Any one else notice the yield curve recently inverted? Speaking directly to the 3M-10Y section of the yield curve. Some say inversions are an indicator of a future recession, other's note that the stock market usually takes a jump following an inversion. A new theory is that since the great recession central banks now hold so many bonds that an inversion doesn't signal much of anything. Thoughts? Comments? Rants?

you deserved more responses from this...

however, economics is upside down in rational terms....the well is deep....and I'm not going write a diatribe on this board...

money is moving....that's all that matters.....

and you're right....will debt continue to be absorbed.....it's the crux that 99.99% don't understand....

it's why I gave my econ profs da finga...

I've stated the above to ad nauseam......I'm tired of repeating myself....

Conventionally, a flattening yield curve that ultimately inverts used to be a solid predictor of a bull market dropping into bear market territory. The Fed has ended the QE programs back in 2014 so the U.S. itself has not been buying the bonds like it has been. It still holds too much on the balance sheet today, but it has been selling the bonds to reduce the amount held. https://fred.stlouisfed.org/series/TREAST

I don't think the inversion is due to the amount of bonds on the balance sheet held by the Fed because the curve wasn't inverted and was more pronounced in 2018 when the Fed held more bonds. I think investors are becoming cautious about the U.S. stock market and they are concerned about a coming correction. Now will that correction be a predictor of a recession? I don't think it would be given that the market seems to be overvalued (IMHO). Consumers are still spending and labor is still tight. Productivity seems to still be steady between 3.5 to 4.0 - though there were a few months in 2018 where it spiked higher. I think we're going to see a slowing of the economy overall due to the lack of resolution in trade dispute with China. However, shorter term issues with the gov't shutdown and the nasty winter period in the first quarter pushed Q1 GDP lower than it otherwise would have been without those 2 events.

In short, it's more likely we may see a correction in the stock market than an actual recession. JMHO.

(03-28-2019 09:50 PM)miko33 Wrote:  Conventionally, a flattening yield curve that ultimately inverts used to be a solid predictor of a bull market dropping into bear market territory. The Fed has ended the QE programs back in 2014 so the U.S. itself has not been buying the bonds like it has been. It still holds too much on the balance sheet today, but it has been selling the bonds to reduce the amount held. https://fred.stlouisfed.org/series/TREAST

I don't think the inversion is due to the amount of bonds on the balance sheet held by the Fed because the curve wasn't inverted and was more pronounced in 2018 when the Fed held more bonds. I think investors are becoming cautious about the U.S. stock market and they are concerned about a coming correction. Now will that correction be a predictor of a recession? I don't think it would be given that the market seems to be overvalued (IMHO). Consumers are still spending and labor is still tight. Productivity seems to still be steady between 3.5 to 4.0 - though there were a few months in 2018 where it spiked higher. I think we're going to see a slowing of the economy overall due to the lack of resolution in trade dispute with China. However, shorter term issues with the gov't shutdown and the nasty winter period in the first quarter pushed Q1 GDP lower than it otherwise would have been without those 2 events.

In short, it's more likely we may see a correction in the stock market than an actual recession. JMHO.

Did you ever play the shell game at the County fair? Well in the Fed's shell game the pea only stays under the shell marked Stocks. The only problem is the house is forcing us to let it ride with the promise that they'll anti up when they say it's over.

The Fed has three shells to contend with. Fixed securities which they control with historically low interest rates, equities, and commodities (precious metals mostly) which they control with inflated quantities on ETF paper.

So hell yeah the stocks are in for a correction. There's literally nowhere else to put your money. And now that the ECB and FED are playing the liquidity game and telling everyone to ignore the debt behind Mr. Ponzi's curtain, why should we trust equities? I'm sweating bb's over some that I have on time release. Will I beat the deadline when correction comes crashing in or not? At least I hold a lot of metal which even if it is curtailed by etf shenanigans should help hedge the equities if the correction comes before I can get out.

