Blogging is admittedly light this week. We hope you enjoy these items and have a happy and healthy New Year.
Mark Whitehouse in the Wall Street Journal continues coverage of the inverted yield curve. The piece quotes those who are skeptical that the yield curve has much to do with the future of the economy.
But amid overall low interest rates and one of the most stable stretches of economic growth in U.S. history, many economists are saying the bond market must be wrong this time.
“I think the bond market is on drugs,” says Ethan Harris, chief U.S. economist at Lehman Brothers in New York. “It’s hard to take the yield curve seriously as a recession indicator.” Even Federal Reserve Chairman Alan Greenspan has argued that the yield curve may have lost its oracle status.
Barry Ritholtz at the Big Picture weighs in again on the inverted yield curve. Included is a nifty graph that ties the state of the yield curve to the stock market.
James Hamilton at Econbrowser demonstrates that a smaller term spread is associated with lower economic growth, but it is a gradual relationship. Just because the yield curve inverts does not guarantee a recession, but it does mean that the odds of slower economic growth has increased.
Away from the yield curve watch, Jonathan Burton at Marketwatch.com looks at the benefits of portfolio rebalancing as we rapidly approach year-end. One point emphasized is the fact that rebalancing will always make us feel unsettled. Selling the strong performers and buying the weakest performers is always tough.
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