Here's a simple example for explaining what this means. Imagine I'm the government, and I sell bonds where I promise I'll pay you back $100 in 5 years or 10 years. Because I'm the government, and I can print money to repay any debt, these bonds are considered very low risk - sometimes they're even called risk free.
The market bids on these bonds, and the market price is public information. Let's say that people are paying $90 for a 5 year bond, meaning they pay $90 today and get $100 in 5 years. Knowing this, we can work out that this is equivalent to a yearly interest rate of 2.13%.
Now we expect that the computed interest rate for the 10 year bond should be higher than the 5 year bond. People want to be compensated for locking up their money for longer. So let's also say people are paying $80 for a 10 year bond, which works out to an interest rate of 2.26%.
These numbers fluctuate up and down every day, and they generally rise and fall with the prevailing interest rates. Here's the key question - what happens if the 10 year interest rate falls below the 5 year rate?
There are a lot of possible reasons, but this often indicates that investors think a recession is around the corner. The reason is that investors are betting that the prevailing interest rates will drop. If interest rates drop, then future bond purchases may have much lower interest rates than those bought today. It turns out you might like the idea of getting 2% interest for 10 years rather than 2.13% for 5 years and then 0.5% for the next 5 years.
> While the 3-month to 10-year spread “has a relatively decent track record of predicting recessions, it suffers from a timing problem,” said TD Securities U.S. rates strategist Gennadiy Goldberg. “Its inversion can suggest a recession occurred six months ago or will occur two years from now.” btw not just "relatively decent," but perfect over the last seven recessions at least. When the 3-month treasury yields more than the 10-year treasury, the economy has been in recession within two years 7/7 times.
There are a lot of leading economic indicators, but this one beats them all in terms of reliability. There's one complicating factor that I don't see getting the attention it deserves. Unlike previous cycles, the Fed has been actively manipulating long-term yields for over a decade. That used to be taboo, but not anymore. The Fed holds trillions of dollars of long-term treasuries, accumulated under its QE/X programs.
The ownership of that debt by the Fed puts downward pressure on long-term yields. Recently, the Fed started allowing its long bonds to mature through its "quantitative tightening" (QT) program. That pressure (which really ramped up a few months ago) may have temporarily pumped up yields, and in so doing delayed a yield curve inversion signal. The status going forward of QT and the Fed's gargantuan balance sheet is anybody's guess. My bet is the Fed is done with QT until at least after the 2020 election. If things really start going south, watch for the Fed to begin buying stocks directly like the Bank of Japan has been doing for years. That and negative-yielding treasuries.
Either way, this is unprecedented territory. Signals could be quite confounded for the foreseeable future - which means policy makers are winging it. They almost certainly will make the wrong decisions.
Do I buy btc? Sell real estate and assets now and rebuy cheaper? What do
Christian Phillips
Time to get some guns and stockpile essential things. I don't think its apocalypse tier but its "everyone feels the crunch worse than 2008 tier"
Noah Lee
btw QT (quantitative tightening) is still on, just tweaked now:
"- Begin tapering the “runoff” of Treasury securities in May. - End the runoff of Treasury securities on September 30. - Continue shedding mortgage-backed securities (MBS) at the current maximum of $20 billion a month, essentially until they’re gone. - After September, reinvest MBS principal payments into Treasury securities. Chair Jerome Powell said during the press conference that the balance sheet will by then be “a bit above $3.5 trillion.” - The balance sheet will remain at this level even as the economy grows, thus slowly shrinking in relationship to GDP. - The Fed may sell MBS outright to speed up the process of getting rid of them. - No decision has been made on the delicate issue of the maturity composition of the balance sheet – which would require buying short-term bills for the first time in years to replace longer-term notes and bonds."
The fed almost certainly will make the wrong decisions and plenty of traders are betting on it. It's amazing that some people think CB's have control of this ship… but hey, someone needs to be on the other side of the trade.
Ya got a maximum of two years to tie your toes together before they spread your legs lads.
Are central banks actually forced to hold negative yield treasury bonds though ? Who could force them ? They’re independent of government and fund the government payroll.
Christopher Butler
>Ya got a maximum of two years to tie your toes together before they spread your legs lads. What do you mean by this?
because anons here are just some of the best people around i’m going to tell you guys how long you have until the recession hits, but only once. Two years. That’s how long you have before the next recession.
Jackson Rogers
Goddamn boys, I hope we get our golden bull before the recession hits. It would be so tasty to sell the crypto top then turn around and buy bottomed-out stocks, and shortly after getting healthcare gibs from based Bernie. Will this be the NEET nightmare or the NEET dream? Which timeline are we in? We're gonna find out soon.
Reminder: BTC has beaten every single market by a huge margin ever since it's inception. We're currently at the bottom of the crypto market cycle. Recession incoming. Did you figure it out yet, user?
Charles Wood
OP great fucking work here, nice thread. As a boomer i like this
Do you listen to the Macro Voices podcast? Also the Financial Sense Newshour with Jim Puplava is good.
Nah I'm a bit of a boomer myself and never got into the whole podcast thing.
t. 27 yrs old
Anthony Lee
> “Its inversion can suggest a recession occurred six months ago or will occur two years from now.” > six months ago
this
Joshua Baker
I know this is becasue of correctinos but can someone explain to me how that works exactly? What data gets corrected and how would it show 'oh yeah we're in a recession already' ?
so is taking out a loan and all on btc be a bad idea?
