https://fred.stlouisfed.org/series/T10Y2Y

The current inversion hasn't been since the early 2000s and ensuing recession, which was characterized by the bursting of the dotcom bubble and the attacks of September 11th.

The dotcom bubble is attributed to venture capital funding, and the crash took out a lot of companies and hit others like Amazon pretty hard. Economic crisis is inevitable, it's built into the business cycle.

Following this logic, the next companies on the chopping block would be tech once again. This time, likely the "unicorns" that are the darlings of VC investors. Additionally, it's kind of an open secret that FAANG stock valuations are a bit disconnected from reality.

When you are on the edge of consumer tech, a lot of stock investors don't even understand how your business model functions and what gives it such a high valuation, and they don't really care as long as the price goes up. It's a darker side of the culture, as the trend is to splurge with VC millions and cash out at the zenith then move on to the next thing. History shows it's not sustainable.

If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time.

There seem to be three models:

1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression.

2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s.

3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.

Too bad the crypto hasn't worked out nearly as well as other forecasts. Also, the dollar has surged despite weakness in the bond market.

So maybe now is the time to buy treasuries given that these type of victory lap posts tend to mark either bottoms or tops. The bond market is pricing in huge inflation right now. Even inflation that is high but not absurdly high may still be bullish given all the negativity priced in the market. Also you don't need to hedge all of the inflation, just enough to live off of. If you got $2 million in the bank, then $80k/income plus social security will be enough even if your real return is -5%.

And an inflation rate of ... oh sorry that didn't fit the narrative, I'll just skip that bit.

"The market basically goes “no bid”."

except for the Gilt-Edged Market Makers (GEMMs) because "GEMMs are committed to make, on demand and in all conditions, continuous and effective two-way prices to their clients, in all gilts for which they are recognised as a market maker." (GEMM Guidebook, Sept 2021, UK Debt Management Office)[0]

I'll leave the rest of the article to the Gell-Mann Amnesia hypothesis.

[0]: https://www.dmo.gov.uk/media/22bbjndz/guidebook200921.pdf

- Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is?

- How does propping up the bond market reduce the risk of the impending recession or help the UK treasury pay off its debt obligations?

- Doesn't keeping yields low just help the treasury sell more cheap bonds (ie take out more debt)?

I may have answered my own question. The problem with the greater than 100% Debt to GDP ratio means that, should they decide to stop printing money, they'd immediately go into default on existing debt, regardless of the interest rate.

What if the UK Gov't passed a law to prevent the treasury from issuing any new bonds, and the Bank of England stopped QE. The UK would go into austerity, while it reduces the Debt to GDP. What if interest rates were then dropped to zero to stimulate the economy. There would be inflation until the economy finds equilibrium with all the extra money that has already been printed. Reducing interest rates will devalue the British Pound - and Britain is a net importer. So, yeah.. thats no good.

Check mate indeed.

1. https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X