Yield

Are Utilities defensives, or are they interest rate plays, or both? We believe the driving influence fluctuates based on market conditions, specifically fear, and the desire for protection in down markets.

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While we’re not calling for an imminent market top, we are keeping a diligent watch from the crow’s nest for signs of a coming market correction.

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While we still believe flattening is the more likely scenario over the medium term, we do feel the recent flattening move is a bit overdone and there are several divergences that suggest a short-term steepening correction is in store.

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The U.S. Dollar Index has recovered about half the losses from a two-month, -7% setback from the 12-year peak it established in March.

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January could be a month that disrupts the current trend, but one month is not enough time to merit a changing of the guard.

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It’s time to update our time cycle composites, and what they say for equities in the U.S., U.K., Germany and Japan and long-term interest rates and credit spreads in the U.S.

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We think the 10-year yield will likely consolidate around 200-215 before taking a shot at 245. The 245 level looks like a strong barrier and will likely hold in the foreseeable future.

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The 10-year real yield turned positive at the end of 2012 and has stayed there. We expect higher interest rates, a stronger dollar, and lower gold prices in the next twelve months.

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Jim Bianco observed in September that Europe was still in a “pre-Lehman” mentality regarding its debt crisis, in which investors and policymakers “were worried more about the equity and propriety of where taxpayer money was going than about fixing the problem.”

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Falling interest rates and declining oil prices should bolster consumer spending and hopefully get us past the current economic soft spot.

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GDP growth of 5.0% projected for 2004. But, fast growing U.S. budget deficit ($507 billion in 2004?) is a significant problem for bonds.

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GDP growth of 5.0% projected for 2004. But, fast growing U.S. budget deficit ($483 billion in 2004?) is a significant problem for bonds.

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Don’t get drawn into the TIPs trap. Lack of attractive bond opportunities and prospects for higher inflation may draw investors to Treasury Inflation Protected Bonds. However, there is still risk of significantly higher interest rates, and the fact the inflation factor is tied to an unreliable CPI.

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The spread between Long Quality Corporates and twenty year Treasury bonds is back down to a normal level, as the Treasury shortage elimination-thesis has fallen apart due to rising budget deficits.

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GDP growth of 5.0% projected for 2004 (6% in the first half, 4% in the second half). But, fast growing U.S. budget deficit ($475 billion in 2004?) is a significant problem for bonds.

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Fast growing U.S. budget deficit ($374 billion in 2003) is a significant problem for bonds. Project 2004 budget deficit will expand to $535 billion.

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GDP growth of 5.0% projected for 2004. But, fast growing U.S. budget deficit is a significant problem for bonds.

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New study by The Leuthold Group suggests below average Long T-bond returns can be expected from today’s below average Long T-bond yield of 5.19%.

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Economy picking up steam in second half. Revised Q2 GDP better than expected.

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New study by The Leuthold Group suggests below average High Yield bond returns can be expected when Junk yields fall below 9%.

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