Thoughts From the Frontline, February 2006

Probabilities of Recession

February 24, 2006

This week we look at the possible direction of interest rates both at the long end and the short end. Bottom line: history suggests there is some serious volatility in the future on the long end of the interest rate curve later in the year. The yield curve and the 6/50 Rule when looked at together reveal some very interesting insights. (This letter may print longer than usual, but that is because there are a lot of charts. In words it is actually shorter than most letters.)

But first,...

The Conundrum of Risk

February 17, 2006

One of the positive things about international travel is that it gives me a large amount of time to read and think. This week we are going to look at some of that reading on the current issues surrounding the apparent willingness of investors to court ever increasing amounts of risk in the face of not only US central bank tightening but tightening by central banks everywhere, which has historically not been a bullish environment. I trust it will stimulate your own thinking.

But first,...

Greed by Four Lengths

February 10, 2006

This week we look at an interesting index of greed and fear, look at the yield curve and the new 30 year Treasury bond, the latest unemployment numbers and a lot more. What do they tell us? Is there a theme or at least a rhyme? Or is it all random noise sent by the market gods to lull us back into the mistakes of the past?

The markets are a race between greed and fear. Right now Greed is looking like Seabiscuit beating War Admiral by four lengths at the stretch. (As an aside, you can...

Ahead of the Yield Curve

February 3, 2006

Last week we started a series on a very important book by friend Joe Ellis called "Ahead of the Curve." We continue this week looking at specific indicators that Joe thinks give us a heads up when the economy is about to slow down and the stock market will being a bear market. I am then going to marry those thoughts with some work on the yield curve, especially looking at what the yield curve may be telling us today.

Cutting to the chase, I am going to make an argument that it is...