• Yellen: The relationship between the slope of the yield curve and the business cycle may have changed

    The biggest takeaway from Chair Yellen’s press conference was her belief that there is “reason to think the relationship between the slope of the yield curve and the business cycle may have changed.” To me, this suggests that some Fed officials will be inclined to disregard a flattening yield curve as a market signal. Some thoughts below

    Yellen: The relationship between the slope of the yield curve and the business cycle may have changed
  • Minsky’s financial instability hypothesis and the Fed’s reaction function

    As the Federal Reserve meets today to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. The risk of overheating was real. So let’s put some framing around this issue and ask how the Fed reacts as the data come in down the line.

    Minsky’s financial instability hypothesis and the Fed’s reaction function
  • As the Fed meets, expect expansion through 2018, but problems thereafter

    Given where we are right now, I think this expansion will continue through the end of 2018. And I want to talk about what that means in the context of my last post and recent BIS warnings on financial markets.

    As the Fed meets, expect expansion through 2018, but problems thereafter
  • We are in the most dangerous period in the business cycle

    Why would I be writing about ‘danger’ when we are experiencing the first synchronized global economic upturn in over 8 years? It’s the business cycle.

    We are in the most dangerous period in the business cycle
  • Places to avoid for commercial real estate investment

    Recently I have indicated I see a lot of problems in asset markets despite the economic acceleration in Europe, Japan, and the US. Commercial real estate is a problem that I want to highlight briefly since I believe it will be a locus of distress in the next global downturn.

    Places to avoid for commercial real estate investment
  • Technology shares priced for perfection

    Today’s Wall Street Journal shows that large-cap technology stocks are priced as if economic and earnings growth will continue for the significant future. However, this late in the cycle, the probability of a hiccup increases, making share prices vulnerable.

    Technology shares priced for perfection
  • Market jitters and fake liquidity in leveraged loans and high yield

    With the US treasury yield curve flattening to almost 60 basis points between 2 and 10-year maturities, we need to ask where are the vulnerabilities in the market if this spate of good news ends. I believe we should look at high yield, leveraged loans and commercial real estate

    Market jitters and fake liquidity in leveraged loans and high yield
  • The economic acceleration in Europe underpins global growth

    Since the EU had been a growth laggard due to the European sovereign debt crisis, the pickup in growth there is encouraging. In particular, Italy deserves mention as it has lagged and is where I believe the battle for the EU’s future will be won. Some thoughts below

    The economic acceleration in Europe underpins global growth
  • Why the flattening yield curve doesn’t worry me yet

    If you look at the yield curve since the early 80s double dip recession, what you’ll notice is that inversion – where 2-year rates exceed 10-year rates – precedes every recession. Right now, we’re still 70 basis points from inversion though. So far from expecting a slowdown or a recession, I would sooner expect economic acceleration. Let me go into detail below.

    Why the flattening yield curve doesn’t worry me yet
  • First piece of data that tells you the US economy is humming

    As we await the jobs number tomorrow, we should be fairly confident that the results will show an improving employment picture, especially in the wake of a hurricane plagued report last month.

    First piece of data that tells you the US economy is humming

All Content

Yellen: The relationship between the slope of the yield curve and the business cycle may have changed

Yellen: The relationship between the slope of the yield curve and the business cycle may have changed

The biggest takeaway from Chair Yellen’s press conference was her belief that there is “reason to think the relationship between the slope of the yield curve and the business cycle may have changed.” To me, this suggests that some Fed officials will be inclined to disregard a flattening yield curve as a market signal. Some thoughts below

Read more ›
Minsky’s financial instability hypothesis and the Fed’s reaction function

Minsky’s financial instability hypothesis and the Fed’s reaction function

As the Federal Reserve meets today to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. The risk of overheating was real. So let’s put some framing around this issue and ask how the Fed reacts as the data come in down the line.

Read more ›
As the Fed meets, expect expansion through 2018, but problems thereafter

As the Fed meets, expect expansion through 2018, but problems thereafter

Given where we are right now, I think this expansion will continue through the end of 2018. And I want to talk about what that means in the context of my last post and recent BIS warnings on financial markets.

Read more ›
We are in the most dangerous period in the business cycle

We are in the most dangerous period in the business cycle

Why would I be writing about ‘danger’ when we are experiencing the first synchronized global economic upturn in over 8 years? It’s the business cycle.

Read more ›
No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

My model of interest rates and currencies says that long-term yields are just an amalgam of short-term yields with a term premium tacked on. There’s nothing there about money flows from people moving money to where yields are highest. I think this matters when thinking about what the flattening yield curve signals as central banks begin to tighten globally.

Read more ›
Places to avoid for commercial real estate investment

Places to avoid for commercial real estate investment

Recently I have indicated I see a lot of problems in asset markets despite the economic acceleration in Europe, Japan, and the US. Commercial real estate is a problem that I want to highlight briefly since I believe it will be a locus of distress in the next global downturn.

Read more ›
Technology shares priced for perfection

Technology shares priced for perfection

Today’s Wall Street Journal shows that large-cap technology stocks are priced as if economic and earnings growth will continue for the significant future. However, this late in the cycle, the probability of a hiccup increases, making share prices vulnerable.

Read more ›
Corporate tax cuts and monetary offset could mean recession

Corporate tax cuts and monetary offset could mean recession

Tax cuts in the US will accelerate the Fed’s timetable and increase the potential of curve inversion and eventual recession.

Read more ›
Market jitters and fake liquidity in leveraged loans and high yield

Market jitters and fake liquidity in leveraged loans and high yield

With the US treasury yield curve flattening to almost 60 basis points between 2 and 10-year maturities, we need to ask where are the vulnerabilities in the market if this spate of good news ends. I believe we should look at high yield, leveraged loans and commercial real estate

Read more ›
The economic acceleration in Europe underpins global growth

The economic acceleration in Europe underpins global growth

Since the EU had been a growth laggard due to the European sovereign debt crisis, the pickup in growth there is encouraging. In particular, Italy deserves mention as it has lagged and is where I believe the battle for the EU’s future will be won. Some thoughts below

Read more ›
Why the flattening yield curve doesn’t worry me yet

Why the flattening yield curve doesn’t worry me yet

If you look at the yield curve since the early 80s double dip recession, what you’ll notice is that inversion – where 2-year rates exceed 10-year rates – precedes every recession. Right now, we’re still 70 basis points from inversion though. So far from expecting a slowdown or a recession, I would sooner expect economic acceleration. Let me go into detail below.

Read more ›
No recession until at least late 2018

No recession until at least late 2018

The US economy added 261,000 jobs in October bringing the baseline unemployment rate down to 4.1%, the lowest in nearly two decades. And while this number was short of expectations, revisions to the prior two months’ data meant a net gain close to the consensus estimates. Going forward, the concern has to be that we are late in the cycle. So we need to think about how fiscal and monetary policy will develop.

Read more ›