It wasn’t supposed to be this way, the Double Dip Recession and inevitable Deflation were a sure thing, but today’s Industrial Production figures of growth of 1% in July versus the consensus of .7% make want to give you pause if you’re loading up on Treasuries. The figures were led by a big 9.9% surge in motor vehicles, the trend in vehicle production is the most since 1984 while year to year PPI growth is the greatest since 1998.
While this data is very good news for equities its quite bearish for Treasury bonds which are probably leaning too much to the side of buying exuberance.
Consider the following charts from SentimenTrader.com, all three show far too much bullish sentiment to make a potential investment profitable. Investment profits are very seldom made when sentiment is so extreme as the data suggests it’s likely wiser to be a seller rather than a buyer.
These remain very uncertain times but we feel its in error to chase strength, let any market correct itself where you can make your buys on your terms not the market’s.
Allow me to put this another way: With the yield on the 10-year Treasury now at 2.58% it has a P/E (Price divided by Earnings) of 38.7 which is quite close to the bubble era for the NASDAQ in 1999. The current P/E of the S&P 500 is now 12.
Be careful out there
Brad Pappas