Bagman Ben on the Inverted Yield Curve: “This time is different”

Testifying before the House Committee on Financial Services last week, Federal Reserve Chairman Ben Bernanke, nicknamed “Bagman Ben” by us at CubeTrader.com / AlansBubble.com because Greenspan so smoothly retired and left “Bend Over Ben” (BOB) holding the bag, stated that: “Historically, there has been some association between inversion of the yield curve and subsequent slowing of the economy. However, at this point in time, the inverted yield curve is not signaling a slowdown.”

Ben’s “this time is different” argument is disturbing because historically inversions almost always foreshadow a slowdown and/or a recession.

Bernanke’s argument is flawed and circular.  He states that cash-rich foreign investors are willing to accept low long-term yields in exchange for the safety of U.S. assets.  Um, no shit Sherlock, “willing to accept low long-term rates relative to short-term rates” is the definition of an inverted yield curve.  And “safety of U.S. assets” is relative and subject to change.

Ben also notes that inversions ahead of past recessions came at a time when overall rates were much higher than they are today.  SW2C (So What Who Cares).

The point is Ben wants to believe what he wants to believe and is grasping for “arguments” to support his case.  Looks to me more like he’s grasping at smoke (and making some of his own).  Of course none will know for sure for some time.  Cheers!

The following quotes excerpted from IBD:

John Norris, chief economist with Morgan Asset Management: “Every recession has been accompanied by an inverted yield curve.  It does portend an economic slowdown.  For the Fed to say this time is different, it’s a little confusing.”

Steve Rodosky, a senior vice president and portfolio manager at PIMCO: “[F]or the engine to keep humming along, you need the ability to borrow low and lend high.  Profits accelerate when yield curves steepen and vice versa.  We don’t understand how [he] can discount that truth.”