Recess!

[Borodog]

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I don't have time to reply to all of that in depth but yeah, some of that seems fishy.

How is there not "growth vs inflation" issues right now? The economy is clearly slowing (unemployment starting to tick upward, corporate profits flat, credit crunch) and the Fed just turned on the money spigot again, not to mention the weakening dollar sending foreign dollars back inside our borders to increase prices.

Increasing foreign demand for US goods might be good for those producers, but we have to compete with them for those goods and inputs especially, driving up costs and squeezing some corporate profits even more.

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show me where i said there aren't growth vs. inflation issues.

i specifically stated they weren't the entire reason the yield curve inverted int he first place, whereas in all other times, that inversion was 100% based off of growth vs. inflation (i.e. there wasnt $1trillion poured into 1 or 2 maturities on the yield curve).

and again, i didn't say we won't have a recession. there are tons of downside risks...

i kinda get the feeling you didn't read my post...EDIT: or maybe skimmed it and went into "attack" mode lol

Barron

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None of this is true. I read it, didn't skim it, and didn't go into "attack mode". I just misspoke a little. So sue me.

The point is that the historical conditions that lead to a YC inverswion in the past are in place, and I don't see how other conditions that might contribute some unspecified amount necessarily negate that.

[CrushinFelt]

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in this case, asian economies (mostly japan and china) have financed our huge CA deficit almost entirely by purchasing medium term US notes and bonds (the 10yr and 20yr) and not purchasing any of US short maturity securities. there has been nearly $1trillion poured into these securities over the past few years (2003 on) while the short rates have been increased in the US.


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The supply/demand argument fits best in my view for why this isn't like other inversions.

[DcifrThs]

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I don't have time to reply to all of that in depth but yeah, some of that seems fishy.

How is there not "growth vs inflation" issues right now? The economy is clearly slowing (unemployment starting to tick upward, corporate profits flat, credit crunch) and the Fed just turned on the money spigot again, not to mention the weakening dollar sending foreign dollars back inside our borders to increase prices.

Increasing foreign demand for US goods might be good for those producers, but we have to compete with them for those goods and inputs especially, driving up costs and squeezing some corporate profits even more.

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show me where i said there aren't growth vs. inflation issues.

i specifically stated they weren't the entire reason the yield curve inverted int he first place, whereas in all other times, that inversion was 100% based off of growth vs. inflation (i.e. there wasnt $1trillion poured into 1 or 2 maturities on the yield curve).

and again, i didn't say we won't have a recession. there are tons of downside risks...

i kinda get the feeling you didn't read my post...EDIT: or maybe skimmed it and went into "attack" mode lol

Barron

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None of this is true. I read it, didn't skim it, and didn't go into "attack mode". I just misspoke a little. So sue me.

The point is that the historical conditions that lead to a YC inverswion in the past are in place, and I don't see how other conditions that might contribute some unspecified amount necessarily negate that.

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i never said that "other conditions that might contribute some unspecified amount" "necessarily negate" the historical predictive power of the YC inversion.

why do you put words in my mouth? you just went through saying that you misspoke and then you went ahead and did it again.

i just gave reasonable explanations as to why the YC inversion may be a worse predictor now than it has been in the past (i.e. not actually fully negating).

i also posted right above your post that the article from the fed agrees with my determination and worded it far far better than i have.

again, i'm not saying "we will not have a recession" or "the YC inversion definitely does not imply a recession this time."

all i'm saying is that the times are WAY more different now than they were in any other time you'd compare a YC inversion to a previous YC inversion.

there are significant (not exactly "unspecified") factors that have led to kinks in the YC that have never existed before. $1trillion is not a small number, borodog. that is about the amount of money poured into US medium term notes & bonds. that affects yields. there is no arguing that.

further, that situation has never before been in affect during, before, or after a YC inversion. so though it might be slightly "unspecified" (in terms of the # of bps it reduced long yields), it is definitely significant and very different from all previous YC inversions.

i hope this post is clear and you read it carefully before responding with more words you forcably put in my mouth [img]/images/graemlins/smile.gif[/img]

Barron

[adios]

Well an inverted yield curve does set up a caution light but keep in mind that Fed has basically changed philosophy on managing money supply since Volker. Generally speaking Fed controls rates from 0-2 and bond market has control from 2-30. Yield curve from 2-30 is positive sloping FWIW. I'm constantly amazed at yields on the long end.

