Twenty Five Year, One Fifty Years, Eight Two Year discussed on 90.3 KAZU Programming


Wednesday today the fourteenth of August is always to have you along everybody will get to the president in a minute and the proximate cause of that tweet that I quoted but first thing you ought to do right now and really should have done right from the opening bell today is take a deep deep breath because markets go down to gang just like over time they mostly go up but I digress because what got the president tweeting and stocks cratering today was something we have talked about before on this program the bond market specifically something called the yield curve which normally curves up and to the right the longer term bond you are talking about that is to say the interest rate the yield that the government has to pay to borrow your money for say ten years is usually more than the government has to pay if you buy a say eight two year treasury note makes sense right they are tied up your money for longer today that yield curve remember usually up and to the right inverted the ten year yield was for a little while this morning less than that two year you now we should care about that because why what we call Cathy Jones a troll Schwab which is we should say an underwriter of this program here she is and when that happens it signals the expectations for the future are not as optimistic as current conditions expectations that the strong economy we are joined right now might not last one day though did the bottom pretty much drop out of stocks today here Sam Stovall at CFRA research well I think investors are worried because every recession since the nineteen seventies has been preceded by an inverted yield curve however comma yet like logic one oh one in college not every inverted yield curve has led to recessions more to the point a recession is not starting like tomorrow on average an inverted yield curve has occurred eleven months before the beginning of recession since nineteen sixty case in point the Great Recession which officially started in December two thousand seven the yield her first inverted in December two thousand five show deep breath but there is something else going on here too there are some things going on in the economy today that are just different than they used to be one good example is something called the Phillips curve which for decades has said that the lower unemployment gets like it is right now really low the more inflation there will be which just has not been happening in fact last month fed sure Jay bell said basically yeah forget the Phillips curve the relationship between slack in the economy or unemployment and inflation was a strong one fifty years ago if you remember that in the sixties there was a close correlation there and that that has gone away so from the market place desk of take a deep deep breath Justin set himself to finding out whether the yield curve to predict power might be up there with the filibuster there are a couple reasons why the yield curve might be inverting that have nothing to do with the recession one is that the fed owns a ton of bonds that it bought up to stimulate the economy after the crisis that cause prices to rise in yields to drop a report today from Wells Fargo said if the fed didn't own all those bonds the yield curve probably wouldn't have inverted and so says true Mattis at MetLife investment management you know it's not clear that the yield curve is actually giving a signal of recession this point the other reason has to do with inflation longer term bonds usually pay more than shorter term bonds because they try to account for inflation Ben Carlson it results wealth management says it's kind of like a buffer in case prices rise while investors holding a bond for a decade or longer and now that buffer is sort of gone that's because inflation isn't behaving the way it should either economies unemployment this sort of at a twenty five year low Kenneth Rogoff is an economist at Harvard that the definition of when you expect to start to see wages pushing up that spelling it to inflation but it's not rogue yes is the real mystery right now is why it's remarkable I don't know of anyone who really for transponders failed us even former fed chair Janet Yellen weighed in on the inverted yield curve today she told fox business that this time it's not a great signal of a coming recession in New York I'm just and how for marketplace on Wall Street today step away from your four oh one K. statement people seriously we'll have the details when we do the numbers the marketplace company the.

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