An Opportunity in the Chaos

You Think the Fed Is One and Done?
Awash in Debt
Investment Grade Zombies
Selling Under Pressure
Falling Apart Quickly
Navigating the Waters Ahead
New York, Maine, New York, and Montana

One reason the economy is so fascinating is the way things just… happen. Growth blossoms if everyone just follows their own incentives and nothing gets in the way. The courage, vision and passion of entrepreneurs and those who risk their money backing them is one of the most inspiring aspects of modern civilization. Adam Smith’s Invisible Hand of now tens of millions of businesses, small and large and giant, working to produce and deliver inventions, technologies and cures that help us all.

Think about ants. They’re marvelous creatures. No individual ant knows how to build a colony, or is even aware it is doing so, but it happens because they’re supremely efficient at simple things. Go to that smell, pick up the object, follow that other ant, repeat. The end result is greater than their tiny brains can comprehend.

But like ant colonies, economies sometimes fall apart. In human terms, we call those times “recession.” We can recover from them, but they set us back.

However… they don’t have to set all of us back. Unlike ants, we can see the big picture. And if we see it clearly, recessions can be opportunities. Today I’ll describe just one of the many I think are coming. Of course, before that opportunity develops, people who don’t get out of the way are going to lose a great deal of money.

The good news is an opportunity will follow, as surely as morning follows night.

You Think the Fed Is One and Done?

I am sure Jay Powell and the rest of the Federal Open Market Committee didn’t expect Thursday’s bond market action. They cut rates hoping to mitigate or even remove the inverted yield curve, which is a pretty reliable recession precursor. The opposite happened.

Below is a yield curve snapshot from Bloomberg on Thursday after the markets closed. The 10-year bond yield dropped 14 basis points in just a few hours. It was a sporty 3.01% at this time in 2018. The three-month Treasury yield actually rose three basis points in the secondary market, making the yield curve even more steeply inverted than it already was.

Source: Bloomberg News

President Trump didn’t help matters by expanding tariffs on Chinese imports. Powell was quite clear that the Fed is paying close attention to trade data. The president gave them even more concerns for their next FOMC meeting in September.