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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: BubbaFred who wrote (49628)5/7/2004 12:31:27 AM
From: Taikun  Read Replies (1) of 74559
 
BubbaFred, This is the second time you've posted this wrong assumption:

Mauldin writes: "Today, 10-year rates are 4.57%. Thus, if rates were "natural," we would be seeing a yield curve that was much flatter. That means we should be paying attention... for before the yield curve goes negative, it first becomes flat".

Pimco's Bill Gross puts the natural overnight rate at 2%. 457-200=257bp. This is not an unsteep or flat yield curve, it will merely reflect the fact that banks will lend less, because there will be less margin, and they will be more discriminating of borrowers. This is separate from the issues of a market crash. Besides, I give the Fed a 35% chance of a rate cut of 25bp to an overnight rate of 0.75% by Dec 05.

Mauldin's flat yield curve premise for a market crash is a weak argument. If this is a premise for inferring his argument, the premise is not infallible thus the argument is inconclusive.
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