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To: Bill Harmond who wrote (98333)	4/2/2000 6:36:00 PM
From: GST	Read Replies (1) \| Respond to of 164684

William: I will take your post point-by-point for a change -- William, you wrote "First you post that the yield curve is completely inverted (it isn't)" William -- I posted the data showing a partial inversion from the five year note on out to the long bond, and I indicated where short term rates could also become inverted through fed action in May. You wrote "then you post that the curve is caused by credit risk (it isn't, it's caused primarily by inflation expectations)" Again William, I said nothing of the sort and can only assume a lack of reading ability on your part. Data tell a story, and part of the story is in the shape of the yield curve and part of the story is in credit spreads. At no point did I say that credit spreads CAUSE the shape of the yield curve. You wrote: "now you say that the US/corporate yield spread has never been higher (it has), and that is due to the fact that corporate credit risk has never been higher (I guess due to the booming economy!)" You are close to the truth here (for a change). The spread between "risk-free" treasuries and corporate debt does reflect overall risk -- that is a correct interpretation. The risk represented by an economy which is TOO STRONG is a major cause for concern -- and yes, this is an inflation risk. This is precisely the kind of environment which requires such strong counter-action by the fed that we risk recession as a consequence - thus we have BOTH the risk of inflation AND the risk of recession as a result of the measures needed to head off inflation at this point. This is why the fed usually tries to be "pre-emptive". The cost to the economy of getting behind the curve is huge. You wrote: "What pearls are coming from you next? Are you about to post that your bottomless break in the stock market will cause a parallel decline in the bond market?" William, I write on the assumption that most people on this thread have at least a grade nine reading ability -- perhaps this assumption does not always hold true! Before we can usefully disagree, you must at least read more carefully.