Monthly Archives: December 2018

This Is the END

Here's my annual year end What's In What's Out for 2019. And most likely, the dog's end here.

1st...what's OUT ?: Anything and Everything that starts off with Priyanka and, or Nick. No clue who they are are or why everyday's news feed has them in it but it's time to hit reboot.

2. MMA - Ya ya, save your breath, I don't care. 15 stories a day about dudes and girls beating the crap out of each other says more about the present state of pent up anger and violence in America than interest in primitive sport.

3. Ex-Post tape reading posing as financial journalism.

What's IN ?

  1. Apolitical Radical Pragmatism. No one with a P/L can adhere to the ridiculous political rants spun as economic commentary spewing from the "traders" and "contributors" Brady Bunch Boxed on the screen everyday. Radical Pragmatism will be the growing 3rd party voice.
  2. A return to an Interest Rate Regime. We had believed for some time - with much assurance from the Pundocracy that we were wrong - that the difficult task for the Fed was navigating an exit under a hybrid-regime model. Part Quantitative/Part Interest Rate targeting. It remains my belief, you can be 1 or the other, not both. The past several month's craziziness supports our view. Simple Rule - when unacceptable inflation or deflation is evident, use a QE regime. When over, back out and return to IR Regime. The wrongheaded backing out will continue to cause issues.
  3. Direct communication. The pendulum will swing back from the "let's fill the bandwidth with garbage" social media cancer. And so, I too will do my part. Adios.

Dog Bites Curve

Yesterday, or probably Monday, I'm not much into days anymore; the Petri Dish of Hate, Sounds Right Economics and Outright Baloney that is Fin Twit erupted in all manner of hyperventilating as the 3 year Treasury yield wimped over the 5 year.

In the words of Obi Won, These are not the inversions you are looking for. There is little if any history to back up recession with the inversion of the belly. What these kinked structures do mean is the Treasury Dept. should issue more Cincos....rapido.

Yield curve inversions that show a strong track record of 6 -9 month lead time of slow downs are linked to the Funding Rate and most importantly - The calibration of Monetary Policy to the Neutral Rate at the time of inversion. As we have shown on multiple occasions, and will again here (for your dining and dancing pleasure) the present calibration of policy is slightly tilted toward accommodation. That is, If the market could set the funding rate, where would it be? And our answer is about 2.87% . Thus, the Fed, in my opinion, remains - BY INTENTION - trailing the concept of neutral as opposed to tightening into and through the rate. (next year -maybe, maybe not - kinda like MBS murder culpability !)

Always remember - a CB can be "too tight" at 1.5% (Are you listening Ben?) and/or "too loose" at 4% (Greenie? Can you here me?) With Year End coming and 41s passing, perhaps the meme machine that market analysis has devolved into can grow a little grey matter and show somw character.