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Yield Curves Invert in U.S., U.K

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Re: Yield Curves Invert in U.S., U.K

#111

Post by WarDores »

xivzgrev wrote: post #81
dkrich wrote: post #58

I'm surprised that everyone blindly cites the inverted yield curve as a recession indicator without considering the "why". Seriously, if you were to ask ten people why an inverted curve predicts recession, you'd get ten completely different answers. I personally don't think this is necessarily the inversion that is going to be predictive of a recession because the inversion is occurring at the long end (the 10/30 yea…

I agree. For the two recessions I’ve lived through, we didn’t arrive at them with everyone well aware it was going to happen. They snuck up and took the country by surprise. The tech bubble burst, and the real estate subprime bubble burst. We may go into a slump because everyone is expecting a splump to happen because it’s been 10 or so years of a bull run. But I don’t see a full-on recession without a large bubble b…

The question is, what is the bubble? I'd argue the entire stock market is the bubble right now, with boomers throwing everything they have into the market to get some of that free money before they retire. Once they start pulling back it's going to be a sad day. Right now US household "wealth" is sitting at >500% of GDP. That's not sustainable.

Re: Yield Curves Invert in U.S., U.K

#112

Post by navigatesol »

clomond wrote: post #93
apo wrote: post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

"Past Performance Is Not Indicative Of Future Results". I am not saying a recession ISN'T imminent - but to declare affirmatively due to a technical indicator that one IS in an environment which has differences from the past is equally egregious. This yield inversion is based on sentiment, not fundamentals (yet). Also, suggesting folks buy long-term treasuries is literally following what the market is doing right now…

>Suppose the trade deal is fixed tomorrow

Do you really believe that's going to happen? The "cold war" with China is heating up.

>governments add surprise stimulus in the coming months

What happens to interest rates?

>If recession fears go away in a few months

What do you mean by "recession fears"? People are examining the data and seeing the global economy slowing down; it isn't arbitrary, it's data driven, with the caveat that no indicator is perfect.

>*those long term treasuries would lose value on the principal and you could very much experience capital losses (if you sell).

Yes, investing has risk. But I find it odd you criticize using simple indicators, then state that if recession fears subside, treasuries will lose value. The value of bonds fluctuates with interest rates, not "recession fears". We can very easily have a bull market with falling rates. It's happened before.

Re: Yield Curves Invert in U.S., U.K

#114

Post by adventured »

the-dude wrote: post #11

German economy shrinks : https://edition.cnn.com/2019/08/14/business/germany-economy-... UK economy shrinks : https://metro.co.uk/2019/08/09/pound-plummets-uk-economy-shr...

Italy is similarly stuck in contraction mode.

Gross exports represent 46% of EU GDP, up from 39% in 2008.

For China, gross exports are 20% of GDP, down from 33% in 2008.

For the US, gross exports are 12% of GDP, the same as in 2008.

A trade war is a nightmare for the EU. It's amazing they've stayed above water this long with 46% of GDP dependent on exports. They'll get economically thrashed if it keeps getting worse.

Re: Yield Curves Invert in U.S., U.K

#115

Post by ganeshkrishnan »

nguoi wrote: post #80
apo wrote: post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

You don't have a time machine. Economic indicators work every time - until they don't. >Notice how even getting close to zero spread can sometimes be followed by a recession. But a negative spread always does. Everything since the last recession is, on some timescale, followed by a recession. So, technically, you'll be correct. But so were the people saying this in each of the years since 2008. If you don't have an u…

The main issue here is that events like these become a self fulfilling prophecy. Since 100% of inverting yield curves have resulted in recessions in the past, stock market investors will start behaving as if an recession is inevitable which in turn starts the recession.

The only way this would not turn into recession is if the tariff's are withdrawn or fed lowers the rate even further or with quantitative easing. Any of these would prolong the recession

Re: Yield Curves Invert in U.S., U.K

#116

Post by tlogan »

throwaway5752 wrote: post #109

Everyone serious knew that a trade war would set a recession in motion, and that it would be a trade war the US would lose because of the directionality of the trade. The thought has always been that the president was using a high leverage negotiating strategy (see https://www.newyorker.com/news/news-desk/for-trump-diplomacy... , for example) to extract maximal concessions from PRC. But in the end, most of the people…

And things will be worse because China is also heading into recession.

You know, you need sell all these products to somebody... And when US consumer stops buying new iPhones (or what ever) combined with recession then situation is going be really really tough.

So this will be worse that 2008. Much worse. Back in 2008, China was growing and helping to ease the recession. I do not think China's economy will grow during this cycle.

Re: Yield Curves Invert in U.S., U.K

#117

Post by chrstphrhrt »

dragontamer wrote: post #61
whateveryou381 wrote: post #13

Earlier quoted context omitted.

Why does low or negative yield bonds mean that you are going to be ok with govt bonds? This is exactly the problem, where bonds are no longer providing interest payments. I agree that being more conservative is probably necessary, however I think other than specific investments and... burying your cash might be the "conservative" options. Bonds were those, and no longer are now.

> This is exactly the problem, where bonds are no longer providing interest payments. If interest rates drop even more, the value of bonds go up. Right now, a 1.68% 10-year bond looks like it sucks. But next year, a 1.68% 9-year bond will beat the pants off of a 1.3% 10-year. You can sell a 1.68% 9-year bond for a lot more money when everyone else only has 1.3% 10-year bonds. If the 10-year drops to 1%, you'll make e…

I know nothing of finance, but I have a normal liquid savings account that's paying 2.25%, apparently "permanently". Why would anyone buy a less-flexible product that pays less?

Re: Yield Curves Invert in U.S., U.K

#118

Post by criddell »

davedx wrote: post #16
torstenvl wrote: post #5

Time to get more conservative with your investments. Just moved my retirement accounts from 100% in a 2050 lifecycle fund to 75% in a 2030 lifecycle fund and 25% in just government bonds. Not all investment vehicles have a "lifecycle" fund but its intent is to be appropriately conservative for a target date. As the date grows closer, the fund gets more conservative in order to lessen the risk of sudden swings right b…

Or cash out what you can and wait for the dip to reinvest... Personally I'm sitting tight, but that's because I'm a long term investor not a day trader.

I missed the big downturn twelve years ago because I procrastinated. My 401k money was in some fund that was no longer being offered, so the money was transferred into a currency fund (I don't recall what it was). I kept meaning to move it to an index fund, but never got around to it and then the market dropped. A year later I did the transfer and as a result I did very well.

I haven't touched it since but now with yield curve warnings popping up, I'm starting to think I should.

Re: Yield Curves Invert in U.S., U.K

#119

Post by perspective1 »

apo wrote: post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

QE is unprecedented. If you look at the absolute yields, we're talking about rates below inflation (1.8%). It's an inversion but the magnitude is so low it's hard to compare it to past inversions. Equity valuations are pretty much in line with earnings with the S&P 500 index as a whole trading around 20x earnings. Considering how low the risk free rate is (US treasuries), that's not a booming valuation and is probably undervalued if interest rates stay this low considering most of these companies return at least 10% on tangible equity. Unemployment is low right now, but so are wages and so is inflation so it's not like we're booming there either.

Re: Yield Curves Invert in U.S., U.K

#120

Post by ahelwer »

andreilys wrote: post #73
wil421 wrote: post #23

Earlier quoted context omitted.

Let’s talk in 10 years and see if your cash will beat my S&P allocation.

Well if this was Nov 1999 (one year before the crash), S&P 500 was at $1.4k, so it would've taken you 14 years for your position to be in the green again

Now do this experiment with reinvesting dividends instead of just looking at the chart.
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