China’s Yield Curve Inverts (Small Beans Relative to Venezuela’s Curve Inversion And 2,713% Inflation Rate)

Inverted sovereign yield curves are generally bad news. And China’s inverted yield curve is no different. The 5Y to 10Y segment of China’s sovereign curve has inverted … again.


But before anyone gets hysterical, the rest of China’s sovereign curve is upward sloping like the USA (blue for China, green for the USA).


For comparison sake, I am including the mac-daddy of curve inversion: Venezuela (red line). Their 3Y sovereign yield is a gut-wrenching 58% while their 20Y yield is lower at 22%. And their 2,712.88% annual inflation rate.

VefAnnual (5)_0.png


US Housing Starts And Permits Plunge In September As Fed Raises Rates

The housing construction numbers for September were not great. 1-unit detached starts declined -4.60% while 5+ unit starts (multifamily) declined -6.23%.


Permits were off for 5+ unit (multifamily) at -17.43% while 1 unit permits rose 2.38% in September.

As a reminder, The Federal Reserve dropped their target rate as a result of the 2001 recession and 1-unit starts took off. Construction was so hot that The Fed had to raise their start rate to cool-off the construction bubble. Rather than cool-off the construction bubble, The Fed sent it into deep freeze.


Alas, there wasn’t a Fed Funds rate reaction during the housing bubble, but there appears to be a negative reaction to multifamily (5+ unit) starts since The Fed began jacking up their target rate.


And with an 84% implied probability of a December rate hike, we should watch starts and permits carefully over the next couple of months.


And here is the path of future rate hikes (forward curve). As Samuel L Jackson said in Jurassic Park, “Hold on to your butts.”


The International Bubble Team in action!


Inflation Warning: US Import Prices Rise 2.7% YoY In September (US Export Prices Rise 2.9% YoY)

If you are looking for inflation that is seemingly missing, try the US import and export prices. US import prices by end use rose 2.7% YoY in September and US export prices by end use rose 2.9% YoY.


Since John Taylor is being considered from The Fed  Chair, let’s take a look at The Taylor Rule which uses Core PCE price growth YoY as its measure of inflation.


Since Core PCE Price growth YoY roughly follows import prices YoY, let’s see if we get that turnaround in Core PCE Price growth that has been hovering.


Bear in mind that gasoline and diesel prices rose quite a bit in September with gasoline prices falling in October. The Fed doesn;t consider energy prices in their inflation calculations.


Take import prices. Once we remove petroleum prices, import prices YoY grew at only 1.2%.


Yes, inflation (if you ignore energy) is still MIA (missing in action).

“I’ll just erase inflation but taking out energy prices.”



US Treasury 30Y-5Y Slope Flattens To Lowest Since Mid-Nov ’07 As M2 Velocity Hits All-time Low

The US Treasury curve slope (30Y-5Y) continues to flatten and has just hit the low point since mid-November 2007, nearly a year before The Fed’s annoucement of QE1 (their first round of asset purchases).


And as of Q2 2017, M2 Money Velocity has sunk to its all-time time low.

Here is photo of The Fed announcing their QE1 asset purchase program.

titanic-leaving-belfast (1)

And here is The Fed signalling a rate increase at their December FOMC meeting.


US Treasury 30Y-5Y Curve Slope Flattest Since Beginning of The Great Recession

The persistent flattening of the Treasury yield curve appears to still have legs, and that may be a sign of economic trouble ahead. On Wednesday, the minutes of the Federal Reserve’s September meeting revealed policy makers’ resolve to stick to their tightening path. The difference between five- and 30-year yields fell below 93 basis points, near the lowest since the start of the last recession. Five-year Treasury notes are among the most sensitive to Fed policy.


And since 1992, the 30Y-5Y curve slope is deteriorating as if the US is approaching another recession.


With The Fed talking about raising their target rate in December, is this the end of The Fed’s Snake Oil? Or just the beginning of QE4?


Core Inflation For August Falls To 1.3% YoY, Lowest Since 2015 (Home Prices Growing at 6.25% YoY)

Federal Reserve Chair Janet Yellen kept saying that 2% inflation was just around the corner, then recently proclaimed that 2% inflation might not be attained for 2 years.

Core inflation for August fell to 1.3% YoY while MoM core inflation fell 0.1%. Both below expectations.


Core PCE Prices YoY are the lowest since 2015.


Real personal spending fell -0.1% MoM, in line with expectations.

Want more than 2% inflation YoY? Try adding some home prices!!! Like the FHFA Purchase-only home price index YoY which is growing at 6.25% YoY.


Here is Fed Chair Janet Yellen preparing for her next career as a fortune teller.