Author Topic: Yield Curve Inverting  (Read 5627 times)

Spekulatius

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Re: Yield Curve Inverting
« Reply #20 on: March 27, 2019, 03:55:52 AM »
Yields are getting horizontal and who knows what that means?
Bias: in another life a flatline meant efforts for resuscitation and it seems that the FED may be getting ready to do just that as they recently surveyed primary dealers on how to fine-tune the management of rates.

A lingering thought is that successful resuscitation is generally unlikely and is inversely related to the length of time spent attempting resuscitation. At least, that's what Wikipedia says.

I personally canít tell what is a symptom and what is the disease, but I tend to think of inverting interest rate as a symptom.

Just my opinion, but every time, investors put their hope into Fed, they tend to get disappointed. I suspect the market will take a real dump, if indeed the Fed starts to lower rates.

I think it can be be both right? At first it's a symptom - it's markets being concerned about future growth/inflation and predicting a rate cut; however, it can also become self-fulfilling and contribute to the slowdown because the inversion strangles credit supply further slowing the economy

Reflexivity.   In this case, there are definitely fundamental issues regardless of expectations. Rising rates would have a serious impact, no matter how they do it, the only question is how bad.  The method the Fed uses makes things worse, because, well, they are clueless as the past few months have shown.

The big unknown here is not the Fed, it's Trump.  He called an emergency on the wall. He just nominated someone to the Fed that no doubt he believes will support his views. What else is he willing to do for us to get a happy dead cat bounce?  That's my bet, it's not going straight down from here.  We will have fun first.

Trump regards the stock market as an important scorecard. We have heard this in the news occasionally and Kohn explicitly confirmed this in the Freakonomics podcast that I posted. While none knows the future, I  think there is a high probability that the next economic crisis will be caused by a political crisis, as a fallout from the populist movements prevalent in many countries, not just the US. We might see a case of this with Brexit in the UK.

As for the Fed, I think people have an exaggerated sense of its impact on the economy and itís power to control its path. As an investor for quite some time, I can only say that when the pundits put their hope into the feds bailing out the market, we were typically in for a rough time.

As for the yield curve, I think we might have imported this basically from Europe. Europe has no negative interest rates almost as far as the eye can see in some countries, so a 2.5% interest for a 10 year treasury may actually look pretty juicy as strange as that may sound. I am not sure what he Fed can do about this either.
To be a realist, one has to believe in miracles.


Cigarbutt

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Re: Yield Curve Inverting
« Reply #21 on: March 27, 2019, 05:52:35 AM »
I personally canít tell what is a symptom and what is the disease, but I tend to think of inverting interest rate as a symptom.
Just my opinion, but every time, investors put their hope into Fed, they tend to get disappointed. I suspect the market will take a real dump, if indeed the Fed starts to lower rates.
I think it can be be both right? At first it's a symptom - it's markets being concerned about future growth/inflation and predicting a rate cut; however, it can also become self-fulfilling and contribute to the slowdown because the inversion strangles credit supply further slowing the economy
Reflexivity.   In this case, there are definitely fundamental issues regardless of expectations. Rising rates would have a serious impact, no matter how they do it, the only question is how bad.  The method the Fed uses makes things worse, because, well, they are clueless as the past few months have shown.
...
...  That's my bet, it's not going straight down from here.  We will have fun first.
As for the Fed, I think people have an exaggerated sense of its impact on the economy and itís power to control its path. As an investor for quite some time, I can only say that when the pundits put their hope into the feds bailing out the market, we were typically in for a rough time.

...
I agree that the Fed may become irrelevant but they have been a major driver behind valuations. I would say they have a very difficult (impossible?) mandate, given built-in expectations and circumstances.
-----
Continue reading if you have a PhD in physics, have an interest in aeronautics (Boeing issues) and if you have two minutes to spare.
It seems that the crowd is expecting the Fed to do an aileron roll.
https://www.youtube.com/watch?v=gy7sUfeWzXw
What is fascinating about this acrobatic maneuver is that the plane ends up at the same altitude it started while benefitting from increased pitch and greater angle of attack, enabling the wings to generate lift when the airplane is completely inverted.
While watching these shows in awe, I always wonder what the downside risks are.
-----
Back to investing.

rkbabang

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Re: Yield Curve Inverting
« Reply #22 on: March 27, 2019, 05:58:03 AM »
While watching these shows in awe, I always wonder what the downside risks are.


