is rising but is that due to the real economy expanding?  Real yields say, “No!”. Real yields say, ‘The real economy is AWFUL!’ So what is driving inflation expectations higher? Fuel. Oil prices are up – but the economy isn’t.

[Emil’s Summary] A recent Hidden Forces podcast with Demetri Kofinas featured professor Kevin Vallier and his new book “Trust in a Polarized Age”. Vallier notes that Americans are less trusting than at any point since at least the 1960s. The timing is no surprise to any that read William Strauss and Neil Howe’s The Fourth Turning. The “American High” – a period of confidence during which the society felt it could accomplish anything – ended with President Kennedy’s assassination.

That phenomenon – that lack of trust, that lack of confidence – can be observed even in the University of Michigan survey of consumers. During the 1950s expectations about the future always ran ahead of the contemporary condition; an optimism, whether the present was good or bad, that it would be even better soon. But, by the end of the 1960s, and ever since, expectations are always worse than the present. If we use confidence in democracy as a proxy for trust, that phenomenon is not solely American. A University of Cambridge project that includes 4 million people, covering 154 countries and combines over 25 international surveys showed 2019 to have been “the highest level of democratic discontent on record”. Surely 2020 will rank even worse when results are finally published.

A more granular survey by Gallup has been conducted in the United States since the early 1970s and focuses on public and private institutions. Citizens are asked how much confidence they have in: organized religion, the Supreme Court, Congress, organized labor, big business, public schools, newspapers, the military, etc. Almost at the very bottom are news organizations. The only institution in which the public consistently has less confidence in is Congress, which they recently attempted to burn down.

The financial media is no exception, as Jeff Snider often makes clear in his writings. But just as Vallier expressed hope with Kofinas that trust can be rebuilt and just as Strauss and Howe conveyed confidence that institutional strength is cyclical and will return, so here, in Episode 42, does Snider note that the minority of financial press attempting to be bring truth to power is growing.


Twitter: https://twitter.com/JeffSnider_AIP
Twitter: https://twitter.com/EmilKalinowski
Art: https://davidparkins.com/

Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, rooting for the Baltimore Ravens. Artwork by David Parkins.


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00:05 Let us define “inflationary”, “reflationary” and “something else” economic environments.
02:01 Is an inflationary environment good for workers in terms of wages or employment?
02:50 Index Linked Bonds / Inflation Protected Securities are sending a message – what is it?
04:36 Real rates plunged, hitting record lows as inflation expectations hit multi-year highs
06:43 How does the Jan. 2021 UST yield curve compare to Jan. 1991, 2001 and 2011? Much worse!
09:56 Short-term bill yields are not rising, saying that not all is well in collateral-land?
13:54 The NFL Bills made the playoffs (while the UST Bills suck eggs).


Inflation, Reflation, Or Something Else?: https://bit.ly/2Lu2Pey
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7