I hear a lot of talk about the average time duration that a bond inversion precedes a recession, but is there any typical average duration of time (or range) that the inversion stays in place, before “un-inverting”? Thanks!
worleyeoe
1 year ago
And at least this time around (thus far), it has no bearing on whether or not we hit a recession.
whirlaway
1 year ago
“30-month T-Bills”? Or is it 3-month T-Bills?
xbizo
1 year ago
The direct relationship between rising short term rates and recession is to raise the cost of variable interest loans. Clearly we have much less of that debt than in 2007. Is there are way to assess total increase in interest? Is that number a few billion or 500 billion? Is it enough to cause zombie companies to go under? We have a lot of them. That is the question to me.
Long term rates are rising too. That kills off marginal capital investment. Still there’s lots of cash looking for a place to land and for capital projects moving forward, higher rates are inflationary because they need higher rents to make the ROI work out.
So, not seeing interest rate increases being very effective unless we get stop keeping marginal companies alive and let them fail. Will Biden come to the rescue of his union cabal and prop them up?
Sunriver
1 year ago
Mish, glad you’re bringing the inversions into focus. This is nuts.
FED hikes say 0.50% in early December, and we will be above the 2001 yield curve inversion max of both the 30 yr minus 3 month and 10 yr minus 3 month difference.
A flight to US Treasuries, every time the FED hikes? Great for fixed income. Not so great for retail equity investors.
MPO45
1 year ago
Well bought another 30k of T-Bills today since there is nothing else to buy. I have lots of canadian oil stock covered calls likely going to get assigned tomorrow and I’m glad. I want to sit in cash as I’m hearing some very disturbing things about happenings in China. They are preparing for something huge and i don’t want to be on the wrong side of any investment right now. Good luck to everyone.
They did away with all English language schools over the last few years as well—CCP wants to isolate it’s population from truthful news only propaganda is allowed (kinda like what the Democratic party media does in USA)
I have been buying 30k worth of 4, 8, 13 week t-bills for months now. It was money set aside for rental properties but I can’t find a cap rate I like so it’s been sitting in cash. I am waiting for the housing market to crash but it seems to be taking a very long time. I may torpedo the whole idea and just start laddering 20 year bonds at 4.5 or 5 percent.
Rbm
1 year ago
Mish are these the three issues currently causing inflation. 1 A shrinking work force and an aging population with wealth build up from from 2 generations of 401 ks still needing basic goods / services. Plus money to burn. 2 War driving up energy cost ie cost of those goods and service. 3Money printed during covid. Leaving it an open discussion trying to wrap my head around how these interact on each other and raising rates. 1 is gonna drive up wages2 is gonna drive up good services3 gonna drive up cost of everything. The new norm.
Demographics is often the leading cause of rampant inflation despite all the conspiracy theories. In the 1970s inflation spiked because we had all the baby boomers (born 1945 to 1964) aged into family formation where they got married, bought houses and had kids.
We are now at that same point with millenials aging into family formation and on top of that we have boomers aging into retirement so it’ll be a double whammy for inflation. Two groups will be competing for medical services, housing, goods & services all the while the labor force is depleting. Throw energy volatility, Fed hiking, food shortages and war and it’s going to be one huge fiasco.
The blue line 10y – 3M might drop a little further, testing (-)0.95 in 2001. It’s a spring. DX is testing Sept 7/12 trading range before cont down again. TY weekly have a selling tail today. TY might breach it’s 1987 to Jan 2000 lows support line and reach to the 105/95 BB range. With negative rates the Fed and the ECB cannot control inflation. Inflation might flare one day…
RonJ
1 year ago
Zero Hedge: “Bullard presented charts showing a sufficiently restrictive rate might be between about 5% and 7%…”
This has to be coming. It’s the best way to steal wealth and gain absolute control. The FTX fraud is a perfect setup to bring this forward. Then they can use the new 87,000 IRS agents to track down and collect (confiscate) what is needed.
Digital currencies aren’t a problem. Almost all money is digital now. I think only about 6% is cash. If they eliminate cash, that will be an issue, but I doubt they would. Politicians have a need for cash as much as anyone.
Captain Ahab
1 year ago
Of course, the Fed will never say a deep recession is the goal.