Jordan Adams
Taking out loans to invest is a bad idea regardless of what you invest in.
Hunter Edwards
basically all the margin real estate investors then?
William Gutierrez
so it means investors are shorting the fed?
Hunter Johnson
Well, debt isn't bad in and of itself. It's all about risk management, so if you know what you're doing then go ahead but I'd never recommend a beginner investor to take loans.
We are just now getting out of a recession ffs you absolute braindead goys
Thomas Young
What are they going to do if you're neet and live at home? Destroy your (((credit history)))? Oh no.
Thomas Phillips
>he thinks you get to get out oh user
Anthony Hernandez
Temporarily of course...
I wouldn't advice you to keep reading these posts on here. If you have no knowledge whatsoever of financial instruments, you're gonna believe whatever you read.
9-12 years (0.95 CI)
Lucas Cooper
better than be shilled by the mass media.
Carter Smith
Not by much, create your own opinion and complement it with other's.
Wyatt Scott
I absolutely hate that we've been living under a second great depression (no one calls it that because it would be racist) since 2001, and we have a brief 2-3 year period of sunshine, before the Jews start engineering a return to unemployment (everyone needing 2 or more part time jobs) and printing money to hand directly to Goldman.
Could the US avoid recession by going to war? Another BIG ONE where 100% of normies are swallowed up in muh patriotic duty and 'if you sympathize with "x" you're not American' sort of events?
I wasn't old enough to know about the financial climate before (((al kaiba))) knocked down some expensive towers, but I was old enough to laugh at how suddenly everyone became a patriot when American goods like trucks were being sold with 0% interest
Joseph Peterson
Bumping to keep a good thread alive in a sea of FTM posts
We are living in great times now. Only a liberal arts student/ graduate or foodstamp recipient would feel otherwise.
Evan Morgan
Dude, I know people irl with STEM degrees living in their parents basement, trading crypto in the hopes of making money because they can't get a job Everything is a mess
Isaac Hall
Only a war on the scale of a modern WWII, like what happened with the depression.
Joseph Clark
To counter your anecdote with an anecdote, my business is up 40% because everyone is buying new homes or second homes and filling them with furniture.
We could sidestep sharing our unreliable personal observations by checking the actual employment data, consumer confidence, stock market growth (that isn't being fed directly by the FED), and real wage growth (which is happening in a demonstrable way for the first time in decades). Everything is looking good!
William Diaz
>actual employment data I think we skewed perspectives user, but since you run a business, you ought to look around at the job market - it's not looking good unless you aspire to flip burgers
Camden Roberts
Why would it surprise you that a subhumanising country is collapsing ? It happens everytime, there's no exception in History.
Landon Ross
Only a large scale (thermonuclear) war between the US and Russia/China would do it.
Christopher King
Your hell bent on anecdotal evidence. Ok... I'm hiring for 2 spots. It's 1099 pt, but the gig pays $40/hr, unless you're retarded and slow; then, I guess it would be full time $25/hr. You near Boston?
Joshua Parker
Just print more money
Cameron Bailey
that episode aired in 2000. crazy.
Jayden Brown
>, I hope we get our golden bull before the recession hits. It would be so tasty to sell the crypto top then turn around and buy bottomed-out stocks, It would be too perfect for us neets to make it so huge but maybe. I kinda see the bullrun for crypto ending 2021. Could be possible to then watch stocks and crypto free fall as you buy up all the cheapies.
Jacob Scott
Didn't this already happen a few months back?
Jose Martin
Its because of the oversaturation of graduates to actual available jobs. Everyone in school from 1-12 will say you have no future unless you go to college. Then you graduate and realize everyone set you up for the grinding machine at the end of the line which is the student loan debt ponzi.
Angel Perry
Quality thread opie
Could tie in some basics of bond pricing - I always have to remind myself prices and yields move inversly
Hunter Morris
3mth-10 year spread doesn't mean shit, as shown in 1998, it could swing due to panic.
Focus on the 2 year treasury-10 year treasury spread. The 2 year market is much larger due to banks being a huge buyer at that specific duration. When that inverts, you have about 6 months to get out. I personally believe we have a little more room to run due to the china trade deal and solid Q1 growth, at least in my specific sector of the banking industry. Good luck.
Landon Morris
>tw not just "relatively decent," but perfect over the last seven recessions at least. When the 3-month treasury yields more than the 10-year treasury, the economy has been in recession within two years 7/7 times.
That's objectively false. Look at 1998.
I think you're a pesdointellectual who reads (((media))) and tries to connect it to the real world. Your brain tries to make connections that are not there.
Zachary Jackson
That gap is closing fast on the two year. It is definitely a sign of worry now. It's getting harder and harder to deny a recession at this point.
Markets always hit all time highs after inversion. Doomers dont know what theyre talking about
Dominic Brown
ddomes goona doom
Chase Parker
this only happens right before a major market crash and recession sets in and the "bail out" phase of corporations that should by all means go bankrupt steal money from the taxpayers because they are too big to fail and nothing is illegal in their eyes.
i hope the zoomers exterminate every last kike off this planet that way we can have a monetary system that isnt corrupt to the core.
David Morales
When the Fed unloads MBS, are they sold to investment banks in private deals, or are these open/public market trades?
