No, Mr. Bond Does Not Expect Us To Die
Tokyo Stock Exchange
(Photo by Stéfan) (CC BY) (Resized/Cropped)
Forgive the levity of the title, but the sad passing of Sean Connery does call for a bit of a break from formality.
The villainous Goldfinger in the eponymous film captures Bond, straps him to a table, and points a laser at him. “You expect me to talk?” asks Bond. “No, I expect you to die.” replies Goldfinger.
We’ll look later at what gold’s finger is pointing at right now in terms of future expectation, but at the moment, Mr. Bond Market does not expect us to die. In fact, Mr. Bond seems pretty optimistic about at least our short-term prospects.
Okay, enough fun, now it’s time for some math (or, as Bond would say, “maths”). I looked at the bond yield for investment grade corporate bonds. That’s how much interest they promise to pay you every year divided by how much you paid for the bond. These aren’t junk bonds. However, they are private, not backed by the full faith and credit of the U.S. government (except maybe if they are ‘too big to fail’). Then we subtracted from that number the yield on the ‘sure thing’. (It’s not really a sure thing, even Her Majesty’s Government eventually defaulted on its government bonds, but that took a couple of hundred years.)
The difference represents the preference for the government bond over the corporate bond. In other words, the higher the number, the greater the fear about the future. The lower the number, the more confidence about the future.
The trained eye will see that in general, Mr. Bond is able to see the danger in advance and swerve to avoid it. Spikes generally appear before recessions, and troughs in this fear metric tend to drop before recoveries. To make this easier to see, we rearranged the data so you can see how well this stat fits with future GDP growth.
The bond spread is along the bottom axis. Rightward is frightward. Therefore, if Mr. Bond is good at his job, the pattern would be a downward slope and the dots would be pretty close to the line. So far, looking at these market and survey metrics, it looks like “nobody does it better” – the bond market seems much better at anticipating recessions and recoveries than the stock market. Perhaps Mr. Bond should be called Dr. Bond.
Mr. Bond, as you can see above, is more optimistic now than during the past 12 months and is now anticipating about 2.5% growth. That’s a valuable piece of national intelligence about our economy, but for the full global picture, we’ll have to turn to Bond’s favorite redhead, Dr. Copper, next.
To see the chart, click here.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.
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