Inverted Bond Yield Curve Discussion


In super-brief, the yield curve has inverted, which means that it's more lucrative to invest in short term 2-year bonds than long term 10-year bonds.

10-year bonds are supposed to be higher yield, because you're waiting a much longer time for your return.

This apparently signals that a recession is highly likely within two years, as has happened every other time the yield curve has inverted.

So, now the fuck what?

Comments

  • Plastics.
  • I've actually been hoping the market would dip.

    Maybe find some stuff on sale.



    Just need to pucker up when the IRAs take a hit
  • Correction...

    An inverted bond yield doesn’t indicate that a recession is imminent. There has been a correlation in the past but it is not a causative factor, just an indicator of how worried investors are at that moment.


    The first thing you have to keep in mind is that even though we’ve always been told that Wall Street drives the economy this isn’t actually true.

    As proof I offer you the huge gains the market made while Obama was in office. He came in right after a messy economic crash and then his policies effectively inhibited growth for the next eight years. True, the economy did improve but that happened in spite of the policies because economies cannot remain stagnant forever. What was really going on is that Obama was making many of the mistakes did FDR made which a UCLA study found to have probably increased the duration of the great depression by seven years.

    The point is, Wall Street did quite well during that time because investors are very good at figuring out how to make money no matter what’s actually happening in the world.

    Second, this has been an extended period of growth, one that is on unusually long, but keep in mind that at the end of 2016 there was a lot of growth backlogged waiting for a change. Speak to anybody in the manufacturing or construction industries and you will find that there was a very large increase in business literally the day after Trump got elected. This was partially due to the anticipation that Trump would clear out a lot of the policies that were causing problems, which he did. It was also due to the fact that people at that point knew that Hillary was not going to be Obama’s third term and we were going to get some relief from poor policy decisions going forward.

    Next, remember that brilliant line that Eddie Murphy spoke in the movie Trading Places; “You guys are bookies!“?

    Wall Street is literally in the business of legal gambling, very similar to sports betting, only on a vastly larger scale.


    Now the question is, if the economy is doing well, then what the fuck is happening?

    MY OPINION, which is not necessarily correct but IS well informed, is that there are several factors:

    1. Trump has disrupted the way the world has done business with us for decades. This has been both necessary and positive but people are still trying to figure out what the new reality means going forward.

    2. While I am predicting a win for Trump in 2020 there is no guarantee that this will actually occur. Which means that we can expect another whiplash inducing change in the way things are run. For obvious reasons investors are concerned about that.

    3. The Fed has a stated goal of getting to about 3.45% in 2020. Simply put, they drove interest rates down to ineffective rate of zero during the Obama administration and bringing those rates back up is problematic.

    4. The federal reserve has been doing a pretty good job of fucking things up for a century but we’re stuck with them, at least for now, and people aren’t really certain how Trump’s feud with the Fed is going to play out.

    5. Trump’s trade wars: The truth is that when you are running a trade deficit, tariff wars don’t hurt you they hurt your trading partners. The actual problem is that it’s difficult to predict who’s going to win. That makes the betting on stocks and bonds incrementally more difficult.

    5. China. China has a massive economy. The Soviets had nothing like this when Reagan ran them into bankruptcy. That partially goes back to number four, but what I’m really referring to here is the problems with Formosa. (I’m making a subtle point there)

    6. Brexit. Collectively the European Union has a pretty big economy as well and the Brexit showdown is going to be coming to a head within the next year, possibly a lot sooner. There is substantial disagreement about what this will mean for the economy around the world.


    Here is the upshot of all that…

    When it becomes excessively difficult to make predictions about the future that are at least reasonably accurate, the fallback move is to pull your money off the table, stick it into long-term bonds and wait for the storm to blow over. That’s how you preserve your capital for when you get back into the game.


    One last thing…

    The talking heads on TV are constantly telling us about how big the market move in this direction or that direction was. Keep in mind that the TV shows, radio shows and newspapers that are talking about the stuff or not in the business of informing you they are in the business of getting you to watch so they can sell advertising space. That’s one of the things that particularly annoyed me about Fox News; their tendency to treat everything as if the apocalypse is coming.

    I remember when the entire market was less than 800 points. I remember how big a deal it was when it broke through the thousand point level. When you look at a market movement you should look at what that number is as a percentage of the entire market.


    My advice would be not to take counsel of somebody else’s fears.
  • Fuck it. I'm calling a financial advisor.
  • dgm said:

    Fuck it. I'm calling a financial advisor.

