Friday, March 7, 2014

Inflation Pressure Building

The absolute bedrock of the current bull market is low inflation.  And the bedrock of THAT is low wage inflation.  Without low inflation, QE, zero short rates, and mediocre economic and profit growth no longer equal higher stock valuations because bond yields will spike.  Today's employment report showed a fairly noticeable bump up in wage inflation:

In February, average hourly earnings for all employees on private nonfarm 
payrolls rose by 9 cents to $24.31. Over the year, average hourly earnings 
have risen by 52 cents, or 2.2 percent. In February, average hourly 
earnings of private-sector production and nonsupervisory employees increased 
by 9 cents to $20.50.

Hourly earnings for all employees doesn't show any upward trend (bouncing around 2% level) but when you look at "production and nonsupervisory" workers, the trend is unequivocably up.

Ten year bond yield is up to 2.80% this morning.  Perhaps the beginning (finally) of the big move higher.

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