25 votes

Yield Curves Invert in U.S., U.K. as ‘Doom and Gloom’ Spreads

17 comments

  1. [9]
    nic
    Link
    This is alarming and worth paying attention too. The US Treasury yield curve has inverted Inverted US Treasury yield curves have predicted 10 of the last 9 recessions (There was one false...

    This is alarming and worth paying attention too.

    1. The US Treasury yield curve has inverted

    2. Inverted US Treasury yield curves have predicted 10 of the last 9 recessions (There was one false positive.)

    3. This raises the chances of a US led recession significantly

    4. This correlation is based on solid economic theory and history

    There are two reasons to not freak out yet.

    1. A recession is typically associated with a drop in US employment, which we haven't seen yet.

    2. In fact, the yield curve fully reverts for a period of months prior to a recession, and often the 30 year drops below the 10 year, which hasn't happened yet.

    But there is still one reason to consider increasing your asset allocation more towards short term bonds/cash.

    According to Robert Shiller, almost everything is overvalued. And Shiller has predicted two of the last two bubbles.

    1. Shiller first published Irrational Exuberance in March 2000. The punchline of his book was that tech stocks were in a bubble. A few months later, the dot com crash happened.

    2. Shiller revised Irrational Exuberance in 2005, adding a chapter on the house price bubble. A few years later the housing market caused severe financial panic.

    3. Shiller revised Irrational Exuberance a third time in 2016. The third revision says that almost everything is overvalued. Bonds, housing and stocks. Globally and in the USA. Just not as extreme as in 2000 & 2008.

    12 votes
    1. [5]
      Diet_Coke
      Link Parent
      I think the so-called gig economy might be at play here. Unemployment is measured by going door to door and asking people if they're unemployed. Someone working as an Uber or Lyft driver, or doing...

      A recession is typically associated with a drop in US employment, which we haven't seen yet.

      I think the so-called gig economy might be at play here. Unemployment is measured by going door to door and asking people if they're unemployed. Someone working as an Uber or Lyft driver, or doing odd jobs on Taskrabbit, is probably going to say they are employed even though these are generally unsustainable as jobs. I think it's also why wages haven't really gone up even though unemployment is technically really low.

      11 votes
      1. NaraVara
        Link Parent
        Heh. If we hit a real contraction many of these frivolous gig-economy companies are going to be the first things hitting bankruptcy. They're too easily substitutable.

        Heh. If we hit a real contraction many of these frivolous gig-economy companies are going to be the first things hitting bankruptcy. They're too easily substitutable.

        7 votes
      2. [2]
        CALICO
        Link Parent
        The Unemployment Rate also doesn't count those who have stopped looking for a job entirely. Combine that with underemployment, and reality begins to look not as great as 3.7% sounds.

        The Unemployment Rate also doesn't count those who have stopped looking for a job entirely. Combine that with underemployment, and reality begins to look not as great as 3.7% sounds.

        6 votes
        1. Diet_Coke
          Link Parent
          Exactly. It's really deficient in a lot of ways, but it's easy to manipulate so politicians favor it. If the economy loses 10 PHD jobs and gains 100 minimum wage jobs, they'll brag about their job...

          Exactly. It's really deficient in a lot of ways, but it's easy to manipulate so politicians favor it. If the economy loses 10 PHD jobs and gains 100 minimum wage jobs, they'll brag about their job creation.

          2 votes
    2. [3]
      ascii
      Link Parent
      Corporate and political leaders don't like to say the "D" word because even talking about a shift to a deflationary economy could make it come true. But we could be witnessing the beginning of...

      Corporate and political leaders don't like to say the "D" word because even talking about a shift to a deflationary economy could make it come true.

      But we could be witnessing the beginning of that transition. That's terrifying because there are few tools in the policymaker's toolbox to combat deflation.

      Typically, the Federal Reserve reduces interest rates and buys bonds when the economy is weak (and the opposite when the economy is strong). Since interest rates are already at record lows, even going negative in Europe and Japan, there's not much more they can cut.

      And the Federal Reserve already owns $4 trillion of bonds it bought after the last crisis, but the economy never recovered enough to unload them. Will they now start buying even more?

      One advantage for ordinary people is that these big transitions don't happen overnight. If you're paying attention, you can see the trend build over months and years. You don't need to be a finance professional to see it happening and act on it.

      5 votes
      1. [2]
        KapteinB
        Link Parent
        If the goal is inflation; couldn't the government just print a bunch of money and spend it on whatever?

