The Bond Market Is Screaming

[ZiprHead]

https://www.nytimes.com/2019/08/13/opinion/the-bond-market-is-screaming.html?action=click&module=Well&pgtype=Homepage&section=Contributors

An old line about war says that amateurs talk about tactics, but professionals study logistics. A similar line about the economy would be that amateurs talk about stocks, but professionals study the bond market. And lately the bond market is telling a tale of profound pessimism.

Why does the bond market reflect economic expectations? If investors expect a boom, they also expect the Fed to try to rein in the boom by raising short-term interest rates (which it more or less directly controls), to head off potential inflation. The prospect of higher short-term rates then leads to higher long-term rates, because nobody wants to lock money in at a low yield if returns are going up. Conversely, if investors expect a slump, they expect the Fed to cut rates, and pile into long-term bonds to lock in returns while they can.

So the slump in long-term yields since last fall, from a peak of 3.2 percent to just 1.63 percent this morning, says that investors have grown drastically less sanguine about the economy. Long-term rates are now notably lower than short-term rates — and this kind of “yield curve inversion” has in the past consistently been the precursor to recession:

Is a recession just around the corner?

 

[Loren Pechtel]

Probably, although I have felt the economic boom isn't real for some time now.

 

[SimpleDon]

Here is an economic forecaster who does it for a living as part of a stock touting service.

He uses eight indicators for long-range forecasting. This is his preliminary 2nd quarter report. It is chock full of graphs and barely comprehensible verbiage. I present his conclusions below. The outlook isn't bad and it has improved from six months ago.

Summary and Conclusion

Let me point out first of all that this is a more comprehensive set of indicators, and in some cases indicators with a longer and better track record than are found in my more timely “Weekly Indicators” columns.

There are 2 positives: corporate bond yields and real retail sales per capita.

There are 5 mixed indicators: housing, corporate profits, money supply, the yield curve, and credit conditions.

There are no negatives.

This is an improvement from 2 positive, 2 mixed, and 3 negative indicators six months ago. While this is hardly a strong overall picture (and I am still waiting on the quarterly corporate profits report), it suggests that, *left to its own devices,* if the economy has not entered a recession by the end of this winter, it is not likely to, and coincident conditions like production and employment should be improving by midyear next year.

It looks like the Fed may have saved the good economy for Trump.

 

[Elixir]

It looks like the Fed may have saved the good economy for Trump.

From Trump?

There will be a correction in the not-too-distant future. Will it be 5 percent or 25 percent? How long will the recovery take? Which sectors will be hit hardest? Can the Fed do anything about it?
All these questions are swirling about with lights flashing and bells ringing, so it's a fair bet that the pullback (whether a blip or a major depression) isn't imminent - the markets will "climb the wall of worry" for a while yet. Reminds me of the 1990s only not so good.

 

[Jimmy Higgins]

Probably, although I have felt the economic boom isn't real for some time now.

Well it sure the heck wasn't real in 2016 according to some people. Their opinions changed real quick in 2017. Honestly, there was never a boom... more like it was sustained slow to moderate growth, and even that comes with an asterisk.

 

[SimpleDon]

Probably, although I have felt the economic boom isn't real for some time now.

See my forecast above from Seeking Alpha, You are probably right and the forecast of a continuing good economy is also right.

It is a holding forecast which is good because the economy has been good. But it is a rich man's good economy. The good news is that real wages are at 97% of their all-time high in 1973. The bad news is that almost all of the gains have been in the upper incomes. The CEOs are doing very well indeed, but the average worker is actually losing ground. Many corporations have decided that they will no longer grant across the board cost of living increases to their employees.

This is one of the areas where mainstream economists are completely blind. They don't recognize that the income distribution in the economy matters. They are currently baffled because inflation should be raging now, as it was in 1973, but it is barely a blip on the historical charts. It is because the rich save a bigger portion of their wages and savings don't impact the economy.

 

[SimpleDon]

It looks like the Fed may have saved the good economy for Trump.

From Trump?

There will be a correction in the not-too-distant future. Will it be 5 percent or 25 percent? How long will the recovery take? Which sectors will be hit hardest? Can the Fed do anything about it?
All these questions are swirling about with lights flashing and bells ringing, so it's a fair bet that the pullback (whether a blip or a major depression) isn't imminent - the markets will "climb the wall of worry" for a while yet. Reminds me of the 1990s only not so good.

See my post to Loren. It is a good economy and it will probably be a good economy into 2020.

