We all need scapegoats and things to keep us up late at night, cowering under the sheets in this chimerical world we live in. Don’t look now, but recession is right around the corner and very soon we will begin to see the fissures in this fallacious global economic hazard.
Yesterday’s Fed hike is going to expedite crisis in the high yield space. We’re aware of that. But what many people aren’t watching just yet is the yield curve. When short term rates creep higher, while long term rates edge lower, the economy is in trouble. Have a look at government bond yields and durations to see what’s been happening.
At a very minimum, the profit margins at banks are going to shrink. They make money by borrowing short and lending long, via the spread. If present conditions persist, every talking head on teevee and print will start to use buzz words such as “inverted yield curve” and how it portends to recession. This will serve as a self fulfilling prophecy, scaring the shit out of CIOs, who will enact conservative measures to shore up balance sheets and viola: RECESSION WILL HIT.
The Fed wants to hike rates 4-5 times next year. If they do not get rates to 1.5%, it will be because the market said no.
Best short ideas into an inverted yield curve are banks, both regional and Snl, and of course commodities, since the dollar will likely keep driving higher as people plow into long duration treasuries.
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What of solar in such a future?
If your mind is focused on solar now, your mind is in the gutter.
Thanks, sir. I’m willing to do some work to try to find answers here, but are you aware of the degree of flattening at which this has been a real issue historically? I.e., I know the yield curve has actually inverted before every recession in the last 50 years or so, but I’m wondering whether, and to what extent, flattening prior to an actual inversion is a real issue.
We want to watch this daily. Just like each downtick in oil causes fits in the market, we might soon start to obsess over the yield curve.
Worst case scenario: dollar rises another 10% next yr, oil drops by another 50%, yield curve inverts, high yield crisis hits, massive bankruptcies hit oil patch, markets scare out for a 25% rout.
Thanks, Fly. That worst case scenario sounds pretty horrendous for something that isn’t all that unlikely.
I am going to hope for the most likely case scenario here, although one never knows. If it were easy to predict this stuff, we’d all be zillionaires.
And the inverted yield curve would have predicted it all, once again.
When did ibankcoin and Zerohedge merge?
go to my archives in 2007-2008, you’ll find most of the commentary to be bearish. My natural inclination is to be bullish. But when I see things for what they are, complete shit, I am going to share that view with you.
I know. But I also recall riding the VXX train with you straight into the dirt in 09 or 10
I also recall his first foray in to VXX netted him 40%
Let’s reserve judgement until you see my plan.
Will we be seeing the FAZ mobile pictures again soon? VXX Halloween would be nice too.
Sell SBNY?
Nobody watches yield curves daily. That’s a weekly or monthly thing for crying out loud…like back when Louis Rukeyser would update us on Wall St Week every friday night…unlike today, where the great unwashed masses of ass hats have been given a voice via technology that they don’t understand (the interwebs).
The inverted yield curve has also predicted 12 of the last 3 Recessions, or something along those lines. It’s not a given.