OT re yield curve:
Yes, I played with that animated curve.
Classically, an inverted yield curve portends a looming recession, and lower stock PEs. The current case, however, may be an exception.
First, the yield curve has inverted, mainly because longer-term rates have gone down, rather than shorter-term rates going up. If you were to look at a much longer time-frame, the last century, not the last few years, this would be clearer. From about 1965 through 1980, long-term interest rates went up. Since then, they have gone down. That long-term trend (the last 20 years) toward lower interest rates is still intact, I think. We are heading back to where we were in 1965: 4% 30Y mortgages. The current blip-up in short-term rates is just that, I think: a blip, noise in the signal. The interest rate that matters to most people, and matters most to the economy, is 10-year corporate bonds, and 30-year mortgages, not Treasury rates (long or short). This is even more true now, with government gridlock causing a rapid debt reduction, and the retirement of a lot of longer-term Treasuries. The long end of the curve is artificially low, because of a shortage of Treasuries. And the short end of the curve is artificially high, because the Fed (and others) are too worried about inflation. I just don't see much inflation in 2001.
Bottom line: I don't think the inverted yield curve is predicting a recession in 2001. Hope this isn't wishful thinking. |
