Inversion Redux

When the yield curve inverted late last year, some commentors claimed that the media made too big a deal of the 2 year bond yield slipping over the 10 year. We’ve had numerous commentaries on the subject (but especially note these two December posts here and here).

Hmmmm, if everyomne made too big a deal about the 2/10 inversion last year, I wonder what these people think about Wednesday’s inversion of the 3 month/10 year bonds? I noticed an utter lack of response by the media or investors.

Here’s an excerpt from a well buried WSJ article on the subject:

"For the first time in more than five years, the yield on three-month Treasury securities ended the trading day above 10-year yields, a reversal of their traditional relationship. The phenomenon is known as an inversion of the yield curve, which has often signaled economic downturns."

. . . In late trading [Wednesday], the yield on the three-month Treasury bill stood at 4.356%. The 10-year note gained 1/32, or 31 cents for each $1,000 in face value, to yield 4.336% — or 0.02 percentage points less than the 3-month bill. The 30-year bond gained 1/32 to yield 4.515%.

The flip in three-month and 10-year rates is significant because some analysts and economists see it as a more reliable indicator of future economic activity than other measures of the yield curve, such as the difference between two-year and 10-year yields . . .

The Federal Reserve Bank of New York, for example, used the difference between three-month and 10-year rates to build a model of the historical relationship between the yield curve and recessions. According to that model, the present level of interest rates suggests about a 25% probability of recession within the next year. Since 1960, recessions have always followed sustained inversions of greater than 0.12 percentage points. In early trading yesterday, the three-month yield rose as much as 0.05 percentage points above the 10-year."


Complacency, anyone?


Bond Market Cranks Up Alarm But Many Investors Just Shrug
THE WALL STREET JOURNAL, January 19, 2006; Page C6

Category: Economy, Fixed Income/Interest Rates

3.4% Inflation is Worst in 5 years

Category: Inflation

The Big Mac Index

Category: Currency, Retail

Picture This: Steve Jobs Running Disney

Category: Media

Media Appearance: CNBC’s Morning Call (1/19/06)

Category: Media

Will Disney Buy Pixar? Will Jobs Become Heir Apparent?


Today’s WSJ has a major, front page scoop: Disney is in advanced talks to buy Pixar:

"Walt Disney Co. is in serious discussions to buy Pixar Animation
after months in which the two animation giants have been
exploring ways to continue their lucrative partnership, according to
people familiar with the matter.

In the deal under discussion, Disney would pay a nominal premium to
Pixar’s current market value of $6.7 billion in a stock transaction
that would make Pixar Chairman and Chief Executive Officer Steve Jobs
the largest individual shareholder in Disney, according to people
familiar with the situation. That would vault Mr. Jobs into an even
more influential place in the media world, where he already holds
tremendous sway as head of Apple Computer Inc. Yesterday, Apple
reported that net income nearly doubled in the latest quarter on huge
demand for its iPod music players. (See related article.)

People familiar with the situation caution that the talks are at a
sensitive stage and that the outcome isn’t certain, noting that other
options are possible."

Disney needs some sort of deal to guarantee its future stream of animated films. Whether the best structure is a takeover or some other relationship is subject to debate.      

What is especially curious about a Disney takeover of Pixar will be the potential role of Jobs in Disney. Disney CEO Robert Iger is 55, Jobs is 4 years his junior — might there be succession issues?

Recall that when Apple bought NeXT, they got Steve Jobs as a consultant. From that role, he eventually engineered his return as CEO. Will a Disney/Pixar deal give Jobs a springboard to eventually takeover running Disney?

I wonder if we will see history repeat itself . . .


click for larger graphic


Chart courtesy of WSJ 

UPDATE:  January 20, 2006 5:56am

The NYT weighs in:

"And the merger could give Mr. Jobs a pivotal role, if he wants one, in helping shape the convergence of new media and old at Disney. "He’s one of the handful of people who has shown the ability to guide both technology and entertainment companies and that might be quite useful to Disney," said Bran Ferren, a former Disney Studios Designer and technologist, who is now co-chairman of Applied Minds, a technology consulting firm based in Glendale, Calif. "What he has that is rare is taste, and that’s a very valuable commodity if you can focus it and harness it."

Deal Could Offer New Disney Role for Apple Chief
Published: January 20, 2006



UPDATE: January 26, 2006 3:31pm

Slate joins team "Jobs as heir apparent at Disney"

Robert Iger vs. Steve Jobs
Only one man can control Disney. I know who I’m betting on.
Daniel Gross
Slate, Wednesday, Jan. 25, 2006, at 6:13 PM ET


Walt Disney Is In Serious Talks To Acquire Pixar
Stock Deal for Animator Would Make Jobs Top Holder Of Entertainment Giant
THE WALL STREET JOURNAL, January 19, 2006; Page A1

Is Disney/Pixar the sequel to Apple/NeXT ?                

Jobs to become Heir Apparent at Disney?               

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