Soft Now, Hard Later (Revisited)

Published in Breakfast with Dave, 01/02/2024

“Don’t stop thinking about tomorrow

Don’t stop, it’ll soon be here

It’ll be better than before

Yesterday’s gone, yesterday’s gone”

— Fleetwood Mac, Don’t Stop, 1977

I’m not sure about the “better than before” lyric, but yesterday is definitely gone and yet, virtually every economist is doing what they did at the end of 2007, 2000 and 1989 — gazing into the rear-view mirror instead of looking through the front window. 

The yield curve (3-month to 10-year) has been inverted for thirteen months, making it the longest period since 1979-80 that presaged the recession. Ditto for the maximum inversion this cycle, which was -157 basis points (using monthly averages) that last happened in 1981. And that presaged the double-dip recession of the day. Why would anyone bet against a metric that has gone 8 for 8 (the yield curve did invert on a weekly basis in 1989)?