2006 Fortune Cookie

Hmmm...

Inverted Yield Curve Obsession

A final note (for now) on the Inverted Yield Curve issue.  I was watching Bubblevision on the way out the door (to my beloved Fun Factory) this morning, and they had an on-screen graphic showing the 2yr vs. 10yr yields.  This graphic was refreshing every few seconds.  One second, the yield curve was inverted.  A few seconds later, not inverted.  A few seconds later, flat.  Inverted.  Flat. Not inverted.  Inverted. Flat.  Inverted.  Not inverted.  Etc.  At this point, I realized HECK!  This is Bubblevision!  If they're obsessing about it, then I suppose we don't have to worry about it.  (For now!)

The Inverted Yield Curve SAT Question

I read somewhere that recessions are preceded by inverted yield curves, but not all yield curves lead to recessions. Which sounds a little like an intro to an SAT question. Lets do it!

Q: Recessions are preceded by an inverted yield curve; however, not every inverted yield curve leads to a recession. What can we say about the current inverted yield curve?

A. Sally is taller than Jane.
B. Jane is taller than Sally.
C. Always yield to traffic when merging.
D. Inversion is good for lower back pain.
E. Jane and Sally are the same height.
F. Take the Wolverines and give the points to the Cornhuskers.

Invest wisely!

Inverted Yield Curve Links

More on the yield curve inversion...

• Adam's Options on yield curve inversion.  I found the comment interesting that the yield curve has inverted 4 times since 1982, and the market reacted well in the interim, rallying in the next 6 month's post-inversion in each instance, and rallied 12-month's out in 3/4 occurences.


• Adam's Options also points out that it's the responsibility of the "it's different this time" crowd to prove that yield curve inversion won't lead to a slowdown or recession.


• Economist's View on inversion when inflation is low, as it is in our current environment.


• The Big Picture's Barry Ritholz explains the significance of yield curve inversion, and potential economic and market implications.


• Paul Kedrosky's Infectious Greed on Inverted Yield Curve Worries.  Maybe PK has a point on the media hype!  It does seem like this is all folks are talking about right now.


• Stocks or Bonds on yield curve inversion, daring to sound like "it's different this time!"


• The Asset Allocator wonders if we're jumping the gun from yesterday's smorgasbord.


• Bill Cara blogs on the yield curve focus, and contemplates a 2006 recession.  Bill likes the yellow metal!


• BlogginWallStreet's Mark Mahorney talks about the Inverted Yield Curve Myth:  They are NOT an indicator of recession.  And note his last comment, There's a lot of money to be made off of people misunderstanding the markets. I know of at least one hedge fund operator that likely would have appreciated my letting people go on believing that a yield curve inversion would lead to a recession.  Student body right, and run the counter!  (I'm watching so many bowl games it's ridiculous!)


• On a quick bloglines refresh, I see Adam's Options has more on the inverted yield curve, linking to subscription based realmoney.com (Yeah, Cramer's site!).  Keep an eye on Adam's blog, as he's running with it today!

Sorry if I missed any out there.  If you know some out there, feel free to add them to the comments and I'll include them later in an update.  This is a MEDIA HEADLINE right now, and lots of folks are out there discussing what the inverted yield curve means, doesn't mean, implications, and non-implications.  Worries.  Fears.  Blood on the street!

It's fun to read and discuss.  And you'll be the hit of the New Year's Eve Party if you've done your research!

In Edit! Here are some additions:

• Dr. John Rutledge discusses his appearance on CNBC's "Wake Up Call" on the inverted yield curve.


• A Dash of Insight by Jeffery Miller

Memoirs of a Rainy Day

• On the markets, I heard someone say "January is happening now."  He was thinking that everyone on the planet is expecting a January selloff.  So folks want to "get out" before the correction happens, thus creating the pullback ahead of schedule.   That's kind of what I was thinking.  If so, those who want out to avoid the January selloff will already be out, and the only thing they can do at that point is buy back in.  Just thinking out loud.


• Raining quite a bit here lately.


• My coworker is reading the book Memoirs of a Geisha.  I asked her, "You know this is out in the theaters, right?"  But she likes to read a book before she sees it at the theaters.  "So you can be disappointed?" I asked.  She said usually, but she likes to know what's going to happen.  Uh, okay.


