Steeper Yield Curves

The Fed is now reviewing the steeper Treasury yield curves in order to assess whether its part of an overall economic recovery. Its far more likely that longer-term treasury yields will rise as investors begin to assess the true impact of the bail-out program and subsequently lose faith. The stated aim of Robert Rubin as Sec of Treasury and Alan Greenspan during Bill Clinton’s administration was monitoring the treasury market to make sure that bond yields stayed low; it was almost the entire point of the balanced budget during the Clintonian era. Its quite remarkable how quickly perspectives can change in half a generation.

Its impressive how quickly the real economy seems to be on the upturn; these green shoots seem to have a very good chance of thriving. Manufacturing is on the rebound and now with the auto companies in administration; the economy is definitely on firmer ground. With Fiat going to be the second-largest car company in the world, through the absorption of Chrysler, its a healthy restructuring exercise and appropiate kudos should be given to the Obama administration for having the political will power to actually make it happen; its impressive the extent to which politics and economics intertwine in downturns. 

Finally I’m going to end this rather late daily missive (two-day conference affects the schedule) with thoughts on the FSA and discussion on “Twin Peak” regulation. I’m completely against the tripartite regulation scheme that PM Brown foisted on this country; its fascinating how every one of his schemes hatched during his Chancellorship have proven to be ultimately disastrous. Anyway my thoughts on Twin peaks are that it makes sense; the FSA should be reabsorbed into the BoE and be the day-to-day implementor of BoE regulatory missives.

Last night at dinner I was shown a piece, whereby 1,100 German companies were filing or in the process of filing for state aid. Much as we discuss the woes of the American economy; its precisely the lack of resolution or any major legislative action that’s going to haunt European economic performance for the following few years. Its already an established principle in global economics, that in a recovery scenario America leads the way followed by Britain and then Europe lagging quite a bit behind. The attitude to credit risk is possibly the key fundamental in establishing parameters for recoveries.

I’d be interested to see the Bank of Australia’s rate decision tomorrow if only to see what their attitude toward recovery is; at 3% Australia’s rates have quite a buffer to cut.

Its pretty interesting to see that the only Big Auto, which hasn’t declared bankruptcy yet is Ford. Surprising how when there’s a family ownership, there’s a sense of legacy and loyalty which holds the company back. In a way spring cleaning in Detroit is well over-due and if the Autos are really going bankrupt then why doesn’t the government just assume the obligations to their employees. Ultimately restructuring the GM and Chrysler in such a way that they still have to meet most of their employee obligations kind of defeats the purpose. If anything the plight of the auto companies highlights the difficulties of generic manufacturing in the developed West; the trend is now to shift further South and East.