[DcifrThs]

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Well an inverted yield curve does set up a caution light but keep in mind that Fed has basically changed philosophy on managing money supply since Volker. Generally speaking Fed controls rates from 0-2 and bond market has control from 2-30. Yield curve from 2-30 is positive sloping FWIW. I'm constantly amazed at yields on the long end.

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yea i think they are a bit low given the inflationary pressures building ... BEI is 2 and change and has been for a while.. i'd be long BEI at this point.

Barron

EDIT: or do you mean you are thinking they are too high? or their overall movements?

[Borodog]

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I don't have time to reply to all of that in depth but yeah, some of that seems fishy.

How is there not "growth vs inflation" issues right now? The economy is clearly slowing (unemployment starting to tick upward, corporate profits flat, credit crunch) and the Fed just turned on the money spigot again, not to mention the weakening dollar sending foreign dollars back inside our borders to increase prices.

Increasing foreign demand for US goods might be good for those producers, but we have to compete with them for those goods and inputs especially, driving up costs and squeezing some corporate profits even more.

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show me where i said there aren't growth vs. inflation issues.

i specifically stated they weren't the entire reason the yield curve inverted int he first place, whereas in all other times, that inversion was 100% based off of growth vs. inflation (i.e. there wasnt $1trillion poured into 1 or 2 maturities on the yield curve).

and again, i didn't say we won't have a recession. there are tons of downside risks...

i kinda get the feeling you didn't read my post...EDIT: or maybe skimmed it and went into "attack" mode lol

Barron

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None of this is true. I read it, didn't skim it, and didn't go into "attack mode". I just misspoke a little. So sue me.

The point is that the historical conditions that lead to a YC inverswion in the past are in place, and I don't see how other conditions that might contribute some unspecified amount necessarily negate that.

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i never said that "other conditions that might contribute some unspecified amount" "necessarily negate" the historical predictive power of the YC inversion.

why do you put words in my mouth? you just went through saying that you misspoke and then you went ahead and did it again.

i just gave reasonable explanations as to why the YC inversion may be a worse predictor now than it has been in the past (i.e. not actually fully negating).

i also posted right above your post that the article from the fed agrees with my determination and worded it far far better than i have.

again, i'm not saying "we will not have a recession" or "the YC inversion definitely does not imply a recession this time."

all i'm saying is that the times are WAY more different now than they were in any other time you'd compare a YC inversion to a previous YC inversion.

there are significant (not exactly "unspecified") factors that have led to kinks in the YC that have never existed before. $1trillion is not a small number, borodog. that is about the amount of money poured into US medium term notes & bonds. that affects yields. there is no arguing that.

further, that situation has never before been in affect during, before, or after a YC inversion. so though it might be slightly "unspecified" (in terms of the # of bps it reduced long yields), it is definitely significant and very different from all previous YC inversions.

i hope this post is clear and you read it carefully before responding with more words you forcably put in my mouth [img]/images/graemlins/smile.gif[/img]

Barron

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Why must you always be such an incredible douchebag? Do you think putting a smiley after it lets you off the hook?

Jesus [censored] Christ.

Talk about putting words in people's mouths. Everything you've written in this thread is a nebulously argued panglossian downplay of the possibility of recession. All I'm saying is that (a) I don't really see that important factors are all that different from historical cases, and (b) its unclear how the stuff that is different would reduce the chance of a recession beyond "it's different", and you accuse me calling you a recession denier or something. You take a perfectly reasonable discussion trying to get to some sort of understanding and you defensively flip out, turning it into some sort of attack, and condescendingly tell me that "a trillion dollars is a lot of money, borodog" and "I hope you read it carefully."

Go [censored] yourself, jerk. [img]/images/graemlins/smile.gif[/img] [img]/images/graemlins/grin.gif[/img] [img]/images/graemlins/smirk.gif[/img] [img]/images/graemlins/wink.gif[/img] [img]/images/graemlins/tongue.gif[/img]

[DcifrThs]

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I don't have time to reply to all of that in depth but yeah, some of that seems fishy.