• Of course, last week's rally (3 up days in a row) might've been folks trying to get in before the anticipated Santa Claus rally.  Those folks are losing money trying to front run this week's anticipated rally (which isn't happening).  Maybe those selling this week will also lose money trying to front run next month's selloff (which hopefully won't happen).


• (Did I just mention hope?  EGADS!)


• Yield Curve Inverts Again!  Nobody was mentioning or cared about this much in 2000.  Everybody believed in the "new economy."  Today, though I sense lots of fear.  Hey, more on Bulls vs. Bears later today.


• I asked my coworker how she felt about Chinese actresses playing Japanese roles in movies, as if folks couldn't tell the difference.  She replied that being Hispanic, lots of folks think she's Asian.  "I get that all the time," she said.


• Happy Wednesday! 


• Who will win the battle for the HD DVD formats?  Pioneer is going to market a Blu-ray DVD player for PCs, competing against Toshiba's HD-DVD format.  Sony is rumored to be including a Blu-ray drive for the Playstation 3.


• Two words:  Ziyi Zhang!  I liked her in the other movies she starred in.  Most recently, "House of Flying Daggers."  So, I'll probably see "Memoirs of a Geisha."


• More later on Bulls vs. Bears.  Specifically, all the bears think everyone is bullish.  All the bulls think everyone is bearish.  Who's right?


• I'm not going to be an early adopter on the HD DVD players.  I'll let somebody else pay that high price tag, and then let the dust settle to see which format becomes "the standard."  Know what I mean?

Tuesday Quick Hits

• Now there's an old-fashioned sell-off!  Of course, the fear is not only the inverted yield curve between the 2yr and the 10yr, but that the market will repeat what it has done the previous two January-February periods, and sell-off.  Seems like everyone is front-running that anticipated event.


• Stocks or Bonds blog responds to Muckdog and Random Roger on Yield Curve Inversion.


• In the bulls corner, today's selling was on very light volume.
• I watched Katie Holmes in "Pieces of April" over the weekend.  Quite the drama.  Not what I expected at all.


• Imagine Free Wi-Fi for all!


• By now, you may have already downloaded the Saturday Night Live Chronicles of Narnia rap song.  Or, should I say, Chronic-What!-cles of Narnia.  It's pretty darn good from SNL. 


• I have so much to do here at the Fun Factory, that is completely unrelated to my new project.  I have a design due next week. Unfortunately, there is an implementation going on this weekend that has me scrambling around today.  Nobody else is around to figure anything out, so it's all a big (muck)dog pile.

Inverted Yield Curve

• Have you seen the Wall Street Journal commercial, where they tout all these successful people who read The Journal?  "I'm retiring at 50," one guy say as he reaches in his golf bag for a driver.  "I started my own business," says another.


• Bowl week!  Many have already come and gone, but the bulk of them happen over the next week!


• So we have an inverted yield curve between the 2yr and the 10yr.  And folks are saying this forecasts an economic slowdown or recession.  I think the official definition is the 90-day vs. the 30-yr, but folks can agree to disagree.  It's pretty flat, though.  Bill Cara discusses it more here.


• Barry Ritholz on the Four-Year Presidential Cycle.


• Does reading the Wall Street Journal really influence you financial outcome?  Maybe that guy who is retiring at 50 is a public safety officer in California who received a 3% at 50 retirement package, and had a lot of free time during the work day to read the paper.  How do we know that this isn't the case?


• More on the yield curve, comparing the 2-yr to the 10-yr, from CBS Marketwatch.  Despite what you'll hear about this "always predicting a crash," this article does point out that The yield curve briefly inverted in 1998 during the Asian financial crisis, the only time in the past 30 years that an inverted yield curve has not preceded a recession.


• I won my Fantasy Football league!


• 1998 was pretty choppy, though!  It also presented a great Four-Year Presidential cycle buying opportunity in the fall.


• As you can see in some of the comments here, many are convinced that 2006 will be a bad year for stocks.  Maybe most folks are thinking it'll be a horrible year at this point.  But all anybody has to offer is opinions.  You can find any that you like out there for the taking.  Opinions are low-hanging fruit.


• I subscribe to the Wall Street Journal online edition.  How will this impact my future, compared to those who subscribe to the hard copy?  Am I going to be able to retire at 50?  Am I going to be able to start my own business?