Now the Bond Market Gets into the Green Shoots vs. Brown Weeds War

pin the tail on the donkeyI am starting to think that everyone and their brother has a magic secret crystal ball, a pack of special stock symbol tarot cards, a smoke machine and voodoo chants mumbling phrases sprinkled with buzzwords recovery, GDP and Q3 . Is there anyone in America not trying to play pin the tail on the end of the recession?

Bloomberg notes the bond market rejects recovery, in spite of the last week's ultimate declarations of the recession's untimely demise.

The bond market isn’t buying all the optimism over the end of the global recession. While the International Monetary Fund said last week the economic recovery will be faster than it forecast in July, investors pushed yields on government debt to the lowest level since April, according to the Merrill Lynch & Co. Global Sovereign Broad Market Plus Index.

The gauge, which tracks $15.4 trillion of bonds worldwide, gained 0.73 percent this month, the most since 1.02 percent in March. Debt investors can’t see a recovery strong enough to spur central bank interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. - - the world’s largest economy -- will rise above 10 percent in the first quarter.

After stripping out the effects of the U.S. government’s “cash for clunkers” program to buy new cars, consumer spending was unchanged in July, according to Commerce Department data released on Aug. 28.

“The bond market does not believe we will see rapid robust rates of growth,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion. “The deleveraging of the consumer will act as a drag on growth, which will keep inflation to a minimum and interest rates relatively low.”

I guess the bond market is on the Populist side. The article notes it doesn't like 10% unemployment and also doesn't like 4.7% wages drop that has happened over the last year.

If the Bloomberg link is empty, try this copy, they have been changing the story based on state of today's markets.


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Not quite

Notice the quote from the article: "“The bond market does not believe we will see rapid robust rates of growth,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd."

The debate is no longer about whether there will be a recovery (+GDP growth) or not. Per the above quote, the fact of growth is accepted. There is a Recovery and it is here now.

The debate is about the following:

1. how robust will the Recovery be?
2. how long will the Recovery be?
3. how much of the Recovery will be confined to the plutocrats and how much of it will manage to filter through to the plebes?

not true

Not all believe it's a recovery, there are many discussing "double dip". Many, including myself believe we will see some sort of positive GDP, I believe due to increases in government spending. But even by the technical definition, not all economists have proclaimed end of Q2 2009 the "recovery inflection point".

If you note, I am making fun at that need to predict, to declare as if somehow that erases all of the other states of the economy, which it does not.

Kind of a "I'm first, you're wrong, I'm right" kindergarten experience.

Mixed in with a real story that the bond market is not behaving as if a recovery is imminent.

Suit yourself


it's not "myself"

I'm just reading the various economists out there with pretty damn good track records as well as the various LEIs, EIs out there directly.

I also think, like waves....if I just try to time the peak and the valley, focus all of my attention on getting that right, it's not telling me much about the ride or where I'm gonna land on the beach.

For example, I suspect we could see positive GDP for Q3 and Q4, which would make it a technical recovery if I understand the definition....that said, if G in the GDP equation is where it's all coming from....I frankly don't think that's good or sustainable. It's better than negative, but not really the long term structural changes I believe need to be there.

Just like Q2 2009, well, awesome, global trade collapsed, U.S. consumer way down and thus imports cliff dived more than exports...and that helped U.S. GDP numbers. Ok, but that doesn't erase the fact U.S. exports are way down.

i.e. I'm looking for structural economic growth, where the money is for the middle class, sustainable, a shift to a production economy....

i.e. I'm with midtowng on this one, where is the long term sustainable growth, the thing that grows the U.S. middle class going to come from?

I'm also not so sure about the double dip either and while I see recent UI reports which imply only the initial claims have gone down to "normal" recession levels...they are not at 300k range.

I don't have an answer but can massive unemployment literally bring down on a Macro economic level economy? I wish that were so frankly, because the economy is supposed to be for all Americans...but is this a tipping point?

I do not have answers but I am assuredly not willing to proclaim that impossible at this point.

Now today we just had a city region ISM turn +50..finally. Now that's awesome, but I'm going to wait for the national. I mean great for Chicago, but it's one area. Same with Philly area recently.

