Merry Christmas! This week I am going to make some predictions for 2024. These predictions capture my current thinking and it will be interesting to see if any of these predictions pan out. Last year I predicted Crypto would go to zero and SPY 0.00%↑ will tank further. Boy, I was so wrong. But I did get some predictions right. Anyway, next week I will review my predictions for 2023 once the year is officially over. This week is all about predictions for 2024.
My first prediction is that the 10-Year Treasury Yield will go back up to be above 5%. With quantitative tightening, liquidity is being drained out of the system and RRP is likely to officially run out early next year. At the same time, the US is running in deep deficits. This means there will be a lot of net issuances of treasuries and there needs to be new buyers to absorb the renewed treasuries as the Fed backs out. This is likely to pressure the price of long dated treasuries as there will be an increased supply of treasuries flooding the market. The yield needs to go higher to attract more demand. It’s possible that the Fed will stop QT and even restart QE but I doubt it. The Fed recognized the easy money was going too long and it is causing serious problems in our banking system, commercial real estate and housing affordability. I believe the Fed is still in the damage control mode and is unlikely to go back to quantitative easing. This will likely cause the 10-year treasury yield to go up and I will be watching the February treasury auctions closely. Mortgage rates are linked to the 10-year treasury yield. If you are in the market for a mortgage, I will recommend locking the current rate as soon as you can.