MBS Day Ahead: Detailed Prediction on Future Rate Movements For The Next 3 Months

Because that's what you want right?  I actually do have a very high probability prediction regarding rates over the next three months.  If you can find a few of the very best, most convincing 'forecasts' of future rate movement, here are the steps to follow so that you can get the most benefit from them.

1. Find someone who still uses printed paper and who has a printer.  (Maybe this is you!)

2. Have that person print out these predictions for you

3. Place predictions in a crudely-assembled homemade fire-pit.  Feel free to use an existing fire pit, if you have one.

4. Light the predictions on fire

5. Enjoy the warm glow.

Used in this way, these rate forecasts are guaranteed to be of the highest and best use to you.  9 times out of 10, that small amount of heat and vaguely comforting glow will be of far more benefit than someone else' random guesses about the unknowable.  But I know how it is.  You figure that if you really don't know where to start when it comes to thinking about where rates will be in 3 months, then you might as well go with someone's guess who might know kinda where to start 10% of the time.  Something is better than nothing, right?

Wrong!

The best thing you can do for yourself is to stop thinking that anyone else knows better than you.  Hey!  Maybe you'll be wrong!  But in the process, if you take notes and apply them to your future considerations, this is far better than rolling the dice on predictions that may or may not pan out. 

I will give you the framework for drawing your own conclusions if you haven't gleaned it already.  here goes:

Shorter term (1-2 months) pressure is expected to be negative for rates.  It will probably be hard to piece together any significant rally before the December Fed Hike--err... I mean Fed meeting.  After that, paradoxes reign supreme as longer term rates will be more free to act of their own free will--much like the falling rates that followed the Fed hike in 2004.  This might not mean that rates will fall--only that they're free to follow the trends in economic data and inflation.  Eventually, I think they'll fall.  I think that's the only endgame that makes sense.  It makes all the more sense because the preponderance of opinions/forecasts/etc call for rising rates from here on out.  You just have to decide how screwed you think the global economy will be in the longer term.

Yes, we might see rising rates for the next few months.  But in order for rates to continue to rise, we'd have to see something that we're not likely to see: an economy that continues to support increasing levels of growth despite rising short term rates, as well a a global economy that can weather the storm of a Fed rate hike cycle.  This is too much to ask of any economy this far into a growth cycle, but especially of this one with its vast wealth inequality. Make friends with someone who owns some robots.  Just sayin...

Anyway, about that short term pain...  You know I'm a fan of the 'death cross' (FYI, I'm not a fan).  These charts are actually starting to look a little ominous.  I thought we'd soon be 'un-crossing' the recent death crosses, but if trading levels hold in the current range, we'll have perfectly avoided such an un-crossing.  Whether you buy into the death cross or not, any time a security crosses a technical line in the sand, comes back to the scene of the crime and AVOIDS crossing back over the line, it adds validity and confirmation to the break.  This is part and parcel of our shorter term headwinds.  This morning's Retail Sales data can cause some movement, but not enough to undo these broader technical trends without a lot of help.