October 3, 2018 | Rising Yields Darken the Economic Picture

Yields on Treasury debt took a big leap on Wednesday toward some longstanding targets (see TYX and TNX touts below), adding yet another dark cloud to the Fed’s preternaturally sunny picture. The central bank’s narrative is that the economy is strong enough to weather more rate hikes, but the banksters seem not to realize that the housing and auto sectors are ready to tank with just one more turn of the screw. A chat-room denizen who builds homes noted today that the 150-basis-point rise in 30-year mortgage rates off their lows amounts to about $75 per month for each $100,000 of debt. This has had a significant impact on the housing market, he said, starting with a collapse of canary-in-the-mine homebuilder stocks that began six months ago. Higher rates are also starting to take a toll on auto sales and leases — especially the latter, since they were explicitly designed to allow Americans to drive more car than they can afford. Toss in a sharp rise in car sticker-prices over the last two years, and it’s not hard to see why the used-car market is so strong.  Something’s got to give, since prices for stocks and bonds cannot continue to move in opposite directions, as they have been doing, indefinitely.

Rick Ackerman October 3rd, 2018

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