Lately It Occurs to Me…


..What a long, strange trip its been.

Expansion-Graph-Corrected-2(click to make big like)

The graphic above comes to us from Forbes via the folks a NBER. For all the hand wringing, ranting and denials, the current expansion now ranks in the "Top 10" for duration dating from 1854. Modern Monetary Monkey-business clearly is stacking the deck against history. The credit super-cycle (and its bust clean up) run nearly double the duration of the historical mean and median.

A couple of thoughts: First, as James Burke points out in the still wonderful The Day the Universe Changed, Credit Where it Due 1985the production and acceptance of credit is the fundamental building block of expansion.

Second, expansions don't tend to dissolve of their own volition.

So, will the current expansion just call it quits, like The Grateful Dead in Soldier Field over the 4th of July, or will it Keep on Truckin' ? Enter Janet. The truth is the Fed has precipitated as many contractions as it has pumped up expansions. The "Soft Landing" has fewer economic sightings than the storied, dangerous "Bond Vigilante." The question remains how hard will the Fed be able to tug before called on again for support? As Fed Funds crossed 3.5% during the Greenspan incremental water boarding of the last cycle, a few radical thinkers conjectured that "the farther away from 1%, the more ammo to mop up with."  QE bond buying programs and Twisting Operations will certainly complicate the exit (if it even begins at all).

Here's our suggestion: Run it as hot as you can and provoke the Government to extend issuance now that overt Twist has ended. (A stealth-twist continues as long as maturities are re-invested). Our view of the curve is simple - Steep is good and we need to be much steeper before messing with the Overnight Funding Rate (so happy there's a new kid in town). When deflationary forces are running about the globe, being able to point at the curve horizon and say "There's the inflation" is a positive.

The recent argument in favor of snugging sees the economy as "Sweet Jane, living on reds, vitamin C and cocaine" in dire need of detox. I have to wonder if the next lyric isn't more appropriate : "set up like a bowling pin, knocked down, it gets to wearing thin" but here we go again.


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