LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
There’s A Number That Ends This Cycle — But What Is It?


By: John Rubino



 -- Published: Wednesday, 16 May 2018 | Print  | Disqus 

After an epic (generation-spanning at the long end) decline in interest rates, the trend has finally reversed. Which means, if history is still a reliable guide, there’s a number that ends this cycle and ushers in the next recession and equities bear market. But what is it?

Here’s a chart (from MishTalk via Crescat Capital) that shows the relationship between short term interest rates and economic recoveries. In cycles past the Fed has responded to building inflationary pressures by raising the Fed Funds rate, and eventually the rising cost of short-term loans either caused or coincided with the expansion’s end. Note that in the past it didn’t necessarily take a long, dramatic rate increase. Just a change in direction over a year or two was enough to turn growth into shrinkage.

Fed Funds number that ends this cycle

Meanwhile at the longer end of the yield curve interest rates are jumping as well – also in response to the perception that inflation is becoming a thing again. Here’s the 10-year Treasury bond yield since 2016:

10 year Treasury yield number that ends this cycle

This rate matters in part because it’s how banks price 30-year mortgages. Already it’s having a profound effect. See Mortgage rates are surging to the highest level in 7 years.

Last but not least, the relationship between short and long rates is a number, and might end up being the one we seek. The following chart shows the 10-year Treasury yield minus the 2-year Treasury yield. When it drops below zero the curve is inverted, which has historically signalled a slowdown. So the magnitude of the (apparently) coming yield curve inversion is a big deal.

yield curve number that ends this cycle

The frustrating thing for investors (including short sellers) is that, as all three of these charts illustrate, there is no historically magic number that always does the trick. Rates in general have been falling over the past few decades as government financial mismanagement has required ever-easier money to keep the game going.

This means that it might not take a return to, say, the 8% Fed Funds rate of 1990 to blow up the system; a much lower rate – spread out over vastly more debt – might do the trick. Same thing with mortgages. In the healthier past a 6% rate on a 30-year mortgage was low enough to excite home buyers. Now 4.5% is pricing homes out of most Americans’ reach.

So the exact number on the exact indicator that turns a steady expansion and robust bull market in a brutal bear market will only be known in retrospect. In the meantime we’ll just have to pay attention and hope that the end, when it comes, provides at least a little warning.

 


| Digg This Article
 -- Published: Wednesday, 16 May 2018 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus







 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.