Friday, January 3, 2020

December 2019 Yield Curve Update

The yield curve continues to press upward from the mid-year lows.  This is mildly bullish, but I would still say that the yield curve is in bearish, inverted territory (below the trendline in the second chart).  We may sit here for a while (several months?), but my guess is, per past patterns, that either 10 year yields will move up above 3%, and the Fed will keep the target rate low, and we might escape a contraction, or 10 year yields will remain close to where they are, and eventually the entire yield curve will move back down toward zero, and we will have some sort of contraction.  I don't think the contraction would be extreme, and it may not even bring much of a decline in equity markets.  The ingredients that made 2008 so disruptive aren't in place today.  The Fed appears to be ready to react to contraction without as much delay as they allowed in 2006-2008.  And, though perma-bears will always be with us, as are the poor (in the long run, maybe they are one and the same!), I don't get the sense that the same suicide cult mentality is so strongly shared as it was in 2008, when Americans would only be satisfied with some sort of financial meltdown.

So, in short, this month doesn't change my posture much.  I think the odds are greater than 50% that future near term yields will be lower than current forward yields, maybe a slight rise in unemployment and decline in equities if the inverted yield curve, as I see it, does signal some coming contraction, and housing that will probably look a lot like 1999-2001, at worst seeing a slight pause in growth.

16 comments:

  1. Interesting post.

    Lately, I have been thinking the world has globalized capital markets, and so we must not only ponder the Fed, but the PBoC, the BoJ, the ECB, and then the BoE and SNB.

    MMT'er Warren Mosler makes an interesting case it was fiscal tightness that contributed to the 2008-9 debacle, and if true, then I guess it is good news that the GOP believes in large federal deficits, and we have some good red ink sketched out in the years ahead.

    The US is doing better economically than Europe with its ECB-ukase austerity provisions, though as usual proving anything by empirical observation is impossible.

    But, given globalized capital markets and the fungibility of money, my guess is that helicopter drops and/or deficit spending are more effective at stimulating economic growth inside a particular nation than monetary policy.

    ReplyDelete
    Replies
    1. Globalised capital markets, and thus globalised liquidity are an interesting point.

      For a single economy the analysis is relatively straightforward: the central bank prints more money, then nominal GDP goes up. And perhaps even inflation.

      In a global context, that doesn't work, or at least not as simply.

      The US and Switzerland printing more money might have an effect, but Turkey or Argentina (yet alone Venezuela or Zimbabwe) don't seem to be exporting their inflation.

      I suspect, but I am not sure, that in a global setting we need to judge monetary expansion by the real value of the money created. (As a shortcut, I am going to treat eg the USD market value of the money created as the real value.)

      https://fred.stlouisfed.org/series/MANMM101CHM189S shows that the Swiss have created lots of extra money. But the exchange rate held firm. Thus I suspect they created real liquidity.

      For Turkey: Google says that in January 2010 one Lira bought about .69 USD. In January 2020 it buys 0.28 USD. https://fred.stlouisfed.org/series/MYAGM1TRM189N says M1 was about 102 billion Lira in January 2017 and about
      422 billion Lira in June 2017 (the latest they have data for).

      So total M1 in USD went from 70 billion to 118 billion USD.

      Not sure what that says, but I guess the increase when measured at market exchange rates is an upper bound on the inflation exported?

      Delete
    2. Matthias:

      You are correct, the Swiss National Bank printed $100,000 in Swiss francs per resident, and nothing happened except they held the line on exchange rates for the Swiss franc.

      This seems to support my view that attempting to stimulate the economy of defined geographic area, such as a nation, through monetary stimulus, or QE anyway, is...well, sketchy at best. The freshly printed Swiss francs entered the global economy who knows where.

      This seems to suggest that fiscal stimulus, that is deficits or helicopter drops, are the best tools to boost a domestic economy, in a globalized world. This is what all the central bankers are saying now anyway.

      Unfortunately, this issue has become politicized. In general, fiscal deficits or money-financed fiscal programs are considered "left-wing" and certainly left-wingers would love to grab control of expanded federal outlays to their benefit.

      I prefer tax cuts on wages, and no additional welfare, or warfare spending.

      Delete
  2. Happiness is all i see now, i was herpes sicker for 6 years but i thank God for directing my footsteps to Dr Emu, he gave me instructions and i followed and in 2 weeks i was completely cured using his medicine, I am now Herpes Negative Contact Dr Emu for more information, He also has other cure to other ailment, HIV AIDS, CANCER, DIABETES, HEART DISEASE, HEPATITIS B/C And also restore broken relationships such as Ex HUSBAND, Ex WIFE, BROKEN MARRIAGES, Any kind of Problem in any relationship can be restore back in 24hours, Just Email: emutemple@gmail.com Whatsapp or call: +2347012841542

    ReplyDelete
  3. Omg I Finally Got Helped  !! I'm so excited right now, I just have to share my testimony on this Forum.. The feeling of being loved takes away so much burden from our shoulders. I had all this but I made a big mistake when I cheated on my wife with another woman  and my wife left me for over 4 months after she found out..  I was lonely, sad and devastated. Luckily I was directed to a very powerful spell caster Dr Emu who helped me cast a spell of reconciliation on our Relationship and he brought back my wife and now she loves me far more than ever.. I'm so happy with life now. Thank you so much Dr Emu, kindly Contact  Dr Emu Today and get any kind of help you want.. Via Email emutemple@gmail.com or Call/WhatsApp +2347012841542

