Monday, June 30, 2008
Next leg of contraction upon us?
By now most people realize that the yield curve going from inverted to rising is not good for the economy. Sure, Wall Street troubadours can trumpet that banks are able to borrow short and lend long but right now many are trying to remain solvent with no thought of playing the yield differential game with the always consumption-willing American public. Like Marc Faber, I would be very cautious on commodities - including oil - here as a rising yield curve signals the next phase of economic crisis. The curve looks to have turned back up, needing only a rise above 20 on the STO by this chart to confirm the next leg. The Dollar is not broken and there is a chance it will NOT break lower from here as has been written in stone by virtually everyone. That could be a bear flag however and another leg lower would mean shear destruction of the American economy as inflation fears spin way out of control. No, best that Uncle Buck pulls the contrary move of all time here and heads up toward some of his resistance zones to relieve the pressure. Conveniently, many people are feeling the pressure to 'get to cash'. Go figure. ;-)