Posts Tagged ‘U.S. 2/10 Yield Curve’

Notes From Underground: Are We Reliving 1930?

June 25, 2018

Upon taking some time to reflect on the current state of the global macro world it seems that the most relevant are the years between 1928 and 1933. This was when the U.S. Congress was debating the famed Smoot-Hawley tariffs while the Treasury was reining in spending, and the FED was tightening liquidity and credit. While we don’t have a restricted Treasury (quite the opposite, actually), the Fed seems intent on raising rates to curtail the impact from an ill-advised fiscal stimulus at a time of 3.8% unemployment.

(more…)

Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

(more…)

Notes From Underground: Draghi is Laughing All the Way To the Bank

July 10, 2016

The jobs report on Friday was the antithesis of May’s poor data, which was actually revised downward by 27,000 to a very meager 11,000 NFP gain for May. The June report brought an unexpected increase of 287,000 jobs, although the average hourly earning (AHE) showed a weak 0.1% gain. The market closes revealed a well known fact: ULTRA-LOW INTEREST RATES ARE THE KEY ELEMENT TO THE REACTION FUNCTION OF TRADERS AND INVESTORS.

(more…)

Notes From Underground: Will the Dollar Make It Into the FOMC Statement?

January 27, 2015

The FED is on the record as being patient as it tries to achieve its dual mandates of full employment and an inflation rate of 2 percent. In the December 16-17 FOMC release, it said the “… Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.” While the FOMC statement made no direct mention of the DOLLAR’S STRENGTH, the release of the MINUTES revealed that the dollar had been discussed in reference to inflation. The minutes said: “Participants generally anticipated that inflation was likely to decline further in the near term,reflecting the reduction in oil prices and the effects of the rise in the foreign exchange value of the dollar on import prices.”

(more…)

Notes From Underground: “Both Sides Now”

April 7, 2014

This is a tribute to N.B. and his continued effort to search for perspective (and his love of Joni Mitchell):

      I’ve looked at life from both sides now
      From up and down and still somehow
      It’s life’s illusions I recall
      I really don’t know life at all
I bring this up because last night’s blog elicited a great deal of comment about the 2/10 yield curve. Everything we do in trading and investing is about perspective and so much of our thought is time-based. A person using a 10-minute chart sees the financial and commodity markets from a much different series then a person relying on a daily, weekly or monthly horizon. Therefore, tonight I am posting an eight-year chart of the 2/10 yield curve, which includes the period prior to the onset of the Great Recession, as well as the Fed’s large-scale asset purchases. Before the housing crisis, note that the 2/10 curve had actually inverted, which is the paradigm of an ultra-flat curve. As the FED cut rates in an effort to “prime the liquidity pump,” the Fed was able to steepen the curve as short-term yields fell and long yields began to moderately rise in the view that the Fed would be successful in its attempt to stimulate the economy.

(more…)

Notes From Underground: Why All the Noise From Friday’s Unemployment Data?

April 6, 2014

Friday’s jobs data was almost as the pundits had predicted. Why was there so much activity when the nonfarm payrolls and average hourly earnings and length of work week were basically the right on the consensus predictions? Yes, I’m aware that the “whisper number” was 250,000-plus due to the removal of harsh weather conditions. However, if that was the case, the dollar should have weakened and the short-end of the U.S. yield curve OUGHT to have outperformed the long end resulting in a STEEPENING of the 2/10 (none of which occurred). The 2/10 curve actually flattened as the U.S. stock markets began selling off, a drop initiated by the Nasdaq 100’s key momentum stocks. The weekly charts of the S&P and the Nasdaq took different turns as the SPOOs closed higher on the week and the Nasdaq closed lower, an indication of some reallocation from the momentum-oriented stocks to the more solid large-cap, earnings-based equities.

(more…)

Notes From Underground:Just A Few Quick Hitters After Last Night’s Deluge

March 11, 2013

Today was a very slow news day and thus little news to slow the steady rise of equities and the sell off in other asset classes. There was a story in the Financial Times about the Brazilian government cutting the tax on ethanol producers. The government is going to cut the tax on sugar-based ethanol producers by 80%–from 120 REALS per cubic meter to 25 REALS. It is an effort “… to support ethanol producers, many of whom are facing bankruptcy because of heavy debts and DIFFICULTIES COMPETING WITH SUBSIDISED PETROL PRICES IN BRAZIL.” There has been a global sugar surplus, which has kept pressure on sugar prices, but this move may help lift sugar prices and allow Brazilian growers to grab some of the agricultural profits that have supported the Brazilian economy. The U.S. economy is a corn-based ethanol producer and this has helped put upward pressure on global grain prices which has benefited Brazil’s farmers.

(more…)

Notes From Underground: Bernanke and Yellen Are in Lockstep With Policy

March 4, 2013

Friday night Chairman Bernanke delivered a speech on long-term interest rates at the Annual Monetary/Macroeconomics Conference sponsored by the San Francisco Federal Reserve. The basis of his remarks was that the Fed would continue to maintain its robust monetary accommodation because any early extraction may result  in the economy slowing and thus the Fed would have to move to extend the period of aggressive Fed action. It is always important to remember that Ben Bernanke is the main ’37er in the realm of preventing an economic relapse to the deflationary impact of deleveraging. When I say that Chairman Bernanke is a ’37, it refers to the pledge the chairman made to Professor Milton Friedman at the esteemed economist’s 90th birthday party. Bernanke said the Fed made a huge mistake by tightening rates and reserve requirements in 1937 while the U.S. Treasury was instituting an austerity budget at the behest of Secretary Andrew Mellon. It has been Bernanke’s belief that the Fed’s actions coupled with a badly flawed fiscal policy sent the U.S. back into a very severe recession.

(more…)