Business

Since The Fed unveiled its cunning plan to unwind the balance sheet ever so gradually and in an ever so well-telegraphed manner, the US Treasury yield curve has collapsed!

Banks do not care as the yield curve has crashed to its flattest since 2007...

In fact, the collapse to just 91bps places the yield curve right at the start of both of the last two recessions...

So, no! You do not need to invert the yield curve to see a recession - in fact we are already there.

As most people are undoubtedly aware, the whole point of requiring a down payment on a home is to make sure that homeowners have "skin in the game" and to prevent the kind of rampant speculation that undoubtedly comes when banks and other lending institutions make it easier for American gamblers (a.k.a. "real estate investors") to play around with other people's money.

In the Fed's latest Flow of Funds report, today the Fed released the latest snapshot of the US "household" sector as of June 30, 2017.

"What is THE catalyst?"

As all traders know, and as UBS repeats this morning in a new report by credit strategist Matthew Mish, one if not the mostly commonly asked questions is "what events could disrupt global corporate credit markets heading into year-end and early 2018."

Everyone is making a big deal about the Fed's so-called "balance sheet reduction” which starts next month.

Let’s assess some facts.

First of all, the Fed plans on shrinking its balance sheet by $10-$30 billion per month. The Fed balance sheet is currently $4.5 trillion. So at this pace of unwinding it would take somewhere between 13 and 33 years for the Fed to normalize its balance sheet back to pre-2008 levels.

So the notion that this is significant is off base. It borders on irrelevant.