But like the 1990s and the early 2000s, it is a rich man's good economy. The gains are poorly distributed, skewed heavily to the upper incomes. This is why inflation isn't increasing. The rich save much more of their wages and savings don't impact the economy, which responds only to consumption.

You can get an agreement with a mainstream economist by saying that there is little impact on the economy producing products that no one buys and that corporations won't invest to produce products that don't sell. But they can't make the leap to see that our economy is now lead by demand, not supply. This idea and that the income distribution matters to the economy make up most of the rubicon that mainstream economists can't cross and continue to be mainstream economists. They would then be heredoxical economists and their chance to get research grants, chairs at prestigious universities, and the Nobel prize in economics would be gone.

It is very possible that we could have another financial sector meltdown causing a recession as we had in 2000 and 2007. Most of the same elements are there. Consumers whose wages are eroding are using credit to make up for the lower purchasing power. As a result, private debt is near an all-time high. Whatever discipline Dodd-Frank imposed on the banks is gone because the syncopaths that Trump appoints won't enforce any regulations on the banks or the financial sector in general. The QEs which were boosting the stock markets have stopped so Wall Street is putting more debt in their products to make up the difference.

 

[southernhybrid]

The market just closed down 800 points. Trump's economy is largely bullshit. He gave corporations a big tax break. They primarily used the extra money for stock buy backs, not so much for investment in other things, and perhaps that's not the best way to pump up the price of a stock.

The inverse yield curve has been going on for awhile, although this might be the first time that the 10 year note was higher than the 3 month note since 2007, I think. Some so called experts are saying that the inverse yield curve may not be as significant as it once was, yet it's always happened prior to a recession. Are people over reacting or are we headed for a recession that's past due?

 

[ZiprHead]

From listening a little bit to the news today, the stock market is tanking due to fears of a recession.

 

[Loren Pechtel]

The market just closed down 800 points. Trump's economy is largely bullshit. He gave corporations a big tax break. They primarily used the extra money for stock buy backs, not so much for investment in other things, and perhaps that's not the best way to pump up the price of a stock.

The inverse yield curve has been going on for awhile, although this might be the first time that the 10 year note was higher than the 3 month note since 2007, I think. Some so called experts are saying that the inverse yield curve may not be as significant as it once was, yet it's always happened prior to a recession. Are people over reacting or are we headed for a recession that's past due?

We are repeatedly having trouble with people saying the old rules don't apply anymore, this (whatever is being pointed to as a problem) isn't a sign of coming trouble. That doesn't make it so.

 

[Ford]

Are people over reacting or are we headed for a recession that's past due?

A recession is coming. That's certain. Another certainty is that the right will figure out a way to blame it all on Obama.

Still unresolved is when, how long, and how severe the downturn will be, so it's possible that this is a bit of an overreaction.

 

[SimpleDon]

The market just closed down 800 points. Trump's economy is largely bullshit. He gave corporations a big tax break. They primarily used the extra money for stock buybacks, not so much for investment in other things, and perhaps that's not the best way to pump up the price of a stock.

The inverse yield curve has been going on for a while, although this might be the first time that the 10 year note was higher than the 3 month note since 2007, I think. Some so-called experts are saying that the inverse yield curve may not be as significant as it once was, yet it's always happened prior to a recession. Are people overreacting or are we headed for a recession that's past due?

But corporate bonds aren't inverted. They normally move pretty much in lockstep with government bonds.

The corporate profits Q2 report is due in late August. If profits didn't bounce back from the Q1 report, about -3%, the stock market will tank again.

A lot of US government bonds are being bought overseas. This reflects more on how they feel about their own economies and their own currencies. The British are buying a lot of Treasury Bills right now, as an example, because of the fear of Brexit.

Anything with Trump's name on it is bullsh*t. But the tax cuts for the corporations was pure Republican neoliberalism.

I have for a long time and still support eliminating the corporate tax. It is a regressive tax, basically a tax on everything we buy. But I would only do it if the loss in revenue was made up by taxing the distributed profits as the income of the individual shareholders. This would mean withholding money on the dividends paid the foreign shareholders who would have to file US income taxes to get any money back from the amount withheld. This is not trivial, more than 25% of the shareholders in American corporations are outside of the US. And eliminate the separate capital gains tax rate, taxing it as income. Giving a tax break for capital gains doesn't encourage investment, it encourages making income look like capital gains. Using profits to buy stock. Turning maintenance expenses into capital investment through bookkeeping.

