The End of a 40 Year Bull Market?

Macro Perspectives: Thu 3 Dec 2020

Powell and Mnuchin have been on Capitol Hill the past two days, we’ve had the Fed chair said that "in the medium term there is upside risk."

"Upside risk" to the economy means, hotter growth...driving hot inflation. This is what you get when trillions of dollars in government and Fed stimulus meets the prospects of a 'return to normal' (via a vaccine).

We've seen inflation in asset prices already. We're going to see (more, and persistent) inflation in daily living expenses, and to maintain the standard of living, we will have to see wage inflation (higher wages).

This backdrop means higher market interest rates are coming. The clue - U.S. government bond market - the ten-year yield is threatening the break of a multi-year downtrend. This would support the thesis we discussed last month, that the vaccine announcement may have been the catalyst to end the nearly forty-year bull market in bonds (bond prices go lower, interest rates go higher).

This theme is also very positive for gold - having given us a gift over the past few months, to buy into an 18% correction. That correction looks like it's over now. With that, the upside target for gold we discussed last week ($2,700) remains in sight...