Comment on Market Soapbox 02/13/06
A curious Naybob reader submits the following: "Wow. you're forecasting some serious weather."
Some thoughts.... the yield curve inversion has a direct effect on the financial sector and the multiplier effect.
One difference between this time and the last inversion in 2000 -- there is much more M3 floating about globally. Another difference -- there is much more foreign and indirect bidder money tied up in the 10 year maturity, rather than the 30 year.
In retrospective, the 2yr being over the 30yr is much more serious than the 2yr over the 10yr (above since 12/27/05).
Historically, an inversion must last for 15 trading days or so to have its effects washout in the system. It will be interesting to see what happens IF the 2 remains above the 30 for another 12 days or so.
In theory the multiplier effect runs both ways, if it reverses, the effects based on past history, could be severe. There is some andecdotal evidence that it may already have due to the 2 being over the 10 for an extended period.
The last time in 2000, it took 6 weeks and 2 days till the market began to crash on March 10th. At this point, I'm not calling for the sky to fall or panic.
However, current market behaviour and investor attitudes are strikingly similar to those played out in the past.
The potential for the perfect storm is present, therefore careful observation and risk mitigation is warranted.
Some thoughts.... the yield curve inversion has a direct effect on the financial sector and the multiplier effect.
One difference between this time and the last inversion in 2000 -- there is much more M3 floating about globally. Another difference -- there is much more foreign and indirect bidder money tied up in the 10 year maturity, rather than the 30 year.
In retrospective, the 2yr being over the 30yr is much more serious than the 2yr over the 10yr (above since 12/27/05).
Historically, an inversion must last for 15 trading days or so to have its effects washout in the system. It will be interesting to see what happens IF the 2 remains above the 30 for another 12 days or so.
In theory the multiplier effect runs both ways, if it reverses, the effects based on past history, could be severe. There is some andecdotal evidence that it may already have due to the 2 being over the 10 for an extended period.
The last time in 2000, it took 6 weeks and 2 days till the market began to crash on March 10th. At this point, I'm not calling for the sky to fall or panic.
However, current market behaviour and investor attitudes are strikingly similar to those played out in the past.
The potential for the perfect storm is present, therefore careful observation and risk mitigation is warranted.
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