There are too many risks still out there to

call this a recovery. Unemployment and its effects on mortgages and impact on financial sector and CRE. We will see in a few months whether sales of homes and cars were boosted by gov't supports or whether these slight bumps can be sustained.

Oh, yeah, China - the world's economic driver. Something tells me that China's economy may not be as healthy as some would like us to believe. - Financial Information for the Rest of Us.

China stock market enter bear territory today

But in terms of the U.S., two problems, #1, is they expect to export their stuff to the U.S. for their own economic gain, (instead of focusing in on their own domestic consumer economy), and #2 is they are the largest holder of U.S. debt ($800 Billion).

That's significant, with Japan #2 U.S. Treasuries, holdings.

That's the problem with keyword "recovery", one can have a technical recovery, yet as the statistics show very clearly....that can mean nothing on main street where standards of living, wages, income have decreased steadily for about 30 years.

So first thing to do is separate in your head that keyword recovery does not mean main street is's a business cycle economic term really.

I agree with my street 'recovering' but

even a technical recovery is still in jeopardy because of the risk factors I mentioned. I just read this article and I agree w/ prof. Hamilton:

Econbrowser Emoticon shifts to neutral

Let me now clarify what this change in our little friend's countenance does not signify. First, it is not an Econbrowser Declaration that the recession is over-- that will have to wait until our GDP-based recession indicator index falls below 33%.

Nor is this a less formal "all-clear" signal. Far from it. I still don't see the evidence that employment has started to pick back up, and as long as the number of people with jobs is falling, there is plenty of potential for destabilizing feedback. Lower employment can aggravate mortgage defaults and put further stress on key financial institutions. As long as employment continues to fall, things could rapidly deteriorate.

But the situation definitely looks better than it did. - Financial Information for the Rest of Us.

I saw his smiley change

Very nice touch...almost a "terrorist threat level" system for sycophants.

He was one of many I was referring to in that not all economists with high track records, credibility are claiming there is a cycle inflection point (i.e. recovery) at the Q2 2009 window.

My 2 cents is the cliff diving appears to be over and also could be classified as a panic. Then, I especially liked Krugman's new classification of Economic Purgatory as a element in an economic state machine. ;)

On the rest of this...
I'll leave the declarations up to the big dogs and the NBER and stick to looking at the details for now.

the male underwear index as a recovery predictor

Read about males buying underwear as an economic predictor.

Now if this doesn't lighten things up, I just don't know what else to do.

another naysayer on recovery, hedge fund manager


But I'm not so sure what the stock market or betting against a rally says about calling a recovery...

although he's quoted as saying if it happens it's not sustainable.

Roller coaster analysis, econ 101 has arrived.

Today's Must Read Article

Included in today's links at Naked Capitalism, is this outstanding rant from Lee Adler of the Wall Street Examiner. The analysis of where we are and how we got here is excellent and there are nice graphs too. But the money quote is his conclusion to the piece:

A whole lot of ordinary people “got it.” Only the mainstream infomercial media didn’t get it, because they are, after all, on the payroll of the Wall Street Mob.

The fact is that the economy is not getting better. It is not healing. Nothing goes down in a straight line, especially when a government throws a couple trillion in debt at it. But those trillions are not endless. The kindness of strangers, namely foreign central banks who buy that debt, is not without limit. The time will come when the government will not be able to float more debt to pay off the existing debt, when the burden of paying back these wildly reckless bets will fall directly on the back of the US taxpayer.

We are facing a crisis much greater than any we have faced so far. The Fed will not continue to pump cash into the pockets of the Primary Dealers indefinitely as they have been doing since March. When that cash gusher stops, or even slows, the stock market will again collapse. It simply cannot be sustained at these levels without that subsidy.

As for the economy, over the next year, it will get worse, for all the reasons enumerated above. How much worse, I have no clue. I’m not an economist, thank goodness. What an embarrassment that would be. Obviously they have no clue either. They pretend. That’s all. They missed the biggest collapse in the last 75 years. Knowing what’s likely to happen is not their job. Their job is to talk a good game so that Wall Street can continue its game.

Ripping off the rest of us.

So Good Night, and Good Luck.

You’re going to need it.

Read the whole thing, it's well worth the time.