But my main objection to the corporate income tax is that it is the main reason that corporations have turned to the soft bribery of our representatives in Congress and the state legislatures accepting campaign contributions. A byproduct of the corporations owning the politicians is that this is the reason that we can't hold corporate executives personally responsible for the decisions that they make. Why we now consider the corporation a person, solely responsible for its actions and decisions and not the executives who made the decisions and ordered the actions.

 

[ZiprHead]

Just reported that the manufacturing sector is down now two quarters in a row. They are already essentially in a recession.

I wonder about the agriculture sector.

 

[funinspace]

Hey, if Peter Schiff says a recession is coming, then it must be true Oh and buy lots of gold...

https://www.marketwatch.com/story/t...llistic-strategist-says-2019-08-15?mod=stocks

This is going to be the inflationary recession, there’s no way out and it’s a political disaster for Trump because the recession is going to start before he finishes this term, which means he won’t have a second term.

 

[ZiprHead]

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market

Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008."It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range.

 

[southernhybrid]

The FED will probably lower interest rates today, although not enough to please the moron in chief. Many economists are saying it's too early to lower rates. I tend to agree.

 

[RVonse]

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market

Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008."It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range.

I thought there was no such thing as a plunge protection team....there is just an independent federal reserve who always takes correct and appropriate actions.

Be careful or you will have fellow posters including my friend Jimmy H. coming down on you for tinfoiling.

 

[ZiprHead]

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market

Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008."It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range.

I thought there was no such thing as a plunge protection team....there is just an independent federal reserve who always takes correct and appropriate actions.

Be careful or you will have fellow posters including my friend Jimmy H. coming down on you for tinfoiling.

Please don't project your fail onto others.

 

[RVonse]

Hey, if Peter Schiff says a recession is coming, then it must be true Oh and buy lots of gold...

https://www.marketwatch.com/story/t...llistic-strategist-says-2019-08-15?mod=stocks

This is going to be the inflationary recession, there’s no way out and it’s a political disaster for Trump because the recession is going to start before he finishes this term, which means he won’t have a second term.

Schiff has called all 6 of the last 2 recessions correctly.

 

[Harry Bosch]

The market just closed down 800 points. Trump's economy is largely bullshit. He gave corporations a big tax break. They primarily used the extra money for stock buybacks, not so much for investment in other things, and perhaps that's not the best way to pump up the price of a stock.

The inverse yield curve has been going on for a while, although this might be the first time that the 10 year note was higher than the 3 month note since 2007, I think. Some so-called experts are saying that the inverse yield curve may not be as significant as it once was, yet it's always happened prior to a recession. Are people overreacting or are we headed for a recession that's past due?

But corporate bonds aren't inverted. They normally move pretty much in lockstep with government bonds.

The corporate profits Q2 report is due in late August. If profits didn't bounce back from the Q1 report, about -3%, the stock market will tank again.

A lot of US government bonds are being bought overseas. This reflects more on how they feel about their own economies and their own currencies. The British are buying a lot of Treasury Bills right now, as an example, because of the fear of Brexit.

Anything with Trump's name on it is bullsh*t. But the tax cuts for the corporations was pure Republican neoliberalism.

I have for a long time and still support eliminating the corporate tax. It is a regressive tax, basically a tax on everything we buy. But I would only do it if the loss in revenue was made up by taxing the distributed profits as the income of the individual shareholders. This would mean withholding money on the dividends paid the foreign shareholders who would have to file US income taxes to get any money back from the amount withheld. This is not trivial, more than 25% of the shareholders in American corporations are outside of the US. And eliminate the separate capital gains tax rate, taxing it as income. Giving a tax break for capital gains doesn't encourage investment, it encourages making income look like capital gains. Using profits to buy stock. Turning maintenance expenses into capital investment through bookkeeping.

But my main objection to the corporate income tax is that it is the main reason that corporations have turned to the soft bribery of our representatives in Congress and the state legislatures accepting campaign contributions. A byproduct of the corporations owning the politicians is that this is the reason that we can't hold corporate executives personally responsible for the decisions that they make. Why we now consider the corporation a person, solely responsible for its actions and decisions and not the executives who made the decisions and ordered the actions.

Don: I rarely disagree with your posts, but believe me, executives wouldn't pay attorney's $350 an hour if they weren't responsible for the decisions that they make! Even board members, who really are just there to provide strategic vision have legal liability. Perhaps you were talking about passive owners with no corporate responsibility?