Rocket: Fat Bear Week

After a cold COVID winter, this past summer really heated up. Consumers fully transitioned their spending from goods to services, and inflation really started heating up with fuel on the fire from oil price shocks.

Fearing that inflation expectations would become embedded into the psychology of producers and consumers, the Federal reserve has acted quickly and decisively to raise interest rates with sharp 75 basis point jumps – they want to show they are serious about cooling things down.

The weather is cooling down again, the bulls are retreating, and the bears are preparing for winter.

In Alaska, it’s time to celebrate “Fat Bear Week.”  Fat Bear Week is a celebration of success and survival. It is a way to celebrate the resilience, adaptability and strength of Katmai’s brown bear.  

One of the reasons we are seeing a lot of bears in the market this spooky season is the “inverted yield curve.” That means that the government is effectively paying its creditors higher interest rates on 2-year debt than 10-year debt.

This flies in the face of the basic financial principle called “time value of money” – meaning a dollar further in the future is worth less than a dollar closer to today.

This is spooking markets and attracting bears, because a yield curve inversion is typically a good indicator of a coming recession.

Consumers have realized this is a temporary (or transitory, if you prefer) phenomenon, and their expectations for inflation over the next 12 months have peaked and begun to decline.

Source: Rocket Mortgage