What to Make of the Steeply Inverted Yield Curve?

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Unleash Prosperity Hotline
Issue #798
06/21/2023
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1) What to Make of the Steeply Inverted Yield Curve?
Richard Salsman of Intermarketforecasting.com, who puts out a great stock newsletter, notes that “today’s yield curve at -161 basis points is as steeply negative as it has been in decades.” As his chart below shows, the 10-year T-Bond yield is at 3.72% and the 3-month T-Bill rate stands at 5.33%.

What is interesting about the chart is that when the yield curve turned negative stocks went on their current rally. The major stock indices are up roughly 20% this year with the Nasdaq even higher, though stocks are still lower than their November 2021 highs. When adjusting for inflation, stock returns have been negative under Biden.

The conventional wisdom is that the inverted yield curve means that investors have turned bearish and risk-averse, and thus the flight to the safety of long-term bonds – which drives down the interest rate.

Maybe. But, as we’ve pointed out before, there is little question that the very low 10-year T-bill interest rate of 3.72% is the market forecasting low inflation for the decade to come. If you thought inflation was going to stay above the 4 to 5% range, would you buy a 10-year bond at a 3.7% interest rate? You’d be a fool if you did.

Inflation is still likely to stay above the Fed target of 2%, but the problem going forward is anemic growth. An economy that should be growing at 3% has been limping forward for the past year and a half at closer to a measly 1% and real household income is negative.

What scares us is that the Biden/Bernie Sanders game plan is to add even more government spending aimed at income redistribution and pay for it with higher tax rates on the rich. That is dangerously misguided and exactly what will happen if the Democrats sweep in 2024.

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2) On Inflation - Biden by Far Worst Recent President
Inflation has fallen in half from the abysmal 9% rate last summer. That’s the good news. The bad news from Andy Puzder, former CEO of CKE restaurants is that prices have risen 16% in the two-and-a-half years since Biden entered office. The average rate for the past three presidents was closer to 5%.

This means prices today are more than 10% higher than if we simply had normal inflation. We’re not sure how that is “building back better.”

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3) Biden’s Chief Economist Has Zero Business Experience and Isn’t Even a Trained Economist
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In yesterday’s Hotline, we noted that Jared Bernstein, President Biden’s just-confirmed chairman of his Council of Economic Advisers, has been wrong on the impact of virtually every economic event of the last 30 years — ranging from the Obama stimulus of 2009 to Joe Biden’s Build Back Better plan.

An eagle-eyed reader has reminded us that two reasons for Bernstein’s blunders may be that he has zero experience in the private sector and is not even a trained economist.

In our Not Ready For Prime Time Players ([link removed]) report last year we noted that out of the top 68 Biden officials who deal with economic policy, only ONE in EIGHT had extensive business experience and 62 percent had virtually NO experience. The vast majority of them had worked as professional politicians, lawyers, community organizers, lobbyists, or government employees.

As for Jared Bernstein, his experience is more varied. He graduated with a bachelor's degree in music and then earned a Master’s in Social Work and a Ph.D. in social welfare. (Need we say more?)

Biden’s top economist is not an economist. What's next? A hip hop artist as the head of the CIA?

Don’t expect a sudden flurry of sound policies out of this White House.

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4) Lina Khan, the FTC's Ethics and Economics Pyromaniac

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There are many contenders for the title of “Chief Scofflaw” in the Biden Administration, from Homeland Security Secretary Alejandro Mayorkis to FBI Director Christopher Wray.

Put Federal Trade Commission Chair Lina Khan at or near the top of the list of the ethically impaired. Khan has refused to respond to document requests from the House Oversight Committee and has just now been caught red-handed refusing to comply with the FTC’s top ethics official. She was advised she should recuse herself from Meta’s acquisition of a reality app because she had failed to show impartiality in her previous statements on the case.

The FTC split 3 to 2 in blocking Meta’s acquisition of a reality app, so the deal would have gone through if Kahn had followed the ethics guidelines.

Khan took the unprecedented step of voting anyway. She was backed up by her fellow Democratic commissioners. GOP Commissioner Christine Wilson dissented, but all of her discussion of the ethics advice Kahn had rejected was blacked out on publication. “The redactions served no purpose but to protect Ms. Khan from embarrassment,” Wilson has noted.

Kahn even concealed her role in all this. Asked during a House hearing this spring if there were “any instances where you have not followed” advice from an FTC ethics official, she lied and said “no.”

Actually, by seeking to block every merger or acquisition that comes before her Lina Khan has tried to become an economic pyromaniac. Luckily, she lost her antitrust case against Meta in court earlier this year and her attempt to stop a drug company merger was also blocked by a federal court.

It’s time for Khan – yet another high-ranking Biden official with exactly ZERO real-world experience to be unceremoniously dumped. If not, she should at least be held in contempt of Congress.

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5) The Future of Music Looks Very Promising...

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