| Dear John, Things are quiet in the markets. Too quiet. As we've seen, that's cause for worry. In fact, as recently as last week, as the 10-year Treasury yield hit spiked to 2.95%, things can get dicey very quickly.
Last week's yield spike came shortly after the minutes from the Fed's last meeting were released.
Although the minutes were generally dovish and optimistic, and stocks and gold bounced higher, they both turned south in a flash.
The reason: The "bond vigilantes" decided the Fed wasn't taking inflation seriously enough, and they started dumping Treasurys. The 10-year yield spiked...and bumped up against the ominous 3% mark. And that rattled nerves all over Wall Street. Most impressively, none other than the legendary Wall Street sage Art Cashin warned that market turmoil will follow if/when that level is breached.
In an appearance on CNBC, Cashin said "That 3% level is both a target and a kind of resistance. Everybody knows it's like touching the third rail. The assumption is once they do it, all hell will break loose. So we'll wait and see." Another Potential Flashpoint Tomorrow OK, so after the 10-year yield hit 2.95% last Wednesday, it's backed off. As I write, it's trading at 2.863%.
So why am I warning you about that 3% level now? Because newly minted Federal Reserve Chair Jerome Powell is having his coming-out party tomorrow, in his inaugural testimony before Congress. Remember: The minutes from the last Fed meeting showed that this august group was fairly content to keep raising rates in a very gradual fashion. Inflation? Not a problem, they intimated.
But the bond market, the so-called "vigilantes" who have historically imposed discipline when they've deemed it necessary, where having none of it. They sold off Treasurys, sending the market to the very precipice of the 3% cliff.
If they don't like what they hear tomorrow, we could be right back there tomorrow. And this time we may go over.
Consider this fair warning, and be prepared for anything. All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference | 