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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

#41
post #34

It literally broke the Fed: https://fred.stlouisfed.org/series/T10Y2Y If you go to the homepage of the st louis fed and search popular series, this is the first that shows up.

Incredible. All errors now. Seems like people are just now finding this chart.

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

#42
Yield curve inversions could be forecasting either bad stock market performance or low interest rates. If the Fed drops interest rates in a year back down to near-zero rates, nobody is going to be selling a 3 month treasury for 3%. In that case, being in a 10-year treasury for 2% will feel like a pretty good idea. Interest rates put an upper limit on federal bond yields, and it's possible that the yields represent a forecast of a very low upper limit.

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

#44
post #25
post #23

Earlier quoted context omitted.

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

It’s about diversification and timing the market not simply holding cash for 10 years. I also just sold some stock, but I am still 75% in stocks.

Warren Buffet made the same bet, S&P 500 vs some hedge funds. From 2007 to 2017 S&P gained 7.1% vs 2.2% for the hedge funds. The hedge funds arguably know more than you.

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

#46
post #17
post #14

It's a self fulfilling prophesy to an extent because all it takes to cause a recession is to convince everyone there's a recession.

That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up. People who buy securities for the purpose of re-selling, rather than holding, bid prices up, based not on fundamental valuation but on the thought that it will become more popular. Stock markets aren't the same as the economy as a whole, but stock market bubbles boost the econom…

> That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up.

I'm really curious how the index funds will behave in the upcoming recession, afaik that was one of their main mantras and selling points, so to speak, i.e. that the market only goes up (or a certain part of the market, the most important part of the market) and that you'd be a fool not riding the wave by investing in said index funds which were in turn investing in that part of the market "assured" to always go up.

In other words, what will people do when they'll see their index funds go down 10 or 20% yoy? Will they take their money out of said index funds? Will they wait for the next uptick?

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

#47
post #36

Still baffled that this is called a curve

The 2/10 relationship is not the curve. The curve comes from the traditional visualization of all the yield/term points at any given time.

A curve is a pretty normal way to visualize a bunch of Cartesian points at once.

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

#48

Earlier quoted context omitted.

Hasn't it been right 7/8 of the last recessions?

Has it ever inverted but then a near term recession never followed?

We had one close call in the mid 90s, about 1995-1996. I don't think it actually inverted but it was within less than one percentage point away from inverting. Luckily, 1995-1996 was the start of the Dotcom bubble, which gave us a few more years before the recession of 2001 hit.

We could stave off the coming recession if we had another Dotcom-type bubble, but market corrections are inevitable so it would just be a delay.

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

#49
post #46
post #17

Earlier quoted context omitted.

That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up. People who buy securities for the purpose of re-selling, rather than holding, bid prices up, based not on fundamental valuation but on the thought that it will become more popular. Stock markets aren't the same as the economy as a whole, but stock market bubbles boost the econom…

> That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up. I'm really curious how the index funds will behave in the upcoming recession, afaik that was one of their main mantras and selling points, so to speak, i.e. that the market only goes up (or a certain part of the market, the most important part of the market) and that you'd be…

When a market crashes, we will see 20% drop becoming 40%--its all exponential drop offs, as people pull out money, when not many buyers around.

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

#50
Question: While I'm sure economists have been studying this effect for decades, or maybe even way longer for all I know, it seems like this metric has been popularized as the key thing everyone looks at just in the last decade -- after the last recession that we had.

Given the popularization, any chance of an increased observer effect? In either direction, I mean, positive or negative.

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