Global growth & rising rates

New leadership suggests a new story is unfolding

Constructing a narrative can be risky behavior if you end up trusting the story more than the incoming evidence. When you can remain objective, however, it allows you to position for an expected outcome and then test whether that outcome is being realized. Form a hypothesis and test it. Know your parameters beforehand, don’t seek to justify the action after the fact. If the facts change, change your mind. Never forget Stein’s Law: "If something cannot go on forever, it will stop."

We’ve been discussing the prospects of a global coordinated rebound in growth. The evidence at hand suggests we are indeed seeing that. I see the chart below as the who, what, where, and how of this story. FCX is mining for Copper in EEM using CAT. If any of these start to falter, it will suggest the story is changing. Currently, that is not the case. We are seeing new highs across the board here.

What has really caught my eye is the leadership that is being seen in Emerging Markets versus the S&P 500. After a decade of underperformance, it looks to me like it’s time for Emerging Markets to shine on both an absolute and relative basis.

Rising bond yields provide additional evidence that global growth is re-accelerating. Yields in the US are rising, but what is happening in the bond market is more global in nature.

Focusing just on Japan for a moment, 11 bps isn't high from an absolute perspective, but except for a few months in late 2018, the 10-year bond yield hasn't been this high since early 2016.

I had a chance this past week to discuss some of these bond market trends and what that means for inflation, growth and the equity markets. You can check out that video here: