Softer for longer?

The longer the weak economic data continue to come through the more questions will centre around one key issue: is this a soft patch that we are going through or that until recently we were on a firm patch and that is now over? After all, the 10 year treasury dipped below the 3% yesterday. That ought to be telling us that a sharp slowdown is upon us, perhaps even with a mild dose of deflation.

I am kind of torn. On the one hand I am convinced that cycles will get shorter and that we might be more advance in this growth cycle than most economists believe. Equally though, most of the cyclical indicators I follow reveal that this is indeed a soft patch, partly exacerbated by the oil price increase which tends to be a tax on consumers.

Does this mean that bond market is wrong? All it takes is a little bit of nudge to get the bond market rallying. More importantly, I have been consistently writing about one important driver of bond yields: global private sector surplus. This concept is so new to most that effects are not well understood. They are there nevertheless. Even the big spenders US private sector is producing PSSS to the tune of over 5% of GDP. Regardless of what Bernanke does financial system will still be buying US government paper.  Thus do not despair. 

So I will sit tight and see this through. Time is  on my side.