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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (35396)	8/15/2005 4:32:54 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

I propose we should package up Detroit and sell it to the highest bidder. news.yahoo.com

To: Knighty Tin who wrote (35396)	8/15/2005 4:42:06 PM
From: mishedlo	Respond to of 116555

Schaeffer's Media Outtakes: A Sentiment Conundrum Bernie Schaeffer 8/15/2005 10:36 AM ET Read how Bernie dissects the news using his contrarian analysis to provide his unique take on what's really happening in today's market. Click here to view the archive of Schaeffer's Media Outtakes. "The refusal, so far, of long-term bond yields to follow short-term rates upwards is the 'conundrum' highlighted by Alan Greenspan six months ago. But at least one observer thinks the Federal Reserve chairman, of all people, should see no mystery in this phenomenon. Robert Kessler says: 'He started out with the same conundrum.' Mr. Kessler ... points out that in 1988, the year after Mr. Greenspan took the helm at the Fed, 10-year yields started tracking higher with the Fed funds rate - but then refused to budge. Long-term yields hovered around 9 per cent as short-term rates went from about 7 per cent in May 1988 to almost 10 per cent in March 1989 ... Towards the end of the 1980s, lax lending on commercial property helped trigger serious problems in the US financial system, most among savings and loan institutions. Mr. Kessler wonders if concerns about lending in the booming US housing market - and about consumer borrowing - could be affecting the bond markets this time around. He also sees little evidence of inflation either in the US or globally. Economic growth - particularly outside the US - hardly looks strong to him. 'The 10-year [yield] is predicting a slowdown,' he says. 'How about accepting it?' History suggests that when short-term rates begin to exceed long-term rates - a so-called inversion of the yield curve - a recession is likely to follow. David Rosenberg, chief economist at Merrill Lynch, notes that six out of the seven yield curve inversions since the late 1960s have preceded recessions." ----(Financial Times - 8/11/05) Schaeffer's addendum: The Wall Street lullaby maintains that "this time is different ... the potential yield curve inversion is no danger sign for the economy." The take-aways from the above piece are "The 10-year [yield] is predicting a slowdown. How about accepting it?" and "six out of the seven yield curve inversions since the late 1960s have preceded recessions." I'll take facts over wishful thinking every time, but let's pause for a moment to consider a comment from an astute reader on our Discussion Board: "Yes, but Bernie, by your own admission, yield curve inversion is not always stock market bearish.... a recent essay of your own composition, reminds us that the 1994 inversion preceeded a strong equity bull run." This is correct. But what bothers me greatly about the case for benign yield-curve inversion is how universally accepted it is. In other words, expectations have a role here, in the sense that the market is very much unprepared for the bearish case and has very much discounted the bullish case. So if the yield curve turns out to be a non-problem, this is very unlikely to be a bullish driver for the market. But if we do have an upcoming recession on our hands, the market's reaction to it is likely to be very unkind.