Rising Rates, Real Growth, and a Big Bet on AI
In Field of Dreams, Ray Kinsella hears a whisper in his cornfield: “If you build it, he will come.” Everyone thinks he’s lost it, but he plows his corn and builds that baseball field anyway.
The bond market has been whispering to us all summer.
On CNBC recently…
Kelly Evans: “I mean, Rick, it’s worth pointing out how unusual it is to have five-year yields rise 18 basis points in one session.”
Rick Santelli: “How unusual is it to have zero interest rates for seven years around the globe? This is the price we pay for manipulating, and it’s a normalization.”
He went on to say “I’ll give you something. Since 1980, the average yield on a ten-year note is around 5.5 to 5.6 percent. That should put things in perspective.”
Rick is asking us, ‘Did we honestly think we could keep global interest rates at 0% for more than a decade with no snap back of the rubber band on the other side?’
Silly. Of course not. The move we had in 2022 was the first half of the normalization process. We are now seeing the second act.
So yes, this is normalization, but why is it happening now? The narrative that it is all caused by inflation and Hormuz and Iran and that if the war just stops it will all go away is missing the forest for the trees.
If you peel back the onion there are three main things I see driving yields higher. But first, let’s deal with inflation.
