It is one of my favorite times of the year. It is graduation time where we get to celebrate the success of the students who have worked to hard to get to this day, whether completing undergrad or grad degrees

This day is rightly called commencement because this is a beginning and not an end, even though I know for the students it will be quite the relief to have school behind them. I can speak for most when I say don't be in such a hurry to get into the real world, we miss school

In the markets I think we are celebrating the ending of the last 2+ years, call it mkts grad school, of the fight against inflation. Inflation expectations have come down and the US bond mkt is pricing in rate cuts to begin as soon as July

Yes, there are other central banks, namely the ECB & BOJ, that are continuing the fight against inflation. But let's be honest, not everyone graduates on time

But as much as this is a celebration of a job finished, it is also a beginning. It is the beginning in my mind of the concerns over growth. The last 2+ years, growth has not been a concern, only prices. That is changing

The best mkt metric to see this I believe is the ratio of copper to gold. This is an old commodity mkt tell but it has also been popularized by bond gurus such as Bill Gross & Jeffrey Gundlach

Given its uses in plumbing & electricity, copper is very economically sensitive. Some used to joke it had a PhD in economics. Gold is just a store of value. The ratio then tells one what the mkt thinks of the economy

We used to care about the global economy. That was true from 2000-2019. The global economy was largely synchronized. With trade wars, Covid, supply disruptions and the like, the global economy is become less synchronized

We see this in the chart today where I compare the copper to gold ratio to US 10yr yields & Chinese 10yr yields. There was a tight fit between all 3 up until Covid. This is why bond gurus liked the measure

Since then it is less clear. The US meaningfully outperformed. This year, Chinese re-opening was thought to carry the torch. However, that is apparently not happening. We see this as the copper/gold ratio is falling quite precipitously

I have waxed poetic on the US economy. If we look at China PMI, Li Keqiang Index, Hot-rolled steel etc, China is not recovering as most hoped. Growth may be becoming an issue

I want to end on a positive note. Again, this is one of the happiest days of the year. Yields look to be headed lower in the long run. A lower cost of money will create more opportunities, the same way graduates have many opportunities

Congratulations to students & parents. Remember to ..

Stay Vigilant

#markets #investing #yields #copper #gold #economy #stayvigilant