I think the message in this inverted yield curve is muddled. I think it is something to watch and to understand better. But I am not overly concerned.

There is this simplistic notion around that because the yield curve is inverted, therefore, economic growth is going to slow down, but ... no consideration is given as to why the economy would slow down.

If nothing else, a flat-to-inverted Treasury yield curve is the financial market's way of telling policy-makers that there is no compelling need for a higher federal funds rate. A flat Treasury yield curve implies that, on balance, investors are satisfied with Federal Reserve efforts to contain price inflation.

The curve inverted modestly yesterday, and people are piling on.

The market reacted exactly the way they wanted it to, which was to flatten the yield curve. I think the point is clear: Policy makers are going to do whatever they can to help the Fed. The rate cuts that the Fed is putting through are only hitting the short curve; they're only psychological.

I think what we have in store is a slow deflating of the housing bubble, not a bursting of the bubble. But if mortgage rates rise more sharply than I am expecting, then the downturn in housing could be more severe.