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

Gold Gets a Boost of Rocket Fuel From Negative Bond Yields
By: Frank Holmes, US Funds

The Gold (and Silver) Volcano Is Ready to Erupt
By: David H. Smith

Precious Metals Update Video: Where do you park money? Stock markets and hard assets
By: Ira Epstein

Recognition and Adjustment
By: Craig Hemke

After This Confirmation Gold Prices Will Rise Fast
By: Hubert Moolman

Will Silver Soon Follow Gold’s Lead?
By: Stefan Gleason

GoldSeek Radio: Dr. Chris Martenson & Bob Hoye
By: Chris Waltzek Ph.D., GoldSeek Radio

Gold’s Century
By: Michael J. Kosares, USA Gold

What Gets Measures Gets Improved
By: Keith Weiner, Monetary Metals

SWOT Analysis: Central Banks Continue to Show Their Love for Gold
By: Frank Holmes, US Funds

 
Search

GoldSeek Web

 
Sorry Permabulls, It’s Not Different This Time – Got Gold?


 -- Published: Wednesday, 5 June 2019 | Print  | Disqus 

By: Dave Kranzler

An inverted yield curve has historically been the most accurate indicator of an impending or concurrent recession. The inversion during late 2006 and most of 2007 is a good example. Studies have shown that curve inversions precede a recession anywhere from 6 months to 2 years. I would argue that, stripping away the affects of inflation and data manipulation, real economic activity has been somewhat recessionary for several years.

The shelf-life of financial topics is about as long as the lifespan of a mayfly (about 24  hours). Several months ago, a debate raged about the significance of the inverted yield curve (short term rates are higher than longer term rates). Most perma-bull pundits who populate mass financial media advised their minions to ignore the yield inversion because “it’s different this time.”

The inverted yield curve discussion disappeared soon after the stock market responded to the stock market intervention after the Christmas massacre. However, over the past  several days, the yield curve has “collapsed” in the sense that yields at the long end (10-years and beyond) have fallen more sharply than at the front end of curve, resulting in a yield curve inversion that is now at its steepest since 2007 (measured using the 3-month T-bill rate vs the 10-year Treasury yield).

The chart to the right was prepared by Phoenix Capital (with my edits). It shows the SPX from 1999 to present on a weekly basis vs the the yield curve (3-month T-bill minus the yield on the 10-yr Treasury bond). When the blue line in the bottom panel goes below the black line (the black line is my edit to clarify when the spread between the 3mo Bill and 10yr Treasury has gone negative), the yield on the 3-mo Bill is higher than the yield on the 10yr Treasury.

The chart must have been prepared prior to the holiday weekend because the 3-mo/10yr has been inverted since Monday. But more to the point, you’ll note that this particular “flavor” of inversion was accompanied by a sharp drop in the stock market from 2000-2003 and from 2007-2009. The yields have been inverted between other segments of the curve (1yr to 5yr, for instance) nearly continuously since last summer.  The curve is even more inverted now than when I wrote this commentary for my Short Seller’s Journal subscribers last week.  The 5yr Treasury is well below 2%.  The 3mo/5yr inversion is close to half a percentage point (46 basis points).

In addition, the upper bound of the Fed Funds rate “target” (2.25-2.50%) is now above the entire yield curve out to 10 years. The bond market is signaling to the Fed that the economy sucks and the Fed Funds rate needs to be reduced down to at least 2%. The term “bond market vigilantes” was coined originally by Ed Yardeni in the early 1980’s to convey the idea the bond market could be used to “guide” the Fed’s monetary policy implementation. The “bond vigilantes” right now are “screaming” at the Fed to reduce the Fed Funds rate and to ease monetary policy.

While the market can’t dictate the Fed Funds rate, big bond funds with a total rate of return mission will pile into the Treasury bonds at the longer end of the curve, driving down yields (bond prices rise) in the expectation that the Fed will have to cut rates sooner or later. This is the market dynamic that induces an inverted curve.

Whether or not the Fed will “listen” to the bond market and cut the Fed Funds rate at the mid-June FOMC meeting remains to be seen. To be sure, the researchers at the Fed who advise on policy know that the real rate of inflation is significantly higher than CPI-measured inflation. They also know the economy is reeling. But the Fed has to balance easier monetary policy with setting policy that supports the U.S. dollar.

Maintaining a stable dollar is critical to inducing foreign money to buy Treasuries, the supply of which will soar once the debt ceiling is lifted. If the Fed cuts rates too soon or too quickly, especially relative to the ECB or PBoC, the dollar could experience a not insignificant sell-off. This in turn would cause further damage to the economy.

The above commentary is an excerpt from my latest Short Seller’s Journal. Each week I present detailed analysis of weekly economic reports. In addition, I provide specific short ideas along with suggestions for using options to short stocks synthetically. You can learn more about this newsletter here:  Short Seller’s Journal information

 - Dave Kranzler


| Digg This Article
 -- Published: Wednesday, 5 June 2019 | 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.