Wednesday, August 10, 2005

You are half right on one point

Source: "This summer of 2005, we can contemplate another kind of stagnation - the economic stagnation (and recession) that results from the combination of an inverted yield curve and increasing layoffs."

Short description of the yield curve. The money you make on bonds goes up the longer the term on the bond. This is the yield curve. It flattens when the short term interestt rates are raised (that is what the fed controls).

I try to keep a pretty close watch oneconomicc indicators. I think this author could be right about the "inverted yield curve". I read something about the inverted yield curve from a real good source that explained it with really nice pictures. but cannot find it now. Though I did find two posts (err he actually sent these to me. I sent him and email asking about the yield curve and I got back the posts I skipped, because they sounded complicated.) by The Skeptical Optimist (here and here). Doom and gloom is not what he is predicting and that should be noted.

Source:"The Fed keeps nudging the short-term rate higher, but the buyers and sellers in the long bond market keep nudging those interest rates lower. Nobody has figured out why; everybody's still guessing. Greenspan, the rest of the Fed Board of Governors, journalists, everybody."

Though, the yield curve tells you a recession is coming it does not tell you when. If I remember what I read, but cannot find, correctlyy, the last time there was an inverted yield curve the stock market went on its best run ever, the dot Com boom and bust.

Also, I would like to point out that the yield curve is flattening and has not inverted yet, though with the interestt rate raise to day that might have changed a few things.

Now on to the increasing layoffs. Unemployment is at 5 percent, if you are going to get laid off, now is the time to do it. It is just the American economy adjusting to foreign competition in my opinion.

In other news that matters, my 401k is up 6.03 pct.


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