Control Panel: ‘T-Bill and chill’?

This week, the U.S. Bureau of Economic Analysis reported that Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023, according to the “advance” estimate. In the second quarter, real GDP increased 2.1 percent. The increase in the third quarter primarily reflected increases in consumer spending and inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The Atlanta Fed’s estimate of 4.5%, which I reported in last week’s Control Panel, was right on the money even though it was far above the consensus of economists. This is a very strong result. The Atlanta Fed’s initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 was 2.3 percent on October 27. This is lower but is still a respectable growth rate.

The strong growth was due to brisk consumer spending. In the last three months of the year, Americans are resuming student loan payments, seeing their stockpiled savings dwindle and refinancing their debts at higher costs, a result of the Federal Reserve’s campaign to slow the economy by raising interest rates. Real income growth is also slowing. But the GDP picture is far from recession, despite the falling Index of Leading Economic Indicators.

The GDP story is encouraging, but the Control Panel isn’t. Every chart relating to stock internals is trending downward. The Fear & Greed Index is in Extreme Fear. The Shiller CAPE index has dropped but is still near its bubble high.

Bond prices continue to fall as the yields rise. The Treasury yield curve has risen most strongly at the longer durations. The yield curve is almost flat. This tends to happen just before a recession as the yield curve inversion gradually normalizes. Investors are buying longer bonds to lock in what may be a multi-decade high yield. Or is it?

‘Buy the Dip’ Investing Mantra Lives On—in the Bond Market at Least

Investors this year have poured $21 billion into TLT, BlackRock’s long-dated Treasury fund, despite punishing decline in its shares

By Jack Pitcher, The Wall Street Journal, Updated Oct. 29, 2023

One of the hottest investments on Wall Street is something of a surprise—it’s a battered long-dated Treasury bond fund.

Shares of the iShares 20+ Year Treasury Bond ETF are near a 16-year low and have lost more than half their value from their 2020 peak, but investors are piling in…

The potential reward of buying long-dated government debt is becoming more attractive to some investors. If yields were to fall half a percentage point from Thursday’s levels, investors in a 30-year on-the-run U.S. Treasury would get a 13% total return over the next 12 months between price appreciation and interest payments, according to an analysis from Genoa Asset Management. A 1-percentage-point drop in yields would lead to a 23% total return.

A move in the other direction would be fraught.

“You’re still taking significant risk. Yields could go to 5.5 or 6%, and that’s going to hurt,” said Alex Chaloff, chief investment officer at Bernstein Private Wealth Management. “I like the phrase ‘T-Bill and chill’ until Powell signals otherwise.” …[end quote]

TLT is currently a falling knife. But has the tip hit the floor yet? Experienced bond investors know that Treasury yields are not especially high when compared with their historical pre-QE real yields. If the Fed keeps allowing their immense book to roll off and the government deficits grow as predicted the yields could rise higher.

So…the charts say that stock indexes don’t look good here and bond prices are also falling.

T-bill and chill? Maybe. I’m buying TIPS on the secondary market because their yields are good on a historic basis. Planning to hold to maturity. But not bond funds.

The METAR for next week is cloudy and probably rainy. No storms on the horizon.


With no major recession of any depth coming workers will not be sliding down the income ladder.

People are changing jobs for better pay. That is different than average pay in that it opens up future pay gains.