John Hjorth

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Re: Yield Curve Inverting
« Reply #23 on: March 27, 2019, 01:27:50 PM »
...
-----
Back to investing.

Cigarbutt,

Somehow I'll argue, that the bullet #1 in the Youtube video : - "Slight nose up attitude" - certainly has merit in the current investment environment, -but not exactly meant the way mentioned in the video ... - more conceptually meant with reference to Icarus, Hubris & Nemesis. [ ; - ) ]

- - - o 0 o - - -

Today, I've been bear hugging my NVO dividends just received.

- - - o 0 o - - -

On a more serious note: In short, I share Spekulatius' view, expressed above. Likely rough times ahead for us. Personally, I just hope that we this year get at least some satisfactory clarity on the situation going forward with regard to Brexit & ongoing trade disputes. This may however still be too much to ask or hope for.
ĒIn the race of excellence Ö there is no finish line.Ē
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

TwoCitiesCapital

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Re: Yield Curve Inverting
« Reply #24 on: March 27, 2019, 01:44:20 PM »
Yields are getting horizontal and who knows what that means?
Bias: in another life a flatline meant efforts for resuscitation and it seems that the FED may be getting ready to do just that as they recently surveyed primary dealers on how to fine-tune the management of rates.

A lingering thought is that successful resuscitation is generally unlikely and is inversely related to the length of time spent attempting resuscitation. At least, that's what Wikipedia says.

I personally canít tell what is a symptom and what is the disease, but I tend to think of inverting interest rate as a symptom.

Just my opinion, but every time, investors put their hope into Fed, they tend to get disappointed. I suspect the market will take a real dump, if indeed the Fed starts to lower rates.

I think it can be be both right? At first it's a symptom - it's markets being concerned about future growth/inflation and predicting a rate cut; however, it can also become self-fulfilling and contribute to the slowdown because the inversion strangles credit supply further slowing the economy

Reflexivity.   In this case, there are definitely fundamental issues regardless of expectations. Rising rates would have a serious impact, no matter how they do it, the only question is how bad.  The method the Fed uses makes things worse, because, well, they are clueless as the past few months have shown.

The big unknown here is not the Fed, it's Trump.  He called an emergency on the wall. He just nominated someone to the Fed that no doubt he believes will support his views. What else is he willing to do for us to get a happy dead cat bounce?  That's my bet, it's not going straight down from here.  We will have fun first.

Agreed. It's never straight down. There are always bounces along the way until the buy-the-dip mentality is sufficiently beaten to death.

It's why I didn't sell/short on the way down in December, but was selling/shorting/buying bonds after the incredible bounce in January.

This was an opportunity to reduce risk after markets have confirmed the bear market. Not an opportunity to buy the dip.

Cigarbutt

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Re: Yield Curve Inverting
« Reply #25 on: March 27, 2019, 05:03:27 PM »
...
-----
Back to investing.

Cigarbutt,

Somehow I'll argue, that the bullet #1 in the Youtube video : - "Slight nose up attitude" - certainly has merit in the current investment environment, -but not exactly meant the way mentioned in the video ... - more conceptually meant with reference to Icarus, Hubris & Nemesis. [ ; - ) ]

- - - o 0 o - - -

Today, I've been bear hugging my NVO dividends just received.

- - - o 0 o - - -

On a more serious note: In short, I share Spekulatius' view, expressed above. Likely rough times ahead for us. Personally, I just hope that we this year get at least some satisfactory clarity on the situation going forward with regard to Brexit & ongoing trade disputes. This may however still be too much to ask or hope for.
Hi John,
FWIW, last April 7, 2018, after reading a post of yours and trying to deal with investment-related persisting cognitive dissonance, I wrote a poem (which nobody will get to see) with the following title: On Wax and Wings and it referred to Icarus (the myth and the Bruegel painting).
https://en.wikipedia.org/wiki/Landscape_with_the_Fall_of_Icarus
http://www.cornerofberkshireandfairfax.ca/forum/strategies/getting-gains-in-a-bull-market/msg329541/#msg329541
-----)back to the quantitative side of investing.

Spekulatius

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Re: Yield Curve Inverting
« Reply #26 on: March 28, 2019, 03:39:50 AM »
While watching these shows in awe, I always wonder what the downside risks are.