    Who will advise you to do whatever makes him the most money.  :D
  • Heh.

    A friend of mine recommended his advisor and connected us via email. The body of my note to him:
    "The
    recent market dynamics are serving as a trigger for me to get some
    proper advice that I probably should have sought years ago. I'd love to
    hear a bit about what kind of services you offer, how you are
    compensated
    , and what homework I need to do prior to a first meeting
    with you."
  • Seems legit.
  • And the yield is no longer inverted.
  • Yay?

    Will it stay that way?
  • dgm said:

    Yay?

    Will it stay that way?
    Forever?
  • Hahaha obviously not.
  • Capital One has the following CD rates at the moment:
    18 month CD with 2.55% APY
    24 month CD with 2.35% APY
    36 month CD with 2.40% APY
    48 month CD with 2.45% APY
    60 month CD with 2.50% APY
  • dgm said:

    Hahaha obviously not.

    There’s your answer.
  • I'm not sure how I missed this but the inverted yours is irrelevant unless you have a crystal ball. Index funds are about as good as it gets for most people...
  • Something I don’t think I mentioned previously but getting another look at the list that Zed put up, it strikes me how close the interest rates are. There was a time years ago when the typical yield for long-term bonds was up around 6% and inverting THAT was a big deal.

    Inverting a 0.05% spread... nassamuch.
  • It's pretty ridiculous how shitty rates are in general.

    Why save any cash at all?
  • dgm said:

    It's pretty ridiculous how shitty rates are in general.

    Why save any cash at all?

    Have kids and that question will come up les frequently.
  • dgm said:

    It's pretty ridiculous how shitty rates are in general.

    Why save any cash at all?



    Yeah really, I mean you might as well just give the government ALL your money, because, you know, they'll take care of you when you're old.


    <snort>
  • MC Escher said:

    Something I don’t think I mentioned previously but getting another look at the list that Zed put up, it strikes me how close the interest rates are. There was a time years ago when the typical yield for long-term bonds was up around 6% and inverting THAT was a big deal.

    Inverting a 0.05% spread... nassamuch.

    And those are some of the top rates in the market.  Ally, Barclays, AMEX, and Goldman Sachs Marcus are all in the same neighborhood.
  • 18mo rate holds, and the rest have dropped by 0.15% -0.20%
    Zed said:

    Capital One has the following CD rates at the moment:
    18 month CD with 2.55% APY ----> Still 2.55
    24 month CD with 2.35% APY ----> down to 2.20
    36 month CD with 2.40% APY ----> down to 2.25
    48 month CD with 2.45% APY ----> down to 2.25
    60 month CD with 2.50% APY ----> down to 2.30

  • nbody said:

    Have kids and that question will come up les frequently.

    We've met before, right?
  • dgm said:

    It's pretty ridiculous how shitty rates are in general.

    Why save any cash at all?

    It's hard to have just cash sitting around if it exceeds FDIC guarantees. So why have cash has led to inverted yields, IMHO. I have cash sitting around, reasons that mimmick Zucks statement on kids.
  • Yeah, understand that I'm being mostly facetious. I also have cash, or at least representations thereof, in several accounts.

    I like the liquidity and "disaster preparedness" aspect of cash. And silver. And gold. But for the PMs I retain physical custody. I think the idea of abstractly holding gold or silver in some account somewhere is, well, absurd. (Yes, I know that's what dollars used to be)

  • . I have cash sitting around, reasons that mimmick Zucks statement on kids.




    I really only meant that they spend enough that you won't worry about any of it sitting around unused.
  • I follow what you meant, work the addendum that there is an emergency fund. Having a family means a larger emergency fund, imo. Though yes, girl scouts, etc etc etc all burn through cash.
    nbody said:

    . I have cash sitting around, reasons that mimmick Zucks statement on kids.




    I really only meant that they spend enough that you won't worry about any of it sitting around unused.
  • Yeesh....
    Zed said:


    Capital One has the following CD rates at the moment:

    Zed said:

    12 month CD with ------% APY ----> now 2.30%
    18 month CD with 2.55% APY ----> now 1.90%
    24 month CD with 2.35% APY ----> now 1.80%
    30 month CD with ------% APY ----> now 1.70%
    36 month CD with 2.40% APY ----> now 1.65%
    48 month CD with 2.45% APY ----> now 1.65%
    60 month CD with 2.50% APY ----> now 1.60%


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