There is a noticeable difference in market and economic outlooks between those on the front lines of the fixed income markets and those sitting back at HQ in wealth management. I have observed this even within the same firm.

Readers know that I am a fan of Morgan Stanley economist, Ellen Zentner. Ms. Zentner’s outlook on the economy and the timing of Fed policy has been very accurate. While a guest on CNBC’s “Closing Bell” show, Ms. Zentner pointed out that the economy should be able to absorb mild Fed Funds Rate increases fairly well. She pointed out that much of the job and wage growth has been on the lower end of the income spectrum and that tightening into, what looks to be a low inflation environment probably results in a flatter UST yield curve.

The very next morning, Morgan Stanley Wealth Management head, Greg Fleming was on CNBC’s Squawk Box telling viewers how well the economy is doing and that it could drive the market higher. He continues to hang is hat on low fuel prices.

This dichotomy of opinion is not endemic to Morgan Stanley, by any means. I have seen it around the industry. Most of the wealth management commentary I read points to a resumption, if not an acceleration of economic growth. Most commentary I read from the trading and institutional areas of the business expresses a much more cautious view.

I understand that in the wealth management business, one needs to be positive so as not so frighten clients. However, Bond Squad’s mission is to provide subscribers with a front line view of the fixed income markets. From the front lines, it appears that the U.S. economy has probably done most of the recovering it is going to do in the current economic cycle. The underlying trend appears to be settling into a 2.0% (+/-) economy. However, there is a monster which threatens to spoil our happy economy.

You’re a mean one Mr. Grinch

For more than two years, I have been writing about frothy conditions in the high yield bond market. My concerns were featured in the Wall Street Journal in 2013. In 2014, Bloomberg News quoted me several times. In June 2014, I suggested that the junk debt market was overvalued and, where investor suitable, investors and advisors may want to take on a bit more duration risk to generate yield over credit risk. This was a decidedly unpopular view on the retail side of the business. However, for anyone on the front lines, warning signs were flashing.