Note that the pilot (= Banker in our weird world) successfully ejects and presumably lands safely using his golden parachute. As for the innocent bystanders, we do not know.

I may be pushing this analogy too far now.
To be a realist, one has to believe in miracles.

Spekulatius

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Re: Yield Curve Inverting
« Reply #27 on: March 28, 2019, 03:52:54 AM »
Yields are getting horizontal and who knows what that means?
Bias: in another life a flatline meant efforts for resuscitation and it seems that the FED may be getting ready to do just that as they recently surveyed primary dealers on how to fine-tune the management of rates.

A lingering thought is that successful resuscitation is generally unlikely and is inversely related to the length of time spent attempting resuscitation. At least, that's what Wikipedia says.

I personally canít tell what is a symptom and what is the disease, but I tend to think of inverting interest rate as a symptom.

Just my opinion, but every time, investors put their hope into Fed, they tend to get disappointed. I suspect the market will take a real dump, if indeed the Fed starts to lower rates.

I think it can be be both right? At first it's a symptom - it's markets being concerned about future growth/inflation and predicting a rate cut; however, it can also become self-fulfilling and contribute to the slowdown because the inversion strangles credit supply further slowing the economy

Reflexivity.   In this case, there are definitely fundamental issues regardless of expectations. Rising rates would have a serious impact, no matter how they do it, the only question is how bad.  The method the Fed uses makes things worse, because, well, they are clueless as the past few months have shown.

The big unknown here is not the Fed, it's Trump.  He called an emergency on the wall. He just nominated someone to the Fed that no doubt he believes will support his views. What else is he willing to do for us to get a happy dead cat bounce?  That's my bet, it's not going straight down from here.  We will have fun first.

Agreed. It's never straight down. There are always bounces along the way until the buy-the-dip mentality is sufficiently beaten to death.

It's why I didn't sell/short on the way down in December, but was selling/shorting/buying bonds after the incredible bounce in January.

This was an opportunity to reduce risk after markets have confirmed the bear market. Not an opportunity to buy the dip.

Late stage bull markets can be a lot of fun:
To be a realist, one has to believe in miracles.

shalab

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shalab

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Re: Yield Curve Inverting
« Reply #29 on: June 16, 2019, 06:48:16 PM »
Parsad says USA consumer prices will go up if USA workers take home more money this year. However all data is pointing to the other direction, i.e., prices going down.

The USA saving rate has been higher than average compared to the recent past, where savings rate on disposable income is at 7-8% of GDP. This is excluding contributions to 401(k), ESPP, IRA/Roth-IRA, HSA etc. which can soak anywhere between 0 - 35% of income.

https://www.reuters.com/article/usa-bonds-tips-umich-idUSL2N23L0MC
https://tradingeconomics.com/united-states/producer-prices

Barrons ran an article saying rate cuts are needed and more importantly some QE may be needed by year end:

https://www.barrons.com/articles/the-rate-cut-the-economy-doesnt-need-but-the-markets-do-51560557553?mod=hp_DAY_1
https://www.barrons.com/articles/the-fed-may-have-shrunk-its-balance-sheet-too-quickly-51560504607?mod=past_editions


Meanwhile, the person that has invested with Parsad is betting on a deflation. (FRFHF)
CPI-linked derivative contracts
The company has entered into derivative contracts referenced to consumer price indexes (ďCPIĒ) in the geographic regions in which it operates that
serve as an economic hedge against the potential adverse financial impact on the company of decreasing price levels. At March 31, 2019 the company
held CPI-linked derivative contracts with a fair value of $16.2 (December 31, 2018 - $24.9), notional amount of $113.6 billion (December 31, 2018 -
$114.4 billion) and weighted average term until expiry of 3.4 years (December 31, 2018 - 3.6 years).
The companyís CPI-linked derivative contracts produced net unrealized losses of $4.3 in the first quarter of 2019 (2018 - $20.2). Net unrealized gains
(losses) on CPI-linked derivative contracts typically reflect the market's expectation of decreases (increases) in the values of the CPI indexes underlying
those contracts at their respective maturities (the contracts are structured to benefit the company during periods of decreasing CPI index values).
« Last Edit: June 16, 2019, 07:14:29 PM by shalab »