Day 1000 – The Two Economies – Diverged

Wednesday, October 18, 2023

What does it all mean Mr. Natural? (It don’t mean sh*t.)

R. Crumb 

I’ve written about the two economies. That is the world of high finance and the regular day to day world.

While the finance guys like Jamie Diamond keep saying a recession is coming the regular world keep posting numbers and statistics saying, “Not now.”

The latest round of this is an indicator of a recession being right on the horizon – The Inverted Yield Curve.

The Inverted Yield Curve is looking at the price of treasury bonds. You can buy those bonds for a few months or a few years. The Fed uses those bonds to take money out of the economy. By doing so the economic models predict people will have less money to spend and therefore stop spending and prices, or at least the pressure to increase prices will slow. That is, inflation should lessen. Typically, the price of long term bonds is higher than those of a shorter term, which makes sense. Why would you invest your money for a longer time to make less?

Every once in awhile things get screwed up and the rate of return is higher on short term bonds than on long term – that is called “An Inverted Yield Curve.” It shouldn’t happen say the economists. But it does says the finance guys. What does it mean? Ah, Grasshopper, it means that people are concerned about the economy long term, but not short term. In other words, a turndown is coming.

Okay, that’s the standard pitch.

Gordon Klepper went to a Trump rally this week. He’s a reporter for The Daily Show. His schtick is to go to a rally, agree with the person and then point out a fact that contradicts what the person has claimed they support. In his latest foray one person claimed they didn’t like Biden because the price of eggs and gas has gone up. I’d say those are good economic indicators for the average person. Unfortunately, for this person they seem to forget that at one point there were no eggs to be had and the price of gas was near $4 a gallon. That was when the Biden haters were putting stickers near the pump handles saying things like Thank President Biden for This. When the price started to come down they had to go back and rip them stickers off.

Eggs became available and gas prices went down. Maybe they are now going up with regular old inflation? (Wait, I just saw gas going down again. Hum.) I saw a report from one of those right wing “conservative” economic pundits (They prefer Trump, but hate Biden. However, when Trump was in they hated everyone. They like Robert Kennedy – if and when he comments to them.) But this report I saw asked What’s going on with the inverted yield curve? This they said has always been a rock solid way to predict a recession. Yet, no recession is seen near term. What gives? They ask. Their answer? Ah, me, they say, sometimes an inverted yield curve is a false indicator. Don’t trust one indicator. This from the conservative right wing economic guys!

What? Are you kidding me? Where’s Jamie Diamond? Hey, isn’t an Inverted Yield Curve ALWAYS an indicator of a recession? Yup. Where is it? Where is what? The recession? Don’t worry it’s coming. Worry? Listen you said it’s always an indicator. Yup. Where is it? Where is what? The recession? I gotta go to the bathroom. 

Okay, so here’s an interesting little factoid. Consumer spending hasn’t slowed. So that means the recession isn’t here.

Is it coming? Well, yeah. Some day. But there’s no real indication that it is here.

I think what we are witnessing is the Fed has not been able to reign in the economy and they raised rates to try and do it. So far it hasn’t worked. What does this mean? I think it means the economy is doing quite well, thank you very much.

But wait? People don’t want to work – you say. Look at all the restaurants that can’t find workers. Hum. Good point. Let me ask what you – what do restaurants pay? (Answer – not much.) Let me also ask – how come people that do pay well aren’t having any problem filling most of their jobs? How come unemployment is down? Hum. Seems to me that businesses are bemoaning the fact that they might actually have to pay people enough that they would want to take one of their crappy jobs.

Okay. Okay. What should you do about the inverted yield curve and your money, etc.? If you have money, move some to cash or cash equivalents. Invest in companies that are bound to be around if and when a turndown occurs.

Will a recession come? Maybe, but in the real world there’s little sign of it. Will a turn down happen? Yes. Economies run in cycles. Duh. How bad it will be is hard to say but there’s little sign that it will be really bad. However, keep some cash around. (It would be really nice if the bankers and finance folk actually tried to invest in making the economy better. Think Richard Gere in the end of Pretty Woman.)

In other news – Tay Tay. Jenny Bush reported taking her daughters to see The Eras Tour movie. It is on track to be one of the biggest pre-sales of all time at just under $100 million. Jenny reported that the moment Taylor started singing every twelve year old girl in the place rushed the screen and danced to every number. They knew all the moves! They did this for the whole movie. And as one of the Daily Show reporters who covered the opening one young lady said it was the biggest single event of all time. Then she said she was coming back the next day. 

The rush the screen report reminded me of hearing about the Beatles when they toured or when I saw Janis at the old Baltimore Civic Center. Or a Grateful Dead concert. Okay, the Dead fans don’t rush the stage they stand up, light up, and dance in place.

Somethings never change. Except when they do. (Hey. There’s the morale of the story.)

Went to see Frozen the musical last night. I didn’t really know the plot. Actually, the plot is nonsensical enough to be an opera. Except, in an opera the woman dies. The audience was littered with little girls dressed up as Elsa. Even more than Dorothies when the Wizard of Oz played. Apparently, the Sunday matinee was awash in princesses. Fathers brought their daughters which made for interesting antics near the Men’s room door. All in all it was a good show and some of the effects were spectacular.