Wisdom From Carl The Janitor

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It was 35 years ago this weekend that five high school students met for all-day detention at Shermer High School.

With three teenage children at home, the MacroTourist has sat through more than his share of adolescent movies, yet apart from a couple of notable exceptions (Easy A and The Perks of Being a Wallflower spring to mind), few movies even come close to the greatest teenage movie of all time - John Hughes’ masterpiece, The Breakfast Club.

Often when I dust off an old movie it fails to live up to the idolized version in my mind, but not so with this classic. And as I recently re-watched the final scene, I was struck by wisdom in those last few lines.

Dear Mr. Vernon

We accept the fact that we had to sacrifice a whole Saturday in detention for whatever it was that we did wrong... But we think you are crazy for making us write an essay telling you who we think we are. You see us as you want to see us. In the simplest terms. The most convenient definitions. But what we found out is that each one of us is a brain, and an athlete, and a basket case, a princess and a criminal. Does that answer your question?

Sincerely yours,
The Breakfast Club

Late last week, the 3-month T-bill versus 10-year treasury note yield spread inverted, and with it, came all sorts of dire predictions of the imminent catastrophic collapse that this was signaling.

But could it be that the market was making the same mistake as Assistant Principal Vernon? Was the market seeing this information as they wanted to see it? In the simplest terms and most convenient definitions?

I am aware of the historical accuracy of the yield curve in forecasting recessions. Let’s face it, the yield curve has a better track record than most economists.

And there are plenty of smart strategists warning about the dangers of claiming “this time is different” and trying to reason away the yield curve inversion. David Rosenberg and Raoul Pal are two such individuals who immediately pop into my head.

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