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Re: Inversion countdown
Old 12-29-2005, 01:40 PM   #41
 
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Re: Inversion countdown

Have you guys seen this fun animated yield curve:

Yield Curve Animation
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Re: Inversion countdown
Old 12-29-2005, 01:46 PM   #42
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Re: Inversion countdown

From Al's link:

"Inverted yield curves are rare. Never ignore them. They are always followed by economic slowdown or outright recession as well as lower interest rates across the board."

I'm not sure I would go quite that far, but inversion is clearly nothing to sneeze that. I am increasingly thinking that I will be buying some cheap, out of the money QQQ puts soon.
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Re: Inversion countdown
Old 12-29-2005, 02:49 PM   #43
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Re: Inversion countdown

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Originally Posted by brewer12345
"Inverted yield curves are rare. Never ignore them. They are always followed by economic slowdown or outright recession as well as lower interest rates across the board."
So what happened the LAST time the yield curve inverted? How long did we have to wait for the recession?

Or is this a situation where a three-handed economist had eight opinions predicting six of the last four recessions?
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Re: Inversion countdown
Old 12-29-2005, 11:16 PM   #44
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Re: Inversion countdown

Al,
Loved the animated yield curve. Today's looks more like 'Flat" than "inverted". The applet sure brought home the point that the yield curve is a pretty dynamic beast, though.
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Re: Inversion countdown
Old 12-30-2005, 06:29 AM   #45
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Re: Inversion countdown

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Originally Posted by Nords
So what happened the LAST time the yield curve inverted?* How long did we have to wait for the recession?*

Or is this a situation where a three-handed economist had eight opinions predicting six of the last four recessions?
I think thatan inversion has predicted the proverbial 8 out of the last 5 recessions. However, if you look at the last few recessions, the yield curve was well inverted 6 to 12 months before the siht hit the fan.
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Re: Inversion countdown
Old 12-30-2005, 10:13 AM   #46
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Re: Inversion countdown

Quote:
Originally Posted by Nords
So what happened the LAST time the yield curve inverted?* How long did we have to wait for the recession?*

Or is this a situation where a three-handed economist had eight opinions predicting six of the last four recessions?
The last inversion occurred in early 2000 with the 30-year yield falling below the 10-year. At the time, everyone blamed "technical" factors in the bond market. The US government was running a surplus and the Treasury decided to stop issuing 30-year bonds creating scarcity value in the long-end of the treasury curve. No problem, right?

Historically, the yield curve has been a pretty good indicator of economic weakness 12 months forward. I think the record is that it has only given two false signals in the past 50 years. But after each of those "false signals" the economy did slow and, in one case, GDP went negative for one quarter (not an official recession).

Although its track record is good, I'm a bit of a skeptic when it comes to using the yield curve as a crystal ball. The long-bond market is a financial market, like any other. I'm not sure why bond traders and investors are any more prescient when it comes to these things than investors in any other market.

However, the yield curve does have practical implications for the profitability of financial institutions that tend to "ride the curve" by borrowing short and lending long. The same is true for hedge funds that have exploited a very steep yield curve in the past and have been using cheap money to juice returns. So it makes sense that higher short rates will squeeze some companies' profitability, which could lead to a slow down.

The yield curve will "normalize" at some point. The relevant question for investors is whether it normalizes because a recession forces the fed to cut short rates or because the economy continues to power forward and forces the long yield to rise?
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Re: Inversion countdown
Old 12-30-2005, 10:41 AM   #47
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Re: Inversion countdown

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Originally Posted by . . . Yrs to Go
Although its track record is good, I'm a bit of a skeptic when it comes to using the yield curve as a crystal ball.* The long-bond market is a financial market, like any other.* I'm not sure why bond traders and investors are any more prescient when it comes to these things than investors in any other market.*
Track record is good? It's track record is great! What else has been so successful over the last 50 years? That's an amazing record I think. If nothing else then it may serve as a self fullfilling prophesy. Consider the size of the bond market (5X stocks I think), if all that money, which tends to be conservative money, thinks things aren't looking so good, then either it's probably right, or it'll help the prophesy along.

Curve inverted again late yesterday ...
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Re: Inversion countdown
Old 12-30-2005, 01:11 PM   #48
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Re: Inversion countdown

I recall seeing a study someone had posted or linked to. I believe the main point was the longer the yield curve is inverted, and the higher the degree of inversion, the worse it gets for our economy (that is based on the 2yr-10yr spread).

Based on that, I'm not worried about an off-again on-again 5-10 basis point inversion. Unless it gets steeper or lasts for a long time.
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Re: Inversion countdown
Old 12-30-2005, 08:58 PM   #49
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Re: Inversion countdown

Quote:
Originally Posted by justin
I recall seeing a study someone had posted or linked to.* I believe the main point was the longer the yield curve is inverted, and the higher the degree of inversion, the worse it gets for our economy (that is based on the 2yr-10yr spread).*

Based on that, I'm not worried about an off-again on-again 5-10 basis point inversion.* Unless it gets steeper or lasts for a long time.*
Justin,

Would you change your asset allocation if we did have a steep inversion curve ?

