This week I’m going to lead off with the economic indicators – some of my favorites, including:
- Retail Sales; headline +4.36% m/m, more than erasing last month’s drop.This was a large move. The economy is now heating up again.
- Industrial Production; +1.41% m/m; INDPRO is now at a 3-year high.That’s positive for growth.
- Producer Prices; +1.27% m/m, and +19.2% y/y.This is my favorite inflation metric – unlike CPI, it has not been “adjusted” to remove inflation from it.
In the chart below, you can see the % change y/y for PPIACO – producer prices – remain at the “Nixon-1975” level. That’s how bad things really are.
The 30-year mortgage rate (fred: MORTGAGE30US) is up +88 bp since Christmas, and +23 bp just this week alone. That’s a huge move. A bunch of bondholders – at least any bondholders who aren’t planning to hold for the next 30 years – just lost a ton of money.
Example: last month, you buy a 30-year treasury yielding 3% at “par”. Then the 30-year rate jumps from 3% to 4%. What happens to the price of your bond, if you decided you wanted to sell it? It would drop by -18%. That’s for a 1% (100 bp) increase. If there was a 3% increase (say from 3% to 6%), your 30-year bond value would drop by -42%. Now imagine if you were a hedge fund and bought these long-term bonds using leverage. Instant financial crisis, both for you,
