Yield Curves, 2-Year Yield, SPX (And A Crack Up Boom?)

March 23, 2019

While the 30-5 year yield curve does this, implying some inflationary issues…

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The more commonly watched 10-2 year does this, implying ongoing Goldilocks…

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While the nominal 2-year yield does this, implying “Ruh-roh!”

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This last chart is ugly, isn’t it? As I’ve banged you over the head about since Q4 2018, this chart is surely out front in the signals that the Fed takes for its Fed Funds rate direction. The highly technical term for the state of the above daily chart is that it sucks. The less technical term is that it is on a breakdown.

Yesterday the stock market got happy and who knows, maybe we are on the great Armstrongian “slingshot” (what I would call the verge of a von Misesian “Crackup Boom” to include many other asset markets). But the chart above sucks as long as the yield resides below those crossed moving averages as it establishes a downtrend.

Never one to shy away from a shtick in my writing, we place ole’ “Dove Eye” strategically in this part of the post. The thing directly above is a dove maker and the thing directly below saw the light at the end of Q4.

Now let’s journey through daily, weekly and monthly time frames that tie in the 2yr yield, the Fed Funds rate and the S&P 500. The daily chart asks what thing used to be in positive correlation with another thing but no longer is? That would the 2-year yield, heading down while SPX heads up. And that would be the product of a bullish view, as noted on FOMC day, that the Fed has returned the punch bowl to the party, with fresh mixer and double spiked.

The stock market is rallying as the Fed rate will go flat (at best) in 2019.

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The weekly chart shows how the Bernanke Fed maintained an outrageously accommodative stance (plus QEs 1-3 and the yield curve flattening Op/Twist) despite a stock bull market and an economy that we began gauging for positive traction as far back as Q1 2013 (ref. a then-fledgling Semi Equipment cycle).

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Gary Tanashian of biiwii.com successfully owned and operated a progressive medical component manufacturing company for 21 years, keeping the company’s fundamentals in alignment with global economic realities through various economic cycles.  The natural progression from this experience is an understanding of and appreciation for global macro-economics as it relates to individual markets and sectors.

US silver mining began on a large scale with the discovery of the Comstock Lode in Nevada in 1858.