Friday, October 30, 2015



Historically, yield spreads have been a good determinate of economic strength or weakness. However, in an environment where they are being artificially suppressed to support economic growth by pulling forward future consumption, the reliability becomes much more questionable.

The problem for the Fed, and why they can't raise rates, is that a tightening of monetary policy will quickly collapse yield spreads and negatively impact economic growth by raising borrowing costs at a very inopportune time. The only reason for raising rates is to provide clearance above ZERO to reload the "policy gun" prior to the onset of the next recession. 

And given historical tendencies, that event is likely closer than most believe!

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