A Different Perspective on the Yield Curve Inversion and How This Situation is Unique
August 21, 2019 | FIRESIDE CHARTS
Everywhere you turn, there’s chatter that yield curve inversions are an indicator of impending recession. Since the inversion, many economists and experts have publicly shortened their estimated timelines for when the next recession will hit. Yesterday, President Trump went so far as to confirm that he’s considering various tax reductions—i.e. government stimulus—to prop up the economy. But could the specifics of this inversion have some bearing on what it indicates about the future? Today’s charts remind us both that this was an intraday inversion only, and that the conditions behind this inversion are unique. First, this inversion was caused by a rapid decline in longer yields, rather than a rapid incline in shorter yields, and second, it took place during a period when the CRB Index was falling rather than rising. Should economists be factoring these elements in to their forecasts? We’ll be keeping our eye out for more data to inform our own interpretations. Today’s release of July’s FOMC minutes, perhaps?
1. Did the yield curve (10s-2s) invert? Intraday… yes, but at the close, no! It was only 1 bp away, but it has yet to have a close that is inverted.
Source: FRED, as of 8/21/19
2. We have not seen a scenario like this in our lifetimes.
Source: StockCharts.com, as of 8/14/19
3. If Treasury yields hold at this level or go lower, then the U.S. equity markets look cheap!
Source: JP Morgan, Gavekal, as of 8/20/19
4. One reason is that the U.S. is one of the few economies with positive real rates.
Source: WSJ Daily Shot, as of 8/20/19
5. How do you “fight” a 10% tariff? Let “the market” devalue your currency by… 10%. Now China is 10% more competitive with EVERY good and service they export to the U.S. including 40% offsets to the 25% tariffs…
Source: WSJ Daily Shot, as of 8/20/19
6. China’s Yuan devaluation will also hurt other emerging economies as China is now more competitive…
Source: WSJ Daily Shot, as of 8/20/19
7. Why good financial advice is so important!!!
Source: WSJ Daily Shot, as of 8/20/19
8. $67 million in sales… makes the company worth $8.7 billion? Imagine this on Shark Tank!
Source: Statista, as of 8/20/19
Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be helf in client accounts.