How is there not "growth vs inflation" issues right now? The economy is clearly slowing (unemployment starting to tick upward, corporate profits flat, credit crunch) and the Fed just turned on the money spigot again, not to mention the weakening dollar sending foreign dollars back inside our borders to increase prices.

Increasing foreign demand for US goods might be good for those producers, but we have to compete with them for those goods and inputs especially, driving up costs and squeezing some corporate profits even more.

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show me where i said there aren't growth vs. inflation issues.

i specifically stated they weren't the entire reason the yield curve inverted int he first place, whereas in all other times, that inversion was 100% based off of growth vs. inflation (i.e. there wasnt $1trillion poured into 1 or 2 maturities on the yield curve).

and again, i didn't say we won't have a recession. there are tons of downside risks...

i kinda get the feeling you didn't read my post...EDIT: or maybe skimmed it and went into "attack" mode lol

Barron

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None of this is true. I read it, didn't skim it, and didn't go into "attack mode". I just misspoke a little. So sue me.

The point is that the historical conditions that lead to a YC inverswion in the past are in place, and I don't see how other conditions that might contribute some unspecified amount necessarily negate that.

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i never said that "other conditions that might contribute some unspecified amount" "necessarily negate" the historical predictive power of the YC inversion.

why do you put words in my mouth? you just went through saying that you misspoke and then you went ahead and did it again.

i just gave reasonable explanations as to why the YC inversion may be a worse predictor now than it has been in the past (i.e. not actually fully negating).

i also posted right above your post that the article from the fed agrees with my determination and worded it far far better than i have.

again, i'm not saying "we will not have a recession" or "the YC inversion definitely does not imply a recession this time."

all i'm saying is that the times are WAY more different now than they were in any other time you'd compare a YC inversion to a previous YC inversion.

there are significant (not exactly "unspecified") factors that have led to kinks in the YC that have never existed before. $1trillion is not a small number, borodog. that is about the amount of money poured into US medium term notes & bonds. that affects yields. there is no arguing that.

further, that situation has never before been in affect during, before, or after a YC inversion. so though it might be slightly "unspecified" (in terms of the # of bps it reduced long yields), it is definitely significant and very different from all previous YC inversions.

i hope this post is clear and you read it carefully before responding with more words you forcably put in my mouth [img]/images/graemlins/smile.gif[/img]

Barron

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Why must you always be such an incredible douchebag? Do you think putting a smiley after it lets you off the hook?

Jesus [censored] Christ.

Talk about putting words in people's mouths. Everything you've written in this thread is a nebulously argued panglossian downplay of the possibility of recession. All I'm saying is that (a) I don't really see that important factors are all that different from historical cases, and (b) its unclear how the stuff that is different would reduce the chance of a recession beyond "it's different", and you accuse me calling you a recession denier or something. You take a perfectly reasonable discussion trying to get to some sort of understanding and you defensively flip out, turning it into some sort of attack, and condescendingly tell me that "a trillion dollars is a lot of money, borodog" and "I hope you read it carefully."

Go [censored] yourself, jerk. [img]/images/graemlins/smile.gif[/img] [img]/images/graemlins/grin.gif[/img] [img]/images/graemlins/smirk.gif[/img] [img]/images/graemlins/wink.gif[/img] [img]/images/graemlins/tongue.gif[/img]

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first off, i notified the moderators b/c you are just waaaaay out of line here.

go read my first few posts and see where i came off as a douche. you asked a question and even stated outright that this isn't your field.

just because you have a problem with me, doesn't make it ok to be that big of a jerk. i hope you'll come back to this and at least apologize.

once you started in on me i responded as i felt you were responding to me. if i crossed a line or patronized you too much (beyond what you did to me), then i apologize.

i gave my case fairly clearly. you keep saying "i dont' see how it is different" and i keep giving facts and opinions (not just mine) on why i believe it is very different.

i carefully chose my words to make sure i didn't imply anything that i couldn't back up with facts and/or logic.

so back off, take a breather and relax.

[img]/images/graemlins/tongue.gif[/img]

Barron

[Borodog]

I'm way out of line because I didn't couch my insults in condescension and passive aggression, like you?

