Posts filed under “Federal Reserve”

Ignore Inverted/Flat Yield Curve at Your Own Risk

We have discussed the impact of an inverted yield curve repeatedly in the past. Much of the mainstream has denigrated the historical record of using this relative unusual relationship between yields as an indicator. They have strained credulity to somehow reach the conclusion that it really is different this time.

From Birinyi Associates, here is the recent track record of what they call "Intentional curve inversions:"
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Intentional_inversions

Source: Ticker Sense

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This seems pretty conclusive that there is a correlationn between the shape of the curve and subsequent recessions.

And these tidbits from Jim Stack of Investech Research agrees. He points out:

• The flat yield curve shows an 88% probability of a recession beginning sometime between now and the end of next year.

• The yield on the 10-year Treasury Bond hit new 4-year highs this week.

• Even excluding energy, the CRB Spot Raw Materials Price Index is showing the highest 4-year inflation
rate in 25 years.

• Of the past 10 tightening cycles by the Fed, only 2 resulted in a soft landing (without recession).

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Sources:
Intentional Inversions    
June 30, 2006   
http://tickersense.typepad.com/ticker_sense/2006/06/intentional_inv.html

Neutralizing risk
Jim Stack
Vol06 Iss08
Technical and Monetary Investment Analysis
Investech Research, June 30, 2006

Category: Data Analysis, Economy, Federal Reserve, Fixed Income/Interest Rates, Markets

1/4 point, or . . . ?

Category: Federal Reserve

CPI Null Set (via The Economist)

Category: Data Analysis, Federal Reserve, Financial Press, Inflation

Call to ARMs

Category: Federal Reserve, Inflation, Markets, Real Estate

The Return of Abelson

Bol_logo_top_page_05"AS WE WERE SAYING BEFORE WE WERE SO rudely interrupted by a man dressed in a white smock and wielding a scalpel (thank heavens he left his box-cutter at home), the stock market looks a bit worse for the wear."

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So says Barron’s Alan Abelson, usually one of Wall Street’s most visible Bears. Just his luck — or was it the Trading Gods having some fun? — that he managed to be out of service for the most bearish period in 3 years. Traders, being a superstitious lot, will soon be begging Abelson to "let us know the next time you go in for a procedure" – so they can get short.

Regardless, whatever the  man dressed in a white smock removed, it wasn’t his arch sense of humor or acid tinged tongue:

"The impact of the massive disturbance was global in every sense: Not only were its terrible tremors felt far beyond the narrow canyon of capitalism in lower Manhattan, but they commanded notice in quarters much loftier than trading floors or commodity pits. We’ve not the slightest doubt, for example, that what prompted the famed cosmologist Stephen Hawking early last week to urge earthlings to create settlements in space was, pure and simple, fear of the effect of crashing markets on the human race."

But the key to Abelson’s return is his clear eyed take on inflation, which comports squarely with our own views:

"FOR OPENERS, OUR HUNCH IS THAT MR. BERNANKE’S concerns about inflation, despite his mucking up the message with all that rubbish about inflationary expectations, have more than a modicum of merit. And our conviction on this score is only strengthened, of course, by the fact that so many pundits pooh-pooh inflation as a problem. Indeed, if anything, we fault the chairman for his evident sympathy with the argument that the fearsome upward spiral in the price of crude, so far, anyway, hasn’t been exerting all that much impact in the economy at large.

Apparently, Mr. Bernanke, like his critics, needs to get out more. Oil is a very sneaky commodity. Our old friend and revered Barron’s contributor, Abe Briloff, likes to describe certain stealth accounting practices as comparable to a bikini: what they reveal is interesting, what they conceal is vital. Oil is something like that: Its uses are readily manifest, but it plays a far bigger and more critical role in our lives than is easily perceived.

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Category: Federal Reserve, Financial Press, Inflation, Investing, Markets, Psychology

Much Ado About Nothing

Category: Economy, Federal Reserve, Inflation, Markets

How the Fed Chief Gains Credibility

Category: Federal Reserve

What Happens if Inflation Is Overstated?

Category: Data Analysis, Economy, Federal Reserve, Inflation, Markets, Real Estate

A Consensus is Developing: Blame Greenspan

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation, Markets, Psychology

Tracking Bernanke

Category: Federal Reserve