I've been away from the markets for a few years now.... but under CLinton (and really Bentsen), the old rules went out the window. Supply became a factor when they canceled the long ond and issued a multiple on the front end.... Add to that the mortgage market which had a slew of adjustable product and no longer does.... and multiple rounds of QE

It's not nearly as predictive as it once was

(03-28-2019 10:02 PM)JRsec Wrote:  

(03-28-2019 09:50 PM)miko33 Wrote:  Conventionally, a flattening yield curve that ultimately inverts used to be a solid predictor of a bull market dropping into bear market territory. The Fed has ended the QE programs back in 2014 so the U.S. itself has not been buying the bonds like it has been. It still holds too much on the balance sheet today, but it has been selling the bonds to reduce the amount held. https://fred.stlouisfed.org/series/TREAST

I don't think the inversion is due to the amount of bonds on the balance sheet held by the Fed because the curve wasn't inverted and was more pronounced in 2018 when the Fed held more bonds. I think investors are becoming cautious about the U.S. stock market and they are concerned about a coming correction. Now will that correction be a predictor of a recession? I don't think it would be given that the market seems to be overvalued (IMHO). Consumers are still spending and labor is still tight. Productivity seems to still be steady between 3.5 to 4.0 - though there were a few months in 2018 where it spiked higher. I think we're going to see a slowing of the economy overall due to the lack of resolution in trade dispute with China. However, shorter term issues with the gov't shutdown and the nasty winter period in the first quarter pushed Q1 GDP lower than it otherwise would have been without those 2 events.

In short, it's more likely we may see a correction in the stock market than an actual recession. JMHO.

Did you ever play the shell game at the County fair? Well in the Fed's shell game the pea only stays under the shell marked Stocks. The only problem is the house is forcing us to let it ride with the promise that they'll anti up when they say it's over.

The Fed has three shells to contend with. Fixed securities which they control with historically low interest rates, equities, and commodities (precious metals mostly) which they control with inflated quantities on ETF paper.

So hell yeah the stocks are in for a correction. There's literally nowhere else to put your money. And now that the ECB and FED are playing the liquidity game and telling everyone to ignore the debt behind Mr. Ponzi's curtain, why should we trust equities? I'm sweating bb's over some that I have on time release. Will I beat the deadline when correction comes crashing in or not? At least I hold a lot of metal which even if it is curtailed by etf shenanigans should help hedge the equities if the correction comes before I can get out.

kaboom!

that's XACLY! correct across the board...

(03-28-2019 09:50 PM)miko33 Wrote:  Conventionally, a flattening yield curve that ultimately inverts used to be a solid predictor of a bull market dropping into bear market territory. The Fed has ended the QE programs back in 2014 so the U.S. itself has not been buying the bonds like it has been. It still holds too much on the balance sheet today, but it has been selling the bonds to reduce the amount held. https://fred.stlouisfed.org/series/TREAST

I don't think the inversion is due to the amount of bonds on the balance sheet held by the Fed because the curve wasn't inverted and was more pronounced in 2018 when the Fed held more bonds. I think investors are becoming cautious about the U.S. stock market and they are concerned about a coming correction. Now will that correction be a predictor of a recession? I don't think it would be given that the market seems to be overvalued (IMHO). Consumers are still spending and labor is still tight. Productivity seems to still be steady between 3.5 to 4.0 - though there were a few months in 2018 where it spiked higher. I think we're going to see a slowing of the economy overall due to the lack of resolution in trade dispute with China. However, shorter term issues with the gov't shutdown and the nasty winter period in the first quarter pushed Q1 GDP lower than it otherwise would have been without those 2 events.

In short, it's more likely we may see a correction in the stock market than an actual recession. JMHO.

The amount of bonds the Fed holds is a minor part of the equation, they are still buying, just not as much. The curve has inverted because the markets believe that future interest rates will be lower, it's really that simple. There are two major reasons for this perception, a) the change in Fed stance from projected higher overnight rates (a tightening of policy) to a neutral stance. Generally this means the Fed is done raising rates, and the next move will be lower, and b) recession hitting Europe. Our debt is purchased by international investors, so a collapse of rates and economies overseas will pull our long term rates down as well.

Recession is coming, likely not severe, but we've been 9 years since the last one and that's an expansion that is very long in the tooth. And yes, stocks are due for a correction, but they have been for years now so......

Rates are negative in Germany for comparison sake. That tends to drive our 10 year lower in general. The central banks of the world have distorted everything they have touched for the past decade. Who knows what the inverted curve means at this point.