Abby Normal

We've heard a lot over the last few years about the "New Normal" and the concept of structurally embedded slower growth. We've viewed the post crisis post credit super cycle adjustment in a different way. To us, the path, though twisty, is just "Back to normal." Far too many have calibrated their expectations to the credit super cycle apex; an exiting period in financial history almost impossible to recreate.

Today's GDP report solidifies the long slog back toward normal. The expansion, heavily criticized, is now of average duration and oomph. The 30 year mean reversion in rates is complete. The MARKET is already adjusting to the reality. As we pointed out 2 weeks ago, 12 month money (1s) and 2 year yields have steadily and stealthily climbed while everyone focused on the long stuff. Long rates, however, are like the Moon not he Sun; they are reflected light.

We are entering the phase when the pundocricy will stretch their narrative to "Its good that the Fed is /going to raise rates." There is still a serious gap to fill on the way back to normal, the old normal, the normal normal, the normal before the credit orgy. The 5 year note yield plus some fudge for inflation should track Real GDP. As of this morning (depending on your fudge factor), that gap is a massive 2.5%. My sense is the Happy Days of bullish curve flattening are ending.

One more thing about normal time...people get hurt.

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