The yield curve inverts when short maturities sport yields
above those of longer dated maturities. We have seen yield
curve inversion in the US Treasury market on a day to day
basis since late in 2005.
Historically, an inverted yield curve has been a good
indicator of an impending sharp economic slowdown or
even recession. That's because yield curve inversion is
normally a symptom of either a liquidity squeeze or a
developing credit crunch wherein banks severely restrict
shorter term lending.
We have no squeeze or crunch now. Far from it. The
broad money aggregate M-3 is up 8.4% yr/yr, commercial
and industrial loans are up 15.5% yr/yr and trending higher,
and real estate loans continue to grow. In fact, the
financial sector is generating
excess liquidity
now, or more liquidity than the economy actually needs.
Now, if the Fed Funds rate gets put up above 5.25% I'
Stock Market -- Fundamental at 2006-03-22 12:07:01S&P 500: 1274I use three different fundamentals - based models to track
the SP500. All imply that from an empirical perspective the
S&P is reasonably valued in the range of 1280 - 1300. I
do not put too much stock in the predictive value of any
of these approaches, but use them more as a diagnostic
reference. Even then, I would not make too much out of
divergences until they exceeded 6% or so. For me, the market
looks reasonable enough now.
To summarize the output of the models, the market's rally since
this past autumn reflects a continuation of above average
earnings growth and an expanding p/e ratio to reflect a moderation
of inflation pressure which in turn has been supported by a
moderate easing of liquidity policy by the Fed as well as
continued good growth of the SP500 dividend. The key changes in
the mix since last October or so have been a step up in the
growth of th
The US Trade Account at 2006-03-22 12:07:01
The LDCs and the weaker OPEC countries experienced economic
depression in the early 1980s as oil and other commodity
prices collapsed. It was a stock Kondratieff downwave that
was eclipsed from going fully global by timely major
central bank intervention, large US income tax cuts and a
relaxing of regulations regarding the writeoffs of non-
performing LDC/OPEC credits.
The US had been the lender of last resort. Now it had to
become the buyer of last resort to stave off spreading depression.
The original global rescue plan called for three locomotives to
pull the world back from the abyss: The US, Germany and Japan.
Between 1983-87, Germany and Japan welched on the deal, leaving
the US to carry the load. The strong US $ policy of 1980-85
did the trick, but the US began to run a deep trade deficit.
A weak US $ from 1985-95 reversed this situation, and by 1991-
92, the US was running a modest sur
A Little Trouble In Big China at 2006-03-22 12:07:01
China is averaging about 200 protests / riots a day.
This is not spontaneous. China's political left is
recovering after years of quiet.
Well paid workers in the eastern part of China are
leaving their country cousins in the dust. Plus,
the new running dogs of capitalism are turning the
country into an environmental cesspool and are
swiping turf the peasants once claimed.
Leader Hu has spoken of developing a "golden harmony"
that brings the 800 million Chinese who are not
sharing in China's economic development into the tent.
A very tall order.
As the NY Times reported today, the Chinese left is
starting to get its voice back, sounding strong
criticism of the country's growing imbalances in
the wake of its economic development.
Hu now has to straddle the fatcats and the peasants'
slow burn which is heating up steadily. This guy is
going to be tested right down to his new
