HEY "YIELD CURVE" WATCHERS. TRUE YIELD RATE CURVES LOOK NORMAL.

All too often, many get sloppy with the words of their language and thus confusion sets in. This seems to be true of those who work in the financial world.




There is a difference between the words yield and rate. A yield is a sum of payment. A rate is a ratio of a measured quantity over time.

When you hear someone talking about the "yield curve," what that one should say is rate curve or yield rate curve.

A curve is a line drawn from data, plotted as rise or fall over run.  A yield rate curve is drawn from bond yield rates of maturities arranged in sequence from short-term maturity to long-term maturity.

So why is the yield rate curve important? 

In the normal state of affairs, investors are less certain about the future than nearer to now. Investors are willing to pay for bonds only at much lower prices than par for bonds with longer maturity.

Said another way, investors buy higher yield rates for longer futures. In short, investors want to pay less for the yield offered since the longer the time, the greater the danger they will lose all they have put at risk.

In an abnormal state of affairs, many believe bad times are soon ahead. Since investors are less certain about the short-term relative to the long-term, investors are willing to pay for bonds much lower prices than par for bonds of short maturity.

Said another way, investors buy higher yield rates for shorter futures. Investors want to pay less for the yield offered since the shorter the time, the greater the danger they will lose all they have put at risk.

So what does the current True Yield Rate Curve look like, the curve plotted after removing the effects of inflation?



What did it look like six months ago?




How about a year ago, what did the true yield rate curve look like a year ago?




How about the curves leading up to Peak GDP of Q4 2007, what do those curves look like?




That is an inverted yield rate curve! As you can see, the rates for short maturities of six months and one year are much higher than those for longer maturities.



Yes, that is an inverted yield curve too.





And this curve above also is an inverted yield curve.

Before Greenspan and Bernanke kicked in the last phase of the biggest inflation in the history of mankind, then peak True GDP hit at the end of Q4 2000. What did the True Yield Rate Curve look like in the months preceding that peak?




There is an inverted yield curve yet again.




And here is one more inverted yield curve.

Some define the "yield curve" as the difference in yields between two-and 30-year U.S. Treasury bonds. Even with that limited segment of the yield rate curve, the 30 less 2 Popular Yield Curve has inverted 112 quarters from 454, which is 24.7% of the time over that almost 38 year span.

The last time the Popular Yield Curve inverted happened on February 1, 2007. The longest streak of inversion for the Popular Yield Curve ran between 2002 through 2006 through the last leg of the Greenspan-Bernanke Inflation.


Be sure to read THE USA ECONOMY ADVANCE LIKELY HAS BEGUN AT LONG LAST, which I published yesterday, if you desire to get in on the bottom on what could be booming USA economy ahead.

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DON'T CRY TO ME ARGENTINA

Argentines. Can they be trusted? Since 1800, various leaders of Argentina have stiffed creditors eight times through sovereign bond defaults.

Argentine politicians put Argentinians on the hook for $29 billion. And because other politicians stiffed past bond holders, current Argentine politicians had to sell bonds through New York bond dealers and thus become beholden to security laws of the State of New York.

Now, $29 billion seems like much bank credit denominated in bank cash (as it isn't money). However, let's get perspective.

Recently, Comcast acquired Time Warner Cable for $67.6 billion or 2.33 times as much. Back in 1998, when the dollar bought much more, Exxon bought Mobil for $80.3 billion or 2.76 times as much.

In 2000, AOL, those pesky people who sent countless CD-ROMs for us to use as drink coasters, bought Time Warner for a whopping $186.2 billion or 6.42 times as much as what Argentine politicians have put their people on the hook to pay.

Thirteen years ago Argentine politicians stiffed the world for $95 billion or 3.3 times as much as they desire to stiff today's bond holders.

So what happened to the all of that bank credit Argentine politicians borrowed? Upon whom did they blow those credits? What did they buy?

Likely, Argentine pols squandered those bank credits on salaries for themselves, for meddling bureaucrats and on welfare benefits to bribe citizens for votes rather than invest in commercial infrastructure while reducing the involvement of politicians and bureaucrats in the Argentine economy. Well, if all else fails, sitting president Cristina Fernández de Kirchner can wage a Guerra Sucia using Eva Peron like appeals.

It's the same old story being played again. When will the man and the woman on the street awaken to reality?

In their presence, politicians alone create the rules by which economy arises. When circumstances go against the people, it's because of politicians and not because of commerce, competition, and markets.



As I have said often over the years, government is mafia with better public relations.



For a look at the biggest acquisition deals of all-time, check out Bloomberg here.

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STOP IN THE NAME EX POST FACTO!

Article 1 Section 9 of the U.S. Constitution states, "No Bill of Attainder or ex post facto Law shall be passed." Known as the Supremacy Clause, Article Six, Clause 2 of the U.S. Constitution states, 

"This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding."

The latter establishes the U.S. Constitution, federal statutes, and U.S. treaties as "the supreme law of the land." The former establishes that no law can change the legal consequences of action committed or relationships established before the enactment of the law. 

Those of the financial media have been abuzz about bond exit fees being imposed on extant contracts held by  retail owners of bond mutual funds. Peter Schiff gave a decent write up on the bond exit fee chatter. Far too many believe regulators of the SEC or even the Federal Reserve can impose such ex post facto rules without knowing what ex post facto means much less having ever read any part of the U.S. Constitution, much less Article 1 Section 9.

Likely, there shall be jokers who will cite  Justice Samuel Chase and Calder v. Bull suggesting the U.S. Supremes claim the ex post facto provision of the Constitution applies solely to criminal cases, not civil cases, but to do so would be yet another undemocratic, wrong ruling by U.S. Supreme Court justices (e.g., Santa Clara County v. Southern Pacific Railroad, Wickard v. Filburn, Kelo v New London,  National Federation of Independent Business v. Sebelius). Heritage.org has a nice write up on the Supreme Court history regarding ex post facto.

Should those at the SEC feel brazen to rule such fees must exist and should the U.S. Supreme Court led by Chief Justice Roberts agree, because you know such an SEC ruling will make to the USSC, that shall be the last shred of proof anyone needs to see Americans have not been living by their Constitution for years upon years.

Americans need to see reality. The U.S. Supreme Court system is broken. That nine judges can impose their will upon Americans hardly is democratic, especially old sleeping judges and judges who never created life but yet rule on the sanctity of life.


There should be 50 justices, not nine, one appointed from each state. States' legislators should appoint U.S. Supreme Court justices, not the president. Appointees should at least be 50 in age and have fathered or mothered children. The term for any U.S. Court Justice should not exceed 10 years.

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TRUE YIELD MOODY'S SEASONED AAA CORPORATE VS TRUE BANK CREDIT

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