Record highs, lows, and longs today

MON, JUL 01, 2019

YOUR AFTERNOON NEWS UPDATE AND MARKET ACTION FROM CNBC

AS OF MON, JUL 01, 2019 • 12:13 ET

DJIA		26724.83
		+0.47%	+124.87

S&P 500		2963.59
		+0.74%	+21.83

NASDAQ		8098.80
		+1.16%	+92.56

EDITOR'S NOTE

Well, it's official: we are living through the single longest economic expansion in U.S. history--or rather, since at least 1854, when we started tracking business cycles, according to Deutsche Bank.

Now that it's July, the expansion is ten years and one month old, dating back to the end of the last recession in June 2009.

But...there are so many "buts." As the AP writes, "It's easily the least-celebrated economic recovery in decades." (They cite sluggish income growth and the fact that "the richest Americans now [still] hold a greater share of the nation's wealth than they did before the Great Recession.")

Reuters notes "the real economic recovery may only be in its infancy," because GDP only just last year finally met its so-called potential (it typically lags, and has so far in this recovery).

This helps explain why markets get so panicked when they think the Fed is making a big policy mistake--like raising rates too many times last year, or raising them any further this year. They don't want to see this expansion prematurely snuffed out.

But...and here's my "but" today: the froth and distortions in the global bond market every day seem to be getting worse. German 10-year interest rates just hit an even deeper record low today, at -0.355%. That's even pulling the U.S. 10-year down towards 2% again.

The BIS puts it well in warning that "Monetary policy should be considered more as a backstop rather than as a spearhead of a strategy to induce higher sustainable growth." That is especially true for Europe's "museum economies" (as Evan Newmark used to call them).

I think it's no coincidence that U.S. growth has finally caught up with its potential this expansion after the White House unleashed supply-side stimulus and reforms that reshape the incentives for doing business, and a broader deregulatory agenda.

Europe seems unlikely to give that a try right now. And frankly I think that poses a huge risk to global financial conditions. Their overreliance on the European central bank to keep adding more stimulus instead and buying more bonds is pushing yields of all kinds to treacherously low levels.

Remember, the lower the German bond yield goes, the lower the U.S. Treasury yield goes (because global investors see relative value), and the lower the U.S. yield goes, the lower corporate borrowing costs go, and so on, and so on. That creates its own distortions across the economy.

Time to get back on that Der Spiegel mailing list. See you at 1 p.m.!

Kelly

Kelly Evans

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