When you flood the financial markets with trillions of unearned dollars (zeroes on a balance sheet) and cause inestimable transfer of wealth, induce overpricing of assets, and encourage capital investments with low rates of return, ‘there will (must) be bloodshed’.
Now, we play ‘chicken’.
My bigger fear is what Klaus Schwab discussed at the G20.
He operates Davos, a country retreat of billionaires and wannabe political movers and shakers. Arguably the most influential NGO.
Lula da Silva hosted anti-Davos. Now that he’s back in power and dark times ahead, maybe he will scare the daylight out of the billionaire club.
Karlmarx
1 year ago
Inversions are correlated with recessions not causal. Except for weapons exports to fight a proxy war with Russia the economy is in the proverbial loo.
No doubt we are in recession and have been so since at least early last spring – and likely even earlier.
We need a new term to distinguish between “recession” and “permanent downward adjustment to middle class buying power”
People can still work but the quality of life in the US is finding its equilibrium with that of the countries where we exported many of our skilled jobs
I have spent some time in community banking and we would have the Fed (regulators) come in and ask us plans for an instant 300 basis point rise in rates. We would prepare this but it was ugly as loans and securities needed to be marked to market with big losses. My question was what would the Fed balance sheet look like? I’m out of banking, thankfully, but I still wonder about the Fed balance sheet. All of the long term securities have to be sitting with huge losses. Does this matter if you’re the Fed? At rates over 4%, how long can the US government finance the debt without the Fed being the buyer? At what point will interest become the biggest line item expense for US government? What about the States? They can’t just print away.
I was saying much the same thing months ago. Technically, there will be no bankruptcy; because of magic zeroes and no mark-to-market. However, the underlying problem cannot be fixed, just plastered over because politicians do not have what it takes to gut Federal budgets.
Yes, the “Republican Revolution” of 1994 played a role … but 2 other key factors.
1) An era before Federal Reserve went full blown activism … and bond vigilantes watching carefully.
2) No War Mongering. After Bush Sr lost – but before Clinton took office – he put troops into Somalia. Leading to Black Hawk Down debacle. Clinton got the blame and did his best to avoid casualties rest of term (cruise missiles were the solution to any and all problems … that is, until along came W + Cheney).
The FED doesn’t care about profit/losses. If their balance sheet has losses, all it means is they would have to sell more securities for a given amount of QT.
Tony Bennett
1 year ago
Negative real earnings j6p using credit card to make ends meet. Will this end well??
“The first three quarters of 2022 have seen a rapid increase in credit card balances, after they contracted sharply during the early part of the COVID pandemic. The chart below depicts the year-over-year percent change in credit card balances—the 15 percent increase seen in the third quarter of 2022 towers over the last eighteen years of data.”
said Brian Cornell, chairman and chief executive officer of Target Corporation. “In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty. This resulted in a third quarter profit performance well below our expectations.
They need to do some research to determine the optimum number of participants in a flash shoplifting mob. You know, quantity/value of proceeds vs legal costs. I understand in California the legal costs are very low.
Now that stimulus / forbearance / moratorium over … delinquencies arising.
“The share of current debt becoming delinquent increased for nearly all debt types, following two years of historically low delinquency transitions. The delinquency transition rate for credit cards and auto loans increased by about half a percentage point, similar to increases seen in the second quarter.”
said Kansas City Fed President Esther George, who is set to retire in January.
KidHorn
1 year ago
I think the inversion has more to do with expectations of future FED rates dropping and the FED doing QE than it has to do with future GDP expectations. Current rates will eventually bankrupt our government.
The other way of adjusting the yield curve would be by rewarding savers with a fair return given inflation and real growth (expectations). That is, let the market set interest rates, with no Fed finagling/funding the debt by zero-addition.
I understand. I’m not saying it makes sense or would be a good move, I’m just stating the government will never have to default on debt as long as it can collect taxes.
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Mish are these the three issues currently causing inflation. 1 A shrinking work force and an aging population with wealth build up from from 2 generations of 401 ks still needing basic goods / services. Plus money to burn. 2 War driving up energy cost ie cost of those goods and service. 3Money printed during covid. Leaving it an open discussion trying to wrap my head around how these interact on each other and raising rates. 1 is gonna drive up wages2 is gonna drive up good services3 gonna drive up cost of everything. The new norm.