Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

nytimes.com

Post reply on HN
Print view View original

31–40 of 289 posts

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#31

Post by MR4D »

frockington wrote: post #20
ronnier wrote: post #8

> The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street. > The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes. > Typically, when an economy seems in…

The Fed is reducing its budget sheet which will have a significant effect on the yield curve. Inviting comparisons between the yield curve now versus any other point in history is foolish. These are probably the same people who predicted a recession when Trump was elected, after Brexit, and at least once a month for the last decade

The yield curve is the most reliable predictor there is in finance. [ See a variety of links below - the first one is an overview, but the others are more research-oriented. ]

In capital markets, in order to justify taking risk, there has to be an accompanying return, otherwise people will not invest.

Inversion of the yield curve signals exactly that - returns are not enough to justify the risk, and that capital expenditures will go down, leading to lower returns, lower employment, and also a recession.

There is one key thing that very few people are talking about, however - the Fed basically controls the debt issuance, and has some (possibly even significant) ability to nudge the market in the direction it wants by buying/selling towards one end of the curve or the other.

This alone can effect the economy, but the Fed does not have a strong history here. But it's definitely possible, and I think we may experience that with the current Fed President, Jerome Powell.

[0] https://www.schwab.com/resource-center/insights/content/eye-...

[1] https://www.newyorkfed.org/research/capital_markets/ycfaq.ht...

[2] (PDF) https://www.dnb.no/seg-fundamental/fundamentalweb/getreport....

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#32

Post by justwalt »

Analemma_ wrote: post #30
ameister14 wrote: post #22

https://www.bloomberg.com/news/articles/2018-05-14/fed-s-bul... David Kelly from JPMorgan and Bullard, the head of the Fed Reserve of St. Louis, say the yield curve going inverted doesn't mean that much because it's being manipulated by the Fed - that means it's broken as a measuring tool (still should be watched, though)

A Fed chairman is never going to say, "Yup, there's a recession coming": the incentives of their position don't permit it. So they will always come up with reasons why a signal with a previous 100% success rate doesn't mean much now, but in the end, it always amounts to "This time is different", aka, the four most expensive words in history.

Note that it isn’t quite a 100% success rate, there was a false positive in the 60s.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#35

Post by solotronics »

madballneek wrote: post #28

I've been hearing this for years. It'll happen when it happens and no one can actually predict. #golong

I always toyed with the idea of taking small positions far out of the money buying puts to hedge against my 401k.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#37

Post by kamarg »

67_45 wrote: post #27
frockington wrote: post #20

Earlier quoted context omitted.

The Fed is reducing its budget sheet which will have a significant effect on the yield curve. Inviting comparisons between the yield curve now versus any other point in history is foolish. These are probably the same people who predicted a recession when Trump was elected, after Brexit, and at least once a month for the last decade

What does that mean "reducing budget sheet?" Also, what is meant by long and short term interest? I thought the fed only set one universal interest target.

Short and long term interest rates in this case are for US Treasury Bonds that mature at different lengths of time. Short term bonds tend to have lower interest rates since you're taking less risk that your money will be tied up when the economy grows at a faster pace. If you invest in long term bonds and the economy hits a growth spurt, your money is stuck for a much longer period of time earning less interest than if you had invested in something other than that bond.

Edit: Missed the first question in your post. The Federal Reserve is essentially buying fewer Treasury Bonds when the bonds it currently holds matures. Instead of reinvesting the payoff + interest that it received for those bonds, it is now just taking that money and essentially keeping it out of circulation.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#39

Post by zeveb »

I think it's nearly unarguable that the current market is irrational. The problem is the old adage that the market can remain irrational longer than you can remain solvent, and thus simply shorting it can result in short-term bankruptcy.

Worse, there's a corollary that even trying to move your funds into lower-risk vehicles now can still lead to long-term losses vice keeping them in higher-risk investments now and moving them later (e.g. in a month, or a year, or two years).

I honestly don't know what to do with my money. Right now I'm basically keeping everything where it is: not selling stocks, bonds or real estate, but not buying much either. But leaving my cash as cash has its own cost.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#40

Post by coliveira »

AznHisoka wrote: post #7

"Stocks have been in a sideways struggle since the Standard & Poor’s 500 last peaked on Jan. 26." Is this really true? Almost every single stock I've been tracking has just been going up this year, especially the tech ones. Even ones with decreasing revenues like GoPro.

Except for major recessions, you can always find a basket of stocks that are going up in price. You have to look at broad market indexes like SP500 or RUT to get a better feeling of the market.
Post reply on HN