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Inverted yield curves predicting a recession
Posted on 8/6/19 at 4:55 am
Posted on 8/6/19 at 4:55 am
I hear this mantra from the talking heads on a daily basis, many of whom cant even balance their checkbook.
It has inverted, and it has been the case in the past. But are the circumstances the same? A good chunk of Europe and Asia are now offering negative interest bonds. The US decided to do quantitative tightening and pull 100s of billions of dollars off the market, and is still doing so.
Wouldnt this have some effects on the behavior of the bond markets?
It has inverted, and it has been the case in the past. But are the circumstances the same? A good chunk of Europe and Asia are now offering negative interest bonds. The US decided to do quantitative tightening and pull 100s of billions of dollars off the market, and is still doing so.
Wouldnt this have some effects on the behavior of the bond markets?
9
Posted on 8/6/19 at 5:20 am to trinidadtiger
If there's one thing I, as a financial advisor, have the most trouble convincing my clients - it's to stop watching MSNBC.
EDIT: and by MSNBC, I mean CNBC...
EDIT: and by MSNBC, I mean CNBC...
This post was edited on 8/6/19 at 8:57 am
Posted on 8/6/19 at 5:28 am to Niner
quote:
If there's one thing I, as a financial advisor, have the most trouble convincing my clients - it's to stop watching MSNBC.
I emailed a financial advisor one time asking about fee schedules and he emails me now once a week about some retarded arse trip he took to Paris or how he was pickpocketed.
Posted on 8/6/19 at 6:34 am to trinidadtiger
Trump inverted the inverted yield curve 
Posted on 8/6/19 at 6:53 am to trinidadtiger
It’s predicted 25 of the last 10 recessions
Posted on 8/6/19 at 6:57 am to trinidadtiger
quote:
It has inverted, and it has been the case in the past. But are the circumstances the same?
No. The circumstances are not the same. The yield curve is about expectations. If it’s inverted, the yield curve is saying there is no reason to invest long term in the economy based on returns from shorter investments being superior. Long term rates are all sorts of fricked because of QE. The yield curve is not a valid indicator as long as the Fed’s balance sheet is the way it is, or even as we are close to QE at all.
Posted on 8/6/19 at 7:19 am to trinidadtiger
The yield curve inverting is due to an abnormally large amount of investor buying long-term government bonds, enough that it drives the rates on those bonds lower than the rates for shorter term bonds. This usually means investors see something coming that causes them to pull out of the market and put their money into something safer.
Unlike the dotcom or housing bubbles, what seems to be driving this is little more than Chicken Little-ing. We've heard since Trump was elected that his Presidency would kill the economy. Even when the economy began roaring you still had economists predicting doom and gloom. When the trade war with China began, it gave a rational path for their fear... right up to the point where the quarterly numbers would come in and outperform their predictions.
Now add to this that (as you said) you have banks in other countries actually charging fees for accounts (which is causing investors to take their money out and put it into anything stable, as long as it has some sort of positive rate) and you can begin to see that not all inversions denote an imminent Recession.
China changed the rate their currency trades for the USD and Wall Street ran screaming to their bomb shelters while Trump told China to GFY. The result was that China balked less than 24 hours later.
Investors should take note of this.
Unlike the dotcom or housing bubbles, what seems to be driving this is little more than Chicken Little-ing. We've heard since Trump was elected that his Presidency would kill the economy. Even when the economy began roaring you still had economists predicting doom and gloom. When the trade war with China began, it gave a rational path for their fear... right up to the point where the quarterly numbers would come in and outperform their predictions.
Now add to this that (as you said) you have banks in other countries actually charging fees for accounts (which is causing investors to take their money out and put it into anything stable, as long as it has some sort of positive rate) and you can begin to see that not all inversions denote an imminent Recession.
China changed the rate their currency trades for the USD and Wall Street ran screaming to their bomb shelters while Trump told China to GFY. The result was that China balked less than 24 hours later.
Investors should take note of this.
Posted on 8/6/19 at 8:28 am to Niner
quote:
it's to stop watching MSNBC.
CNBC also is predicting this (several guest over the last week)Posted on 8/6/19 at 8:55 am to skinny domino
quote:
CNBC
I figured someone would notice my mistake eventually...
Yes - it's hard to convince my client to stop watching CNBC...MSNBC as well I guess...
Posted on 8/6/19 at 9:14 am to trinidadtiger
quote:
The US decided to do quantitative tightening and pull 100s of billions of dollars off the market, and is still doing so.
Actually, they said last week that they would stop shrinking their balance sheet.
LINK
Posted on 8/6/19 at 9:15 am to trinidadtiger
How can we have a recession when the biggest driver for that is the US consumer, who btw, is experiencing a fantastic job market.
Serious question? How can a recession be possible?
Serious question? How can a recession be possible?
Posted on 8/6/19 at 9:17 am to trinidadtiger
quote:
The US decided to do quantitative tightening and pull 100s of billions of dollars off the market, and is still doing so.
Does this mean we are reducing our debt? Serious question. It kind of sounds like the same thing so I'm wondering if it actually is the same thing.
Posted on 8/6/19 at 9:45 am to Bard
quote:
what seems to be driving this is little more than Chicken Little-ing.
Disagree. There is way more to it than that. It is the overall debt picture of the average consumer that is scaring people.
If you look at all the factors, then things get a little concerning.
All-time high on CC debt
All-time high student loans
The average family has less than $1000 saved for emergencies
The lowest rate of homeownership in 25 years
96-month car loans
Stagnant wage growth
Home value growth far outpacing wage growth
Etc
How anyone can think the current state is sustainable for very long is ludicrous to me.
There is a lot more to it than "Chicken Little-ing"
Posted on 8/6/19 at 9:50 am to JayDeerTay84
quote:
How can we have a recession when the biggest driver for that is the US consumer, who btw, is experiencing a fantastic job market.
Serious question? How can a recession be possible?
Because people have huge amounts of debt and housing is getting unaffordable for many.
Posted on 8/6/19 at 9:52 am to ProjectP2294
quote:No, it doesn't. In fact, Trump is now the author of the 2 biggest non-recession deficit years of all time. You should keep in mind that much of the positive activity you are seeing is the direct result of MASSIVE stimulus. The stimulus is working, mind you, but it is what it is.
Does this mean we are reducing our debt?
Posted on 8/6/19 at 9:56 am to jimbeam
quote:
It’s predicted 25 of the last 10 recessions
Posted on 8/6/19 at 9:59 am to Bard
quote:
Unlike the dotcom or housing bubbles, what seems to be driving this is little more than Chicken Little-ing.
Or adversaries like China buying long term bonds trying to spook the market in this current trade quarrel with China.
Posted on 8/6/19 at 10:12 am to Big Scrub TX
quote:
quote: Does this mean we are reducing our debt? No, it doesn't. In fact, Trump is now the author of the 2 biggest non-recession deficit years of all time. You should keep in mind that much of the positive activity you are seeing is the direct result of MASSIVE stimulus. The stimulus is working, mind you, but it is what it is.
Where's the massive stimulus coming from? You talking about the Fed cutting the funds rate?
Posted on 8/6/19 at 10:15 am to Bass Tiger
quote:Increased spending and decreased taxes.
Where's the massive stimulus coming from?
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