If you are not immersed in the parlance of nautical warning I will elucidate. ‘Batten down the hatches’ is an order a captain barks to his crew when his ship is in peril because of rough weather. I’d say CNBC and most other media covering the daily ups and downs of the market were in the same mode warning of imminent peril last Friday … so much that the Dow Jones Industrial Average gave up the entire 217 gain from the previous day plus an additional 243 points. This was very reminiscent of the panic we saw on Christmas Eve, 2018. It was a panic in a Friday market where buyers decided not to play because we were at the weekend and the sellers didn’t seem to care that they were throwing stocks away at ridiculous discounts. 

I am very hard pressed to tell you why

There was no new news that caused concern except for the fact that Fed Chair Powell in his statement following last Wednesday’s Fed meeting, codified remarks he made at the end of 2018, statements reinforcing the Fed’s dependence on hard data for policy making …  a more cautious, go slow approach than previous his hawkish rhetoric that roiled the markets in October of 2018.

After his late December comments the market took off. At that time some said he was relenting to pressure from the White House. The statement last week said there would be no more rate increases this year and that the reduction of the Fed balance sheet (bond sales on the part of the Fed) would end soon. He gave as the reason a softening of world economies …a fact that most had been aware of for months. Ergo, Thursday the market took off as the yield on the 10-year US t-note dropped from 2.63% to 2.43% — good news, WRONG! Why? Because the yield on the 10-year dropped below the yield on the 3 month Tsy (2.459%). That, my friend, is the definition (albeit small) of an inverted yield curve … a ‘batten down the hatches’ moment for some.

The market appears obsessed with inverted yield curves.

Why? I really can’t say. Those who follow the indicator say it is a sign players in the market see weaker economic conditions in the future and are willing to buy those longer-term bonds now (pushing the yields lower than those currently available short-term interments–a flight to safety) as a hedge against that weakness (the dreaded “R” word — RECESSION). Problem is recessions are a normal economic fact of life. I can predict with great certain that there is one in the market’s future. I just can’t precisely predict when. History would say neither can an inversion in the yield curve. Read the headline below then the paragraph below that.

Bonds are flashing a huge recession signal — here’s what happened to stocks last time it happened

“However, if history is any guide, equity investors shouldn’t worry in the near term. In fact, stocks rose about 15 percent on average in the 18 months following inversions, according to a Credit Suisse analysis last year. The data show the stock market tends to turn sour about 24 months after the yield curve inverts. Three years after an inversion, the S&P 500 is up just 2 percent on average as stocks take a hit on recession fears.” (CNBC.com)

This is appalling. There is no way to square the bearish hyperbole in the above headline with the quote except that one time, I repeat, one time it happened before the most horrific market collapse most of us have ever lived through … and that collapse may have been a generational event rather than a run-of-the-mill recession. I think you can get the picture. They are trying to scare you to grab your attention.

With the market under continuing pressure CNBC continued to hammer on this theme,  in particular Scott Wapner, host of the “Fast Money half-time Report.” I am attaching this link with with Rick Rieder, Blackrock’s CIO of Global Fixed Income as an example.

Wapner continually tries to get Rieder to go to the dark side with loaded negative questions. Rieder, who is basically constructive on both stocks and bonds, does not bite. Similar repeated interactions occurred with other members of the panel. buy and large, Scotty was doing his bit to throw gasoline on the fire. Judging by the market performance later the trading day he and his cohorts may have succeeded.

Still, I don’t get the obsession with the INVERSION.

Kudos to Josh Brown, who was on the panel with Wapner yesterday trying his best to tamp down the panic, and Michael Batnick for their video post, “Holy S*** The yield Curve Inverted.” They make a very good point when they talk about the notoriety the yield inversions have received. This is when stock market world discovers a sure-fire market indicator, that is about the time that indicator becomes totally worthless.

Finally, it may be time to un-batten those hatches as that storm may be a little further off than Friday’s forecast might have indicated.

What your take?