The Yield Curve Inverteth

Published July 5, 2022

The following is an amended form of the Daily Contrarian briefing from July 5. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

The yield-curve between the 2-year and 10-year just inverted. What this means is the shorter-dated yield (the 2-year in this instance) is actually higher than the longer-dated one (the 10-year). To be specific, the 2-year yield is currently 2.81% while the 10-year is 2.80%.

So there you have it. It’s not the first time this has happened this cycle. In fact, the 2/10 curve inverted as recently as June 14. Also in March. This is one recession predictor that is deemed to be pretty accurate for reasons that are discussed in this Investopedia article.

This yield curve inversion gives us something to talk about today, as things are still mostly quiet after the long holiday weekend. Most of the action this week is back-loaded, with the June jobs report due on Friday.

Markets got some good news around easing of China tariffs over the weekend, but the mood is mostly pretty dour. CNBC reports the outlook for the second half is “not looking good.” A contrarian indicator? Maybe. Or maybe it just isn’t a good idea to fight the Fed?

Americans have apparently started tapping into their savings to cope with inflation. That’s not good, but there is a ready-made boogey man in the Federal Reserve. Lest we forget: the Fed insisted the inflation we were seeing last year was transitory. They’ve changed their tune on this, but the point is they don’t have political leeway to reverse course again — until inflation is well and truly under control (or they have some data to point to that will allow them to ‘declare victory’).

Whatever your views on all this, the truth is nobody has any idea what is going to happen. There are educated guesses but there are also people with a vested interest in pushing a specific narrative. Do your own research, make your own decisions.

Russia Bond Default, Crypto Fund Blow-Up No Concern to Markets (Yet)

Published June 27, 2022

The following is an amended form of the Daily Contrarian briefing from June 27. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Over the weekend we received a couple of troublesome headlines about a Russian bond default and potentially the blow-up of a crypto hedge fund.

Markets appear to have shrugged this off, moving higher in the pre-market. While this bounce faded at the open, major indexes are only down a few basis points at the time of this writing (0940 EDT on Monday). Cryptos are down a bit, with bitcoin dropping by about 2% to dip below $21,000.

Fed Will Reverse Course on Rate Hikes, And Soon: Deer Point Macro (Szn 4, Ep 17)

Published June 23, 2022

This episode is brought to you by StockMarketHats.com — claiming to be stylish and funny. To avoid ads, consider becoming a premium subscriber.

Deer Point Macro joins the podcast to discuss his view that the U.S. Federal Reserve will only hike interest rates once more before easing.

Content Highlights

The Fed is not some magical organization that can control all parts of monetary economics (2:50);
The Fed can create demand for credit, but banks have to provide supply. And banks are pushing back (5:03);
What to make of the Fed’s rate hikes this year? How has that affected bank portfolios? (9:37);
The eurodollar market plays a significant role in Fed policy and its implications. An explanation (13:24);
The Fed stands to raise once more, at its next meeting in July, before having to cut rates in September (16:21);
Inflation is stubbornly persistent. Doesn’t this force the Fed to raise rates? (19:57);
Background on the guest (30:14);
Markets don’t really react to ADP employment data, but for economic detective work it can be vitally important (31:48);
How this all translates to asset prices: good for bonds but commercial banks are maybe not as safe as some would think. But regional banks may be a better bet (35:11);
What about cryptocurrencies? (36:34);
Quick discourse on the so-called ‘Fisher effect’ that posits that inflation rises as Fed funds increase — over the long term (39:14).

Tag: bonds

The Yield Curve Inverteth

Russia Bond Default, Crypto Fund Blow-Up No Concern to Markets (Yet)

Fed Will Reverse Course on Rate Hikes, And Soon: Deer Point Macro (Szn 4, Ep 17)

Content Highlights