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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

#131

Post by frandroid »

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…

> investment community's realization this might not be true

Took them a while to see what everyone else can see in plain daylight...

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

#132

Post by gzu »

mrep wrote: post #97
gzu wrote: post #84

Earlier quoted context omitted.

There’s now also moral hazard too with the rise of indexing and retirement. They need to keep the WHOLE stock market up. Many fewer investors now do any research and chose companies based on fundamentals. The companies that exist today must exist forever into in roughly the same proportions to keep SP 500 index from falling too heavily. Companies exploit this relationship now by destroying their balance sheets and us…

> Companies exploit this relationship now by destroying their balance sheets and using buybacks to boost their relative market caps vs other companies. Buying back shares doesn't increase your market cap, it increases the value of each individual stock since they now own a larger percentage share of future earnings. > to capture more passive investment money flow. It has no real effect because index funds will actual…

In practice it does increase market cap because constantly buying back shares increases PE multiple growth which then makes the stock then sell at a higher valuations since they are showing (artificial) growth. The long term stability of those buybacks isn’t taken into account with valuation models.

Every new dollar put into index funds gets invested proportionally in each company to the market cap of SP 500. Microsoft gets bid nearly 4.5c on every dollar. The top 10 stocks combined get 25c on every dollar.

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

#133

Post by adventured »

throwaway5752 wrote: post #125
tlogan wrote: post #116

Earlier quoted context omitted.

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 durin…

The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. The leadership on either side of the 2008 transition was much better at every level. Also, 2008 was a balance sheet depression that was more tractable to fix with monetary approaches. What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what…

> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted.

That hasn't been exhausted even in the slightest.

The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy.

The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.

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

#134

Post by xwdv »

JoeAltmaier wrote: post #130
xwdv wrote: post #123

Earlier quoted context omitted.

It is a myth that the market can’t be beaten. You can beat the market if you take more risk and it works out for you. I’m beating the market right now, I’m up 33% this year still in my portfolio even with all the bullshit that’s happened. And recently, I’ve dumped all the extra margin I was holding so now I’m holding 100% equity in my stocks and paying no interest. Beating this market since 2010. That’s why my net wo…

Its easy to beat the market. Just say you did! But seriously, there are always outliers who got lucky. For every one that gambles on a dark horse, there are 1000 who lost that way. And the winner is always, always certain that they knew what they were doing and luck wasn't involved.

Frankly, with the market we’ve had the last 10 years practically anyone can beat the market as long as they invest in decent tech stocks. That’s why there’s so many millionaires running around here these days.

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

#135

Post by w4 »

cletus wrote: post #82
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…

I'd just like to point out that the yield curve inverted in 2018 [1] yet here we are. > Prepare for the inevitable recession. It's not different this time. This point is tautological. Of course there will eventually be a recession. No one can say when. There are different factors in every cycle. The QE period is essentially unprecedented. The rise of tech stocks in the last 20 years is a once-in-a-century type struct…

> I'd just like to point out that the yield curve inverted in 2018 [1] yet here we are.

My understanding is that this inversion (the 2 year/10 year) is generally regarded as the most reliable indicator of recession. The media has really latched onto the yield curve this time around though, so any inversions have been getting reported as the indicator that a recession will start soon, which isn't really right.

For example, the article you linked from December 2018 was about 3 year and 5 year yields inverting, which tends to happen about 2.5-3 years ahead of a recession. Then the 3 month/10 year spread inverted at the end of May 2019, which tends to predate recession by about 12-18 months. Now the 2 year 10 year is inverted, which tends to happen about 18-24 months before a recession.

So what's happening is a pretty good indication that a recession is likely to occur closer and closer to the present, with each inversion providing another data point about the timeframe. It's just that the media's overhyping of every individual inversion is giving you the sense that these inversions don't tell us anything particularly interesting, when history shows the opposite to be true.

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

#136

Post by vpribish »

tlogan wrote: post #116
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 durin…

much worse than 2008 how? Global debt markets nearly collapsed and the single largest investment of american consumers crashed. You are making a really bold claim there and it looks like cheap catastrophizing.

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

#137

Post by SilasX »

cletus wrote: post #82
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…

I'd just like to point out that the yield curve inverted in 2018 [1] yet here we are. > Prepare for the inevitable recession. It's not different this time. This point is tautological. Of course there will eventually be a recession. No one can say when. There are different factors in every cycle. The QE period is essentially unprecedented. The rise of tech stocks in the last 20 years is a once-in-a-century type struct…

There's the joke about "[person/metric] predicted nine of the last five recessions".

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

#138

Post by pushtheenvelope »

WarDores wrote: post #111
xivzgrev wrote: post #81

Earlier quoted context omitted.

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.

Why is it not sustainable that household wealth is > 500% of GDP?

In the parlance of company finances, GDP is like revenue and wealth is the valuation representing the present value of all future profits. So, it seems fine to me that the present value of future profits of the US is 5x the current revenue.

I'm seeking to understand where this analogy may break down. Thanks :)

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

#140

Post by jbattle »

WarDores wrote: post #111
xivzgrev wrote: post #81

Earlier quoted context omitted.

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.

Wouldn't the boomers be heavily allocated in bonds at this point? Even the youngest of them are basically at or nearly at retirement age (at least the ones with enough resources to hold much in stocks)
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