Another day, another yield-driven market shock. For those who don’t see the pattern yet, it’s simple: with central banks seeing who can out hawk each other the most every day, even as their governments vow to go into a debt-funded fiscal overdrive at a time of rising rates and QT, yields are predictably surging, and real yields are surging even more with real 10Ys hitting 1.63% today, the highest since April 2010. And since real yields track fwd PEs, it’s getting uglier and uglier in risk land. Alas, it will likely get much uglier, as fwd PEs could drop as low as 12x. Throw in some mild recession E of around 200-210 and you end up with S&P around 2400, a 50% drop from the market’s all-time high this January. Of course, it’s unlikely that the Fed will allow all of its wealth effect legacy to be wiped out […]
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