Some Guy on TV

Yep, that was me on CNBC’s Fast Money talking about the 2-10 spread. Here’s the 2-10 Spread going back 30 years. Notice how it turns negative before each recession (the shaded parts). It’s got a great track record, and it’s been more bullish lately.

Eddy: It’s looking good for the economy. A lot of people on Wall Street are paid a lot of money to predict the economy and a lot of them don’t have very good track records. One of the best is one of the cheapest, and that is the difference between the 2 and the 10. And it’s been going up over the last few weeks and it’s now at a two-year high.

Josh Brown: Eddy, I see in the chart that you’re showing that we kind of had a false start toward the end of 2010, and we actually know how that’s worked out for momentum stocks and cyclicals ever since then. Is there anything in your reading of this or elsewhere that could tell you that “this time is different” from the false start in 2010 when we were all faked out?

Eddy: Absolutely. I think there are two good confirmations. One is the ISM report for November which was also a two-year high. It is the exact same time frame as the 2-10 spread. Another one is that if we look at the relative strength of the Cyclical Index, the CYC, that is also at a two-year high. It’s confirming these trends almost perfectly.

Melissa Lee: Were you surprised, actually, that you had these other two indicators also confirm this trend given that the Fed has essentially been manipulating the yield curve for so long?

Eddy: The difference is what we saw earlier in this year when the 2-10 spread got wider, but it was a different underlying trend driving it: the middle part of the yield curve is what was driving it, and that was the fear of taper. This time it’s very different because the middle part really hasn’t moved much at all. In fact, the two-year part is lower than where it was on Labor Day. The real driver of the growing steepness of the spread has been on the ten-year. And that’s driven up so that we’re about 260 basis points wide right now.

Posted by Eddy Elfenbein on December 11th, 2013 at 6:53 pm

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