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Wondering What Marko Kolanovic Thinks About Friday’s Curve Inversion? You’re In Luck…
Last week, JPMorgan's Marko Kolanovic weighed in on the outlook in light of a YTD surge in risk assets that's seen the S&P rally to within shouting distance of his 3,000 target which, just two months back, was castigated by some skeptics as being far-fetched.
Long story short, SPX 3,000 doesn't look so unrealistic anymore and in fact, you could pretty easily argue that it's a foregone conclusion, although, as ever, nothing is a sure thing in a world where the geopolitical backdrop is hopele
So the system has painted itself into a corner..Rates are super low… ,Debt is at a record…..geopolitics is a Jack in the Box…and the balance that drives the global economy is shifting. It is ,however true, the TINA factor will soon prevail once again… The question is with paint drying slowly as traditionally it does can Gandalf walk out of the corner keeping his feet dry when it does.???
I say this time ain’t quite that different…!!!
What about the theory that the inversion was exacerbated by the unwinding of the ‘carry trade’?
Under this theory, China could pare back stimulus / credit creation in 2020 as part of an effort to stymie Trump’s reelection?
I would just amplify that “instances of 10Y-3M inversion in 1978, 1989, 1998, and 2006…” from a “relatively small sample” are just that: fairly rare; and the last time it happened was 13 years ago. Now, that may not be a long time in behemoth institutional vicissitudes except that the last time it happened was before the paradigm shift to Fed-fed market guarantee, under the aegis of an increasingly government interventional decree that the economy is too big to fail. Slippery slopes, indeed.
I am entirely certain that I may be naive and a tyro in my understanding of global finance. I am also entirely certain that the last time the inversion happened, it was a distinctively different milieu. The advisory about danger in “different this time” conviction also, I think, equally applies to any assumption that 13 years of free money (so to speak) hasn’t changed the financial mechanics.