Macro Tourist: Yield Curve Apologists

The guy is a most humble and open minded market watcher. He’s also the poster of oddly funny and sometimes disturbing pictures on the financial internet.

Yesterday the Macro Tourist noted his status as one of the Yield Curve Apologists

I realize I am being mopey and not firmly stating a forecast. I get it. Five years from now the yield curve will be much, much steeper, but how we get there, I don’t know. When Volcker raised rates and killed inflation, the curve became super volatile. It bounced around like a bunch of squirrels chasing each other in spring. But the end result was that bonds were a screaming buy. Just the opposite situation to today. Central banks and governments are determined to create inflation and bonds are a screaming sell. Just don’t ask me for specific timing.

Now I have to run. LeBas wants to scold me on twitter for my idiocy of joining the #yieldcurveapologists…

What I get out of the article aside from Kevin’s conclusions and the conclusions of those who will scold him is that the markets are not black and white and that goes double for the bond market, where real professionals are trying to sort out the hyper distortions of US and global central banks that use bonds as a tool to direct the macro. You can find pros on either side, just as you can in any market. It’s what makes markets, after all.

All this talk about inversion is a red herring. Inversion will simply be a higher risk version of what we have today… a flattening curve against an economic boom. The important signal will be when the curve turns from flattening to steepening. That event will obsolete all the mental masturbation out there about whether the Fed is ahead of or behind the curve, whether the economy is due to gain or lose strength and whether inflation or deflation will carry the day.

I enjoyed reading Kevin’s piece because it is written by a guy not trying to lecture. It is written by a guy with a healthy level of self-critique who is just dredging up the components of the situation and laying them out on the table for you to consider for yourself. You should check it out if you have not already. The bond market – in its signals – is a key to every economic cycle. It’s the best indicator of all for the overall financials markets. Unfortunately, there are smart people on all sides of its signaling and the best we can do is lay it out on the table and consider the opinions.

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