Inverted Curves

A very hot topic in financial circles for the past month has been the inversion of the Treasury yield curve. Currently, it is in a condition such that longer-term yields are lower than current yieleds.

At various times in the past, and I mean long past, such as up to 20 years ago, this has been coincident with the onset of recessions.

So, as you might imagine, quite a few financial media types are all over this story, to sell more ads and newspapers.

Here's a headline, though, to pour cold water on the hot topic. When asked about this, directly, during his recent Congressional testimony. He succinctly and directly replied that the inverted curve does not now portend economic recession.

How much clearer can you get? The chief monetary expert in the country, who has made it his research focus, does not believe that current conditions sustain the hypothesis that an inverted curve always portends recession.

This notwithstanding, the journalistic airheads on CNBC keep ranting about the inverted curve. All month long they have ignored Bernanke's comments, and sensationalized a host of minor analysts.

For the record, times have changed. I have found, in my own equity research, that the markets are qualitatively different now than prior to 1985 or so. It's easy to forget how scarce and expensive fundamental and technical information was in those days, compared to today. Computers were slower, less capable, not "online," and much more expensive. There is a sort of "one way" arrow of information effects over time. My own equity approach was less consistently successful in the era before the inexpensive and ubiquitous availability of performance data.

It pays to focus on credible sources, and ignore the lesser lights. I think Bernanke is viewing global economic expansion, and seeing the current yield curve inversion as evidence that the mediocre 70% of market participants are not processing market information correctly.