SOOTHSAYER CONSENSUS (Positive Consensus/Bear Market Indicator) Despite rising yields economists maintain game on for money printing

May 21, 2015

The recent bloodbath in government bonds has not dissuaded many soothsayers away from the “Don’t Fight The Fed” mantra.

Torsten Slok, chief international economist at Deutsche Bank AG, told clients that “the QE trade is not over” and yields should soon reverse their rise once markets stabilize. “I continue to see U.S. rates under downward pressure as a result of money printing abroad.”

This sentiment is shared by an analysis from Bank of America Merrill Lynch economist Gustavo Reis who, like Slok, sees “less change in global fundamentals than recent market moves imply.”Take oil. While it is about 45 percent off its low of January, Reis estimates about 60 percent of that move is related to weaker supply rather than greater demand, meaning “some care is in order when interpreting higher oil prices as a sign of easing disinflation.”

Bank of England Governor Mark Carney said last week that more illiquid markets were a reason to expect interest-rate increases to be gradual and limited when they came, while saying previous declines in yields were at odds with recovering economies and so unlikely to be sustained.

In January the Soothsayer Consensus was pounding the table for a June rate hike by DJ Janet Yellen and Club Fed and as usual they were wrong. So now the same Consensus is calling for rate hikes in the US starting in 2016. Given their dismal track record, should we instead be on the lookout for a sudden move by the Fed?