The Bond Market Is Tightening, The Fed Is In A Box, And The Economy Will Pay.

Liquidity is plentiful. Money has been printed aggressively for more than a year. This time, however, the Fed cannot lower short-term interest rates and make money “cheaper.” This time they cannot do it because short-term interest rates are zero percent. Yes, there is a lot of liquidity (debt). But this debt has historically had a negative impact on the growth of the economy over the long-term.

Business and consumers respond to the price of money. What they see is rising interest rates. This perception and reality are a form of tightening because it discourages borrowing. The Fed cannot do anything about it.  More debt (stimulus) will not work as it did not work for several decades.

Key takeaways

The markets have been tightening by raising the cost of long-term money. The Fed cannot do anything about it. They cannot lower interest rates because they are at zero percent. More debt (stimulus) cannot overcome the tightening caused by rising bond yields.

The business cycle is much closer to the end of Phase 2 (strong growth phase) than the beginning of Phase 1 (beginning of the expansion phase).

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The business cycle indicator is updated in each issue of The Peter Dag Portfolio Strategy and Management on www.peterdag.com. (Complimentary issue is ...

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Harry Goldstein 1 month ago Member's comment

These days, everyone wants to borrow, no one wants to save.

George Dagnino 1 month ago Author's comment

Agree.

Simone Radcliffe 1 month ago Member's comment

Yes, the steepening of the yield curve is a sign of imminent recovery.

George Dagnino 1 month ago Author's comment

Yes, but watch the trend of bond yields.

Texan Hunter 1 month ago Member's comment

American is in a lot of trouble. And unfortunately will only get worse with the Dems in charge. Trump may not have been perfect, but at least he was making America Great Again. Sadly most Americans don't seem to want that and voted him out of office.

Kurt Benson 1 month ago Member's comment

Good charts. Sounds like the worst may be over.

George Dagnino 1 month ago Author's comment

...as long as yields do not rise "too much".....you can enjoy a complimentary subscription to THE PETER DAG PORTFOLIO STRATEGY AND MANAGEMENT by going to www.peterdag.com....it will give you more insights on my thinking. (no c.c. needed)

George Dagnino 1 month ago Author's comment

Yes! But we need to watch closely the rise in bond yields.

Kurt Benson 1 month ago Member's comment

Very good point George Dagnino.

George Dagnino 1 month ago Author's comment

Thank you!!!...You can enjoy a complimentary subscription to THE PETER DAG PORTFOLIO STRATEGY AND MANAGEMENT by going to www.peterdag.com....it will give you more insights on my thinking. (no c.c. needed)