February 8, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

We’ve talked about the drift (now slide) lower in interest rates over the past couple of days.  This is a big deal and something to keep a close eye on.  Remember, this move lower comes in the face of a strong jobs number on Friday.  Following that number, the yield on the 10-year traded up to 2.50%.  Today we’re looking at 2.35% (low of 2.32%).

In contrast to this move in rates, stocks are sitting on record highs, if not making new record highs.  Oil has been stable in a $50-$55 range.  The dollar isn’t doing much.  Implied volatility on the stock market is dead. And commodities are relatively quiet, except for gold.

On that note, yesterday we looked at the tight correlation of the inverse price of gold and yields since the election (i.e. gold goes up, yields go down).  And in recent weeks, yields have been lagging the strength in gold, making the case for even lower yields to come.

We looked at the below trendline on the 10-year yesterday that was testing… that gave way today.

This move lower in yields puts both the Trump administration and the Fed in a much more comfortable spot.

A continued rise in market interest rates would force the Fed to be more aggressive, both of which would work against fiscal stimulus, dulling the contribution to growth, if not neutralizing it all together. Higher rates would slow the housing market and slow spending, especially in a fragile economy.  Among the things to be worried about, higher rates, too soon, could be the biggest (bigger than protectionism, European elections…)

President Trump was said to be asking for advice on the administration’s view on the dollar overnight.  I suspect the upcoming meeting with Japan’s Prime Minister (and co.) had something (a lot) to do with it.  This is precisely what we’ve been talking about.  The dollar and the yen are squarely in the crosshairs for this face-to-face meeting. But Trump may learn from the meeting that he would far prefer a stronger dollar and weaker yen, than a 4-4.5% ten year yield by the end of the year.

As I’ve said, Japan’s QE policies, which weaken the yen, also offer an anchor to U.S. interest rates, keeping them in check.  I suspect the softening of U.S. yields, as all other markets are quiet, may have something to do with Chinese money leaving China (as we discussed yesterday).  But it also may be influenced by Japan, finding the best, safest parking place for freshly printed money (i.e. buying U.S. Treasuries, which pushed down U.S. rates) – and showing that benefits of that influence to the new President.

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