Bad Omen for Markets From First Signs of Yield Curve Inversion…

By Anthony B. Sanders

Q1 Auto Registrations YoY Down To -12.2%, Lowest Non-Recession Reading Since 1989

There are troubling signs in the US economy, not the least of which is the lowest YoY growth in US automobile registrations (non-recession) since 1989.

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Another troubling sign is the possible yield curve inversion.

(Bloomberg) The forward curve of a closely watched proxy for the Federal Reserve’s policy rate has slightly inverted, signaling investors are either pricing in a mistake from central bankers or end-of-cycle dynamics, according to JPMorgan Chase & Co.

The inversion of the one-month U.S. overnight indexed swap rate implies some expectation of a lower Fed policy rate after the first quarter of 2020, the bank’s strategists including Nikolaos Panigirtzoglou, wrote in a note Friday.

“An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely,” they said. “It is also generally perceived as a bad omen for risky markets.”

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The negative market signal comes as investors grapple with higher short term borrowing costs, which have risen in the U.S. to levels unseen since the financial crisis. liborfed1

While the strategists admit it is difficult to discern which of the two explanations for the curve inversion carries more weight, flow data suggests it is more likely to be rising expectations of a Fed policy mistake.

A Fed policy mistake? Like keeping rates too low for too long?

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And unwinding their balance sheet at a glacial pace? As Federal government Public Debt has risen from $7.78 TRILLION in Q1 2005 to over $21 Trillion today?

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This is truly a fiscal inferno.  And it can be traced back as far as the eye can see as Congress sees no end to spending (and borrowing). And The Federal Reserve acting as their primary enabler.

Isn’t it amazing that the bigger government and the amount it borrows gets, the worse income inequality gets?

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Gary

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