What would be the best asset store money? Cash ?
Yield Curves Invert in U.S., U.K
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Re: Yield Curves Invert in U.S., U.K
#92Earlier 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…
Pulling out of an index fund after you've been hit by a market crash is a really bad strategy. Either pull out now and put your money in a savings account, or stay in the index fund for the long run.
Re: Yield Curves Invert in U.S., U.K
#93Key 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 and governments add surprise stimulus in the coming months. (by the way, you have a crystal ball as much as I do) If recession fears go away in a few months, those long term treasuries would lose value on the principal and you could very much experience capital losses (if you sell).
Also:
> Then when the Fed inevitably rides to the rescue, begin to unwind and capture the capital gains.
Are you suggesting you can time the market like this? There is abundant literature which says people can't. How are you able to?
Re: Yield Curves Invert in U.S., U.K
#94It will be interesting to watch a recession that hits with zero or near zero (or even negative) central bank rates together with ongoing market disruptions such as the US/China trade conflict and Brexit. By “interesting” I mean terrifying.
I agree with this, also will we try to pass another tax cut to try to stimulate the economy. It seems to me should use tax cuts, large increases in government spending, and rate cuts to stimulate the economy on a "rainy days". Doing these things during a good economy seems foolish to me.
Re: Yield Curves Invert in U.S., U.K
#95It'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…
Good points.
> that doesn't mean there's a way to avoid it
I don't think this is strictly true, though. As you said, "Stock markets aren't the same as the economy as a whole". The financial part of our current economy seems to have an outsized perception/participation rate. If the rules of the game changed to reduce the appeal of financial activity, there might be less second- and third-order "betting on bets (on bets)" and less of the self-fulfilling prophecy you're talking about.
This may not be feasible in the world we live in: it would take a very different political climate, and of course there would be knock-on effects for society. But imagine that we turned our income tax rationale inside-out and policy shifted so that wages had very very low rates and investment income very high rates. Note I'm not advocating this, just offering it as a "what if".
Re: Yield Curves Invert in U.S., U.K
#96Key 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…
> When the yield between the 10-year and 2-year US treasury inverts, a recession is months away.
Cool, so have you bought puts on SPY? What terms did you go with / how much did you buy?
Re: Yield Curves Invert in U.S., U.K
#97Earlier quoted context omitted.
I'm not the OP, but if the Fed decides that the stock market isn't going to fall, then come hell or high inflation it's not going to fall. Some people think that the recent history of interventionist monetary policy (QE) points to a Fed that is willing to pump up asset prices in the event of trouble. Does that mean the economy won't fall apart? No, but it does mean that holding cash could be a worse idea than holding…
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 actually have to sell stock from companies who do buybacks in order to decrease their share of the company back to normal proportional levels.
Re: Yield Curves Invert in U.S., U.K
#98Key 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.
As pointed out in the article you linked, what happened in late 2018 was a small section (3-5 year treasuries) inverted. When people talk about yield curve being a harbinger of recession, they're usually talking about the 2-10 year spread, which is what the parent post referred to.
You may argue "things are different this time", but you shouldn't be comparing apples to oranges.
Re: Yield Curves Invert in U.S., U.K
#99Earlier 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…
Are you in index funds? Take a look at what they did in 2008. The selling point is not "they only go up." It's "you can't beat the market."
Re: Yield Curves Invert in U.S., U.K
#100Key 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…
Also worth noting that if you go long, and there is a stimulus required, you may be in trouble as rates are low enough that you can lose money to inflation. No free lunch.
If a stimulus is required (which it definitely will be when the next downturn hits, unless we want the worst depression in history), we'll be begging for inflation. But there will be massive deleveraging and the resulting deflation to compete with. All the while, there will be fools crying for austerity, and business men thinking a sovereign government with the power to issue currency should be run like a business (i.e. tightening the belt during a downturn).