You didn't come off as a douche in your first few posts. We were having a perfectly fine conversation until I made a small mistake in my wording because I was in a hurry to get to my next lecture and typing on a damn phone (saying "How is there not 'growth vs inflation' issues right now?", when what I meant to say was something like "But aren't there 'growth vs inflation' issues right now?"), which I clearly admitted in my next post, and you accused me of not reading your posts, or skimming them and "going into attack mode lol" because I was trying to clarify how these various mechanisms could contribute to a yield curve inversion while at the same time reducing the likelihood of a recession. Which still hasn't been clarified. How exactly does a trillion dollars invested in medium term notes and bonds *reduce* the likelihood of a recession, given that the conditions that you say the yield curve inversion has historically reflected, poor performance and inflationary expections, are currently in place? That's all I'm asking. That's all I keep trying to clarify. And then you flip out and accuse me of "forcing words in your mouth", or ignoring what you're writing, or not reading carefully, and you do it in an *incredibly* condescending way, and top it off with a smiley. Hey, that makes it perfectly fine to be a rude, insulting, condescending jerk to someone who is just trying to have a discussion. AND you have a history of it.

I can *guarantee* that I am not in "attack mode" because I don't really have any interest in defending the "inverted yield curve must portend recession" position because *I don't know the complete theory behind it*. That's why I posted the damn thread in the first place and just said, "Discuss" and not "ZOMFG the sky is falling recession is here!" I do think a recession is coming, but there's no way to say when; the yield curve inversion might indicate we're in the front end of it, but it might not (although I do think it's likely). A lot of people have "discovered" the yield curve as an "recession thermometer" since the last recession; it's gotten a ton of press (my friend's dissertation made the WSJ on the topic). But the problem might be that once a lot of people know about it, it can change market behavior in ways that make it less useful as a predictor. It's like holding a lighter under a thermometer doesn't make it hotter outside, if that makes any sense.

In any event, I am willing to let it drop. I've said my piece. I apologized to ahnuld for getting heated in his forum. I probably did overreact, so I apologize for that, but there was sure as hell something to react to. As near as I can tell you sort of apologized for that, so, accepted.

Peace out.

[adios]

I'm amazed that yields on the long end are as low as they are.

[DcifrThs]

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I'm way out of line because I didn't couch my insults in condescension and passive aggression, like you?

You didn't come off as a douche in your first few posts. We were having a perfectly fine conversation until I made a small mistake in my wording because I was in a hurry to get to my next lecture and typing on a damn phone (saying "How is there not 'growth vs inflation' issues right now?", when what I meant to say was something like "But aren't there 'growth vs inflation' issues right now?"), which I clearly admitted in my next post, and you accused me of not reading your posts, or skimming them and "going into attack mode lol"

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i was literally joking there. it came accross as an insult to me.

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because I was trying to clarify how these various mechanisms could contribute to a yield curve inversion while at the same time reducing the likelihood of a recession. Which still hasn't been clarified. How exactly does a trillion dollars invested in medium term notes and bonds *reduce* the likelihood of a recession, given that the conditions that you say the yield curve inversion has historically reflected, poor performance and inflationary expections, are currently in place? That's all I'm asking.

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thats a fair point and a good question.

there are multiple issues here. the above sentance bundles them up.

so lets separate them.

the first issue is the determinant of the inversion of the yield curve. if the yield curve can invert without only being attributed to growth vs. inflation expectations, then it stands to reason that it isn't as strong a predictor of a recession as it has been in the past.

this is a part played by the trillion dollars invested in US 10/20yrs by china, japan, and oil/commodity exporters running massive CA surpluses.

that is only 1 part of it.

the next question is "how does this reduce the likelihood of a recession?"

well, directly, it doesn't. the only argument you could make here is that it artificially holds down borrowing costs since those costs are based of fthe US long rates and thus encourages spending when it otherwise may not have occurred.

that argument though doesn't hold water now b/c the riskiness of those loans (bank loans to companies, pricing of corporate bonds off of tbills, and mortgages) have all gone up in the eyes of the lenders so the spread above treasuries has shot up.

the issue that reduces the liklihood of a recession in my mind (and in others' minds) is that we have significant demand for our goods/services from the emerging world that has, for the first time ever, contributed more to global growth than the US has.

