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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: steve susko who wrote (210)	6/7/2002 12:20:04 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 89467

jackass explains "Inverted Bond Yield Curve" when an economic expansion gets overdone, ages, gets long in the tooth, shows signs of excesses, makes mistakes with expansion, and is ripe for a prune job, a recession often follows within months or a couple quarters my personal experience has viewed a few, usually with the Federal Reserve raising shorterm interest rates too much, or too fast these guys have caused the majority of recessions yet most Americans think they are part of the Business Cycle so the Fed, which controls the shortend, raises rates you see the 3-month, 12-month, 2-year, and perhaps 5-year Treasurys with rates that are up but the bond market is full of experienced expertise, extreme savvy and unemotional knowledge they start to buy the 30-yr, 10-yr, and perhaps the 5-yr Treasurys this lowers the yield (interest rate) for each bond professionals SMELL a recession they knew that excess products will lower prices, that even bankruptcies will bring about some liquidation pricing usually the stock fools continue to buy until forward guidance is horrible and stocks have come 20% off highs the end result is the plot of yield (vertical) versus the maturity time length (horizontal) slopes downward check Barrons in middle pages for a yield curve each week the current yield curve shows 10-yr and 30-yr near 5% but the shortend at 1.75% thus a sharply inclined yield curve, sloping upward this indicates considerable inflation expected in 3-5 years but an inverted yield curve was showing in 2000 summertime the shortend was an absurd 6.5% at the peak in June2000 I screamed at GreenSpasm all summer about it the longend 10-yr and 30-yr bond yield was about 5.5% that was a clear inverted yield curve back then which has correctly forecasted recession within 12 months in every single case since WorldWar2 the moral of the story is that... when the longend has lower interest rates than the short end, the Fed has screwed up with rates too high they probably WANT a recession to slow inflation that is the horrible mistake GreenSheiss made in 2000 he popped the bubble, and produced a deflationary setting after creating a bubble in the late 1990's and exacerbating it by increasing liquidity in late 1999 he feared a Y2K Meltdown, how ridiculous !!! the interpretation... in future terms, money is expected to get cheaper, with lower inflation, even possible deflation so the longend has lower yields to reflect that expectation present day money is more expensive than future money some bond professionals actually borrow shortend money and purchase longend bonds, pocketing the differential an Inverted Yield Curve represents a failure by the Fed !!! / jim