        If the goal is inflation; couldn't the government just print a bunch of money and spend it on whatever?

        1 vote
        1. VoidOutput
          Link Parent
          That's basically what the Modern Monetary Theory is and it is very controversial among economists.

          That's basically what the Modern Monetary Theory is and it is very controversial among economists.

          3 votes
  2. emdash
    Link
    At least in my opinion, this is the unsurprising end state of an economy which has too heavily prioritized the needs of the wealthy for too long. I'd almost ascribe this coming recession to the...

    At least in my opinion, this is the unsurprising end state of an economy which has too heavily prioritized the needs of the wealthy for too long. I'd almost ascribe this coming recession to the middle class' liquidities effectively starting to run dry. Less and less people have money to spend. People are running out of cash.

    We have a global economy which makes upward mobility difficult, an isolationist-nationalist sentiment sweeping the western world which is making trade harder, and an education & healthcare system which does not allow people to be productive contributors to the economy—all at the expense of right-wing policies which prioritize the wealthy, that look to blame the middle & lower classes' problems on wedge issues such as immigrants, abortion, guns, social rights, and environmental rights via division and anger to sow discord & hatred to ultimately distract from the wealth accumulation at the top end, and tax cuts that seize and disrupt what should be efficient functions of government that benefit citizens (healthcare, clean water, clean air, quality education).

    No one even talks about the "lower class" anymore. They're all but forgotten. Maybe "middle class" is more palatable for those who subconciously accept they're being fucked by a world order which ultimately sees them as a cog in a machine designed to serve others through wage slavery, but can't admit it to themselves as they take on debt to buy the car they can't afford and the house that is a symbol of an era where we could all afford to live on our own bit of land when we had less people and less congestion.

    Is it a surprise to anyone so many subtle metrics & indicators over the past 10-30 years have been trending in the directions they've been going? Productivity. Wages. Debt.

    9 votes
  3. [4]
    Rocket_Man
    Link
    I don't really understand this completely and likely wont dig into it much. But to provide an opposing point of view I recently saw this article....

    I don't really understand this completely and likely wont dig into it much. But to provide an opposing point of view I recently saw this article. https://www.theamericanconservative.com/articles/is-the-u-s-economy-headed-for-another-recession/

    4 votes
    1. [3]
      Diet_Coke
      Link Parent
      Just something to consider, a source like "the American conversative" has a lot invested in trying to place the blame on the Fed. Since Republicans have controlled the White House, Senate, the...

      Just something to consider, a source like "the American conversative" has a lot invested in trying to place the blame on the Fed. Since Republicans have controlled the White House, Senate, the House for two years, and had a majority on the Supreme Court too it would go against everything they believe to admit their policies to lead to recession. They did a huge tax cut for rich people, they're removing protections from big businesses like crazy, they're selling our public lands, they're making life harder for immigrants, they're instituting protectionist trade policies, and it's making the economy tank. That's not even getting into Trump himself and the uncertainty his lack of leadership is causing.

      15 votes
      1. [2]
        Rocket_Man
        Link Parent
        Sure they aren't unbiased, but I think it's interesting to consider the ideas. Also The American Conservative isn't your typical conservative trash blog. There's occasionally articles written that...

        Sure they aren't unbiased, but I think it's interesting to consider the ideas. Also The American Conservative isn't your typical conservative trash blog. There's occasionally articles written that decry big business, inequality, and other things characteristically thought of as left leaning. I can't speak to every author on there being worthwhile but they aren't as loony as most in my opinion.

        1. Diet_Coke
          Link Parent
          I'm not saying it's something that shouldn't be posted or read, just that with these uncharted waters it's easy to use the data to tell you what you want to hear. Historically, the inverted yours...

          I'm not saying it's something that shouldn't be posted or read, just that with these uncharted waters it's easy to use the data to tell you what you want to hear. Historically, the inverted yours curve hasnt happened with interest rates this low so nobody knows what will happen. Are we in the start of a bear market, or in a bull market undergoing corrections? My crystal ball is in the shop so I'm not sure. I do know Trump is trying to lay the groundwork to blame Jerome Powell because of reasons in my last post.

  4. VoidOutput
    Link

    The gap between two- and 10-year yields dropped below zero on both sides of the Atlantic after a wave of soft economic data globally. Weaker-than-forecast Chinese retail sales and industrial output set the mood for the markets, with data later in the day showing Germany’s economy contracted, adding to the gloom.

    2 votes