I moved most of my assets into short term treasuries about a year ago. I'm sure my returns would have been better in 2005 if I had stayed with my asset allocation of 70/30 stocks to bonds.

I still think there are some really negative warnings out there regarding the economy. I hate to admit that I am market timing, but I am ...

I hope I don't continue this trend. I really would like to stay with an asset allocation plan, but I really believe the bubble moved from the tech sector to the housing sector and that the situation is even worse now than it was in 2001.

I will reach my magic FI number with a 5% return, so I think I can ride this out a few years with conservative investments. If I'm wrong I can still retire in 7.5 years and if I'm right I can still retire in 7.5 years.

All my new taxable money is going into I bonds and my Government 401k (TSP) money is totally in the G fund (short term securities).

-helen
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Re: Inversion countdown
Old 12-31-2005, 02:15 AM   #50
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Re: Inversion countdown

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Originally Posted by Helen
I still think there are some really negative warnings out there regarding the economy.* I hate to admit that I am market timing, but I am ...

I hope I don't continue this trend.* I really would like to stay with an asset allocation plan,
I think that if things get rough, and stay that way for a while, a lot of people who didn't think they were market timers will dsicover that they are.

Unfortunately, many of them will discover that they are poor market timers.

Remember-- he who panics first panics best.

Ha- happy to be called a market timer.
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Re: Inversion countdown
Old 12-31-2005, 02:33 AM   #51
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Re: Inversion countdown

One wishing to time the market must rely on precise criterions, apply these rules and check whether they are fulfilled or not, not just breathing the air in the morning and thinking he should go there better than here....

Let's take a very simple example, using the rate of change of a long term moving average (200 days) ROC MM200. When ROC MM200 turns negative on three markets (say SPX, RUT, NDX) you exit LONG, etc... then you check what it gives on historical data and improve the system until it gives results which you are happy with. You can use whatever rules you wish, TA or non TA, etc. Then you run the system and apply the rules not having mind boggling thougths.

Today, all world markets and LONG and even the Shanghai index is now neutral (which means that very probably Chinese indexes will go up in 2006). Why would you stay on the sidelines, why would you have QQQQ puts ? The worse is to be Bear when the market skyrockets and then to be Bull too soon when it's going to make a final and lethal dive.

If the yield inversion, or oil, or whatever kills this bull market, we'll see it. You just need to look at it and avoid divination.

Best luck to you all, we all need some !
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Re: Inversion countdown
Old 12-31-2005, 09:57 AM   #52
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Re: Inversion countdown

Quote:
Originally Posted by HaHa


Ha- happy to be called a market timer.
Ha: You're a market timer! (Want to keep you happy during the holiday season).

Nothing wrong with being a market timer.
But being a two-timing Salsa Dancer, now that's just bad form.

Sorry, Ha, but I find growing up a painful condition that I'm not sure I'm capable of.

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Re: Inversion countdown
Old 12-31-2005, 10:05 AM   #53
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Re: Inversion countdown

Well, I intended to ride out the 2000-2002 downturn, thinking a 10-20% haircut was doable. When it blew through 10-20-30%...

I moved a bunch to cash in early July 02, then more in Oct 02, and missed two more big down drafts. Probably just luck in the timing...

Moved to REITs, XLB, XLE, and made some nice returns. 8) Thanks to Larry Kudlow!

Currently have about 12% cash. Need more bond exposure, so could put some there. Also, want a stash for some bargain hunting. But I'm holding to my current allocation, until I don't... :
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Re: Inversion countdown
Old 12-31-2005, 12:43 PM   #54
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Re: Inversion countdown

Quote:
Originally Posted by Have Funds, Will Retire
Well, I intended to ride out the 2000-2002 downturn, thinking a 10-20% haircut was doable. When it blew through 10-20-30%...*

I moved a bunch to cash in early July 02, then more in Oct 02, and missed two more big down drafts. Probably just luck in the timing...*

Moved to REITs, XLB, XLE, and made some nice returns.* 8)* Thanks to Larry Kudlow!

Currently have about 12% cash. Need more bond exposure, so could put some there. Also, want a stash for some bargain hunting. But I'm holding to my current allocation, until I don't...* :
Sounds like a CD would be a good place for your 12%. If things go seriously on sale, you cash in the CD, take the early withdrawal penalty and go shopping. If not, you collect some nice interest (5.75% @ Pen Fed).
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Re: Inversion countdown
Old 12-31-2005, 04:02 PM   #55
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Re: Inversion countdown

Quote:
Originally Posted by Jarhead*
Nothing wrong with being a market timer.
But being a two-timing Salsa Dancer, now that's just bad form.
You're right- salsa is 4 count music. Now merengue, that
is for the dirty 2-timers!

Happy New Year, Jarhead. Let's pledge to never grow up.

Ha
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Re: Inversion countdown
Old 12-31-2005, 09:40 PM   #56
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Re: Inversion countdown

Quote:
Originally Posted by HaHa
Happy New Year, Jarhead. Let