What a 16,000 Dow and a Steep Yield Curve Really Mean
We've now got the Dow closing over 16,000 as well as a steepening yield curve. What should this mean?
First, if the stock market informs us about what is coming in the economy over the coming months (some say 6 months to 18 months), a 16,000 Dow - a new high - should mean that the economy will look pretty good for the foreseeable future.
Next, a steepening yield curve - one where the spread between the yield on short-term treasuries (6 months or less) and long-term treasuries (30 years) widens - typically is telling us that the economy is strengthening.
But what do you think? Is the economy strengthening?
We all know that unemployment remains historically high, and the so-called participation rate - the percentage of people who are employed vs the total population - continues to decline. Never mind those who are not counted among the unemployed who have "given up" looking for work, even as they are of working age. Personally, I can't remember the last person I talked to who "felt" that the economy was in good shape and getting better - unless, of course, I count those I know in the financial industry who read the economists in the pay of Wall Street, along with the analysts who tout stocks for various wire houses and brokerage operations. If you count those folks, you'll find a good percentage claiming the economy is strengthening. Then again, they were saying the same thing right before the 2008 crisis.
So what's supposed to be may not be what is. And one thing I've learned over the years is that when you have a central bank - the Fed - affecting the economy as much as it now does, you have to squint when you look at the typical numbers that, in the past, provide some real insight into the real economy.
I'm squinting pretty hard these days.
First, if the stock market informs us about what is coming in the economy over the coming months (some say 6 months to 18 months), a 16,000 Dow - a new high - should mean that the economy will look pretty good for the foreseeable future.
Next, a steepening yield curve - one where the spread between the yield on short-term treasuries (6 months or less) and long-term treasuries (30 years) widens - typically is telling us that the economy is strengthening.
But what do you think? Is the economy strengthening?
We all know that unemployment remains historically high, and the so-called participation rate - the percentage of people who are employed vs the total population - continues to decline. Never mind those who are not counted among the unemployed who have "given up" looking for work, even as they are of working age. Personally, I can't remember the last person I talked to who "felt" that the economy was in good shape and getting better - unless, of course, I count those I know in the financial industry who read the economists in the pay of Wall Street, along with the analysts who tout stocks for various wire houses and brokerage operations. If you count those folks, you'll find a good percentage claiming the economy is strengthening. Then again, they were saying the same thing right before the 2008 crisis.
So what's supposed to be may not be what is. And one thing I've learned over the years is that when you have a central bank - the Fed - affecting the economy as much as it now does, you have to squint when you look at the typical numbers that, in the past, provide some real insight into the real economy.
I'm squinting pretty hard these days.
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