Thursday, June 09, 2005
Is anyone else worried about the flattening yield curve?
I'm surprised that more people aren't alarmed--especially Alan Greenspan inthis recent testimony before Congress--about the fact that long rates have fallen as the Fed has raised short-term rates during the past year. One might think this a sign of economic weakness ahead--are there many exceptions to this well-known market observation?
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Short-term interest rates and yields on long-term bonds do march to different drummers from time to time. What's worrisome is that short-term rates are still pretty low, thus pretty stimulative by traditional standards.
In yesterday's New York Times, Daniel Altman argues that the flattening yield curve is benign, resulting from new forms of retail competition - namely, online shopping and Wal-Mart - that have kept prices, and inflationary expectations, in check.
Nevertheless, high oil prices are bound to be inflationary, And Americans can't keep on upping their spending because they've used up their plastic credit and mortgaged everything but the family cat. (Whoops, that hiss means Muffy just got collateralized!)
Julian Robertson, the hedge-fund legend from the 1980s and 1990s, was on CNBC the other day. Said he'd never been more fearful for the economic future. Global economic meltdown? Maybe. Or maybe just the collapse of American financial markets followed by years and years of economic doldrums, as occurred in Japan.
Remember when the Tokyo stock index was somewhere way above 40,000?
Remember when the total value of the real estate in downtown Tokyo was equal to the total market value of every publicly-traded U.S. business, plus a bunch of U.S. golf courses?
Coming down with a bad case of Japanese sickness, by the way, was Robertson's Best Case Scenario.
Have a nice decade!
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