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Here's Why We Have A Seriously Misunderstood Yield Curve Inversion

Published Thu, 06 Dec 2018 08:52:47 -0500 on Seeking Alpha

Operation Twist - Redux 2 If we examine this year’s Treasury auctions compared to last year, we see from days gone by an interesting reincarnation of "Operation Twist." We are seeing:
The 2 and 3-year Treasury issuance growing at ~30 percent, The belly of the yield curve growing at less than 10 percent, The Long End growing at > 20%
So what is going on here?
The Gross Misinterpretation - "The Yield Curve has Inverted" We immediately find ourselves reading headlines from the news sources that The Treasury yield curve just inverted, sounding the alarm for recession. An inverted yield curve immediately triggers the conclusion that we are not only now late in the credit cycle but may potentially already be in the early stages of the long overdue and highly anticipated recession. Everyone reacts accordingly. But is this in fact what the yield curve inversion is signaling?
We suspect what we are realistically witnessing a massive bond short squeeze. We warned of this problem on 04/28/18.

What is occurring is that futures traders are seeing an opportunity to take profits on their massive short positions and re-balance portfolio exposure.
What ignited their actions was last week's speech by Fed Chairman Jerome Powell. The trading community specifically focused on Powell's statement: “we will remain just below the broad range of estimates of the level that would be neutral for the economy." They found it very... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 262.56   0.0 0.00 5.67 2.18
PROSHARES ULTRAPRO SHORT S&P 500 27.77   0.0 0.00 0.00 2.13
SPDR S&P 500 ETF 292.36   0.0 0.00 5.42 1.87
PROSHARES ULTRASHORT S&P 500 30.82   0.0 0.00 0.00 1.86
POWERSHARES QQQ TRUST SERIES 1 182.07   0.0 0.00 1.49 0.79

SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA  


Older articles featuring Spdr Dow Jones Industrial Average Etf Trust (DIA):
With Treasury Yields Tanking, The Japanese Yen May Be A Better Hedge For Stocks
Pay Attention To The Message The Yield Curve Is Sending
Weighing The Week Ahead: Yield Curve Inversion And The Jackson Hole Agenda
Weekly High Frequency Indicators: Corporate Bond Yields Make Another New Expansion Low
P/E Ratios And Yields By Country
The Stunning Story Of Retail eREITs And Why Total Return Matters Even For Dividend Growth Investors - Part II
Lower Yields Are Center Stage
Dividends Defy Expectations
The Fed And The Yield Curve
The Inverted Yield Curve Is About To Revert

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