also, corporate profits are still near record highs as a % of US gdp. they may not have grown at previous high paces, but they are still strong. this means that they have some room to absorb higher input costs and wage increases. these profits are mean reverting though so we should obviously expect them to fall (i.e. margins decrease and profits fall as a % of GDP), but for now, and the near term future, they provide some cushion from an all out recession.

additionally, since rates aren't at rock bottom and the markets will likely clear (i.e. banks holding bad mortgages and investors/conduits/SIVs holding MBSs will not artificially prop up their values to the extent done in japan in the 1990s and will be, and have been allowed to fail), the fed has some maneuverability at this point in time.

previously, growth rates of upwards of 2.5-3% were estimated for late 07 and 08. but now, as a result of the recent turmoil and likely faltering consumptive demand in the US, those estimates have been ratched down by anywhere from .6-1.5%points.

but, as you alluded to, and as is known by those making the above estimates, there are huuuuge downside risks to growth right now. if they all hit badly, we could definitely go into a recession. in no special order they are:

1) inflationary pressures are high, cap.util is still north of 82%, UE is still low (but increasing), oil is near record nominal prices and the dollar is weak and weakening (especially vs. east asian currencies, which could pull back demand for US goods that would otherwise add some basis points to growth). all of this make it harder for the fed to maneuver (i.e. lower rates) despite their bias for doing so. i'd still bet on at least 1 if not 2 or 3 further reductions...but definitely 1.

2) US housing market is also very weak and weakening and contributes a lot to growth. this is probably the biggest unknown. how much will weak housing hurt growth via consumer demand?

3) there may be some negative pressure on even emerging world growth if US hits the skids and a downard feedback loop could plunge the US further into slow growth or recessionary territory and drag a lot of the world with it. the business cycle, while not completely synchronized, is definitely highly correlated worldwide and this bodes ill for the US in time of trouble. the good news is the little bit out of synch it is helps the US at this point (the height of the cycle is being experienced while we head towards the trough)

i think that should help frame the issue.

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That's all I keep trying to clarify. And then you flip out and accuse me of "forcing words in your mouth", or ignoring what you're writing, or not reading carefully, and you do it in an *incredibly* condescending way, and top it off with a smiley. Hey, that makes it perfectly fine to be a rude, insulting, condescending jerk to someone who is just trying to have a discussion. AND you have a history of it.

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you interpreted my actions there. and i interpreted yours. you kept neglecting what i was saying or not reading ti. either insulting, or negligent. your tone wasn't the nicest thing either. and mine was definitely condescending and i meant it as such. now that is ee you weren't trying to be insulting i know i was wrong there so i'm sorry for that.

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I can *guarantee* that I am not in "attack mode" because I don't really have any interest in defending the "inverted yield curve must portend recession" position because *I don't know the complete theory behind it*. That's why I posted the damn thread in the first place and just said, "Discuss" and not "ZOMFG the sky is falling recession is here!" I do think a recession is coming, but there's no way to say when; the yield curve inversion might indicate we're in the front end of it, but it might not (although I do think it's likely). A lot of people have "discovered" the yield curve as an "recession thermometer" since the last recession; it's gotten a ton of press (my friend's dissertation made the WSJ on the topic). But the problem might be that once a lot of people know about it, it can change market behavior in ways that make it less useful as a predictor.

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well i think that people knowing about it doesn't make it any less of a predictor. they knew about it in the 1950s. maybe not to the extent today but it isn't like finding some alpha generating strategy and publishing it only to see those returns diminish.

there are fundamental reasons why a yield curve inversion signals a recession. it's just that this time around they play a less central roll than in previous inversions. thats what i've been saying from the get go.

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It's like holding a lighter under a thermometer doesn't make it hotter outside, if that makes any sense.

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could you rephrase that, i can't tell what exactly you mean.

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In any event, I am willing to let it drop. I've said my piece. I apologized to ahnuld for getting heated in his forum. I probably did overreact, so I apologize for that, but there was sure as hell something to react to. As near as I can tell you sort of apologized for that, so, accepted.

Peace out.

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thanks and i accept yours. i hope the time i put to explain my thoughts more clearly above also help to sooth this over.

Barron