    ReplyDelete
  4. I am here to explore blogs forum about the wonderful and most safe cure for HERPES SIMPLEX VIRUS . I was positive to the deadly Virus called HERPES and i lost hope completely because i was rejected even by my closet friends. i searched online to know and inquire about cure for HERPES and i saw Dr ERAYO testimony online on how he was cured so many persons from Herpes Disease. so i decided to contact the great herbalist because i know that nature has the power to heal everything. i contacted him to know how he can help me and he told me never to worry that he will help me with the natural herbs from God! after 2 days of contacting him, he told me that the cure has been ready and he sent it to me via FEDEX or DHL and it got to me after 4 days! i used the medicine as he instructed me (MORNING and EVENING) and i was cured! its really like a dream but i'm so happy! that's the reason i decided to also add more comment of Him so that more people can be saved just like me! and if you need his help, contact his Email: (drerayoherbalhome@gmail.com) you can contact him on whatsapp +2348151937428.
    He also cure the below listed sickness;
    (1) HERPES,
    (2) DIABETES,
    (3) HIV&AIDS,
    (4) URINARY TRACT INFECTION,
    (5) HEPATITIS B,
    (6) IMPOTENCE,
    (7) BARENESS/INFERTILITY
    (8) DIARRHEA
    (9) ASTHMA...
    https://alternativeherbs.weebly.com

    ReplyDelete
  5. I was a HIV-AIDS patient and I got it from cheating on my wife. It was sort of a payback but a week later I was told by a friend that the person who I cheated with had the HIV-AIDS virus and did not tell me. I was so stupid by not using a condom I thought since he was an old school friend he was trustworthy. But I was wrong. I cried and cried. Two days later, I got a phone call from my friend and he told me about a person who is known by another friend, who can help me. I could not let my wife know what I was going through. I finally got his email address: oseremenspelltemple@gmail.com and I emailed this man my story and he replied me immediately saying i should be calm and told me that everything will be OK. I could not come to terms with what I was hearing but then I concluded it did not matter because I was so broken I just needed help. I was going out of my mind literally. I was confused with what he was telling me, but I listened. He told me about some materials i need to buy that he needed to cast the spell and I said OK. I bought the materials to him, I sent down my picture to him and my positive result sheet and he replied me that i am going to be negative under 3days. I message Him every 2hours for 2day and I knew he thought that I was crazy but I did care I needed a shoulder. Behold, the third day he messaged me i should go for a test that i will be negative. My marriage could be broken because of a stupid mistake and my life was on the line. I remembered when I was going to get the results of my re-test I called him up again and told him that I was going to get my results today and his reply was “so" and that everything will be as he explained. I knew then that he was getting tired of me calling him, maybe I was wrong. Well I got my results and the first person I called was him - again. As he said hello I started to cry and cry. I could not believe it. I was given a second chance in life.This man is a great spiritual HIV/AIDS healer, his healing spell on aids healing is very powerful .please brothers and sister, contact Dr Ose oseremenspelltemple@gmail.com
    whatsapp +2348136482342www.facebook.com/Dr-odion-spell-temple-110513923938220

    ReplyDelete
  6. It’s going to be finish of mine day, but before end I am reading this impressive piece of writing to improve my knowledge.|


    ํ† ํ† 
    ๋จนํŠ€๊ฒ€์ฆ

    ReplyDelete
  7. I just found this blog and have high hopes for it to continue. Keep up the great work, its hard to find good ones. I have added to my favorites. Thank You.



    ํ† ํ† ์‚ฌ์ดํŠธ
    ํ† ํ† 
    ์•ˆ์ „๋†€์ดํ„ฐ

    ReplyDelete
  8. wow... what a great blog, this writter who wrote this article it's realy a great blogger, this article so inspiring me to be a better person



    ์Šคํฌ์ธ ํ† ํ† 
    ํ† ํ† ์‚ฌ์ดํŠธ
    ์•ˆ์ „๋†€์ดํ„ฐ

    ReplyDelete
  9. Hello! This is my first visit to your blog! We are a group of volunteers and starting a
    new initiative in a community in the same niche. Your blog provided us
    valuable information to work on. You have done a marvellous
    job!



    ์นด์ง€๋…ธ์‚ฌ์ดํŠธ
    ๋ฐ”์นด๋ผ์‚ฌ์ดํŠธ
    ์•ˆ์ „์นด์ง€๋…ธ์‚ฌ์ดํŠธ

    ReplyDelete
  10. I think it should be a good opportunity to get feedback from others who are experienced.
    ๋ฉ”์ด์ €์‚ฌ์ดํŠธ
    ํ† ํ† 

    ReplyDelete
  11. Impressive ideas shared in this post. The tips and information is helpful for me. Share some more articles soon in depth. Now have a look at buyers products online.

    ReplyDelete
  12. Navigating economic trends! The December 2019 Yield Curve Update offers insights into the financial landscape, providing valuable information for investors and enthusiasts alike. A crucial read for financial literacy.
    Middlesex County Driving Without a License Attorney
    Middlesex County Driving Without a License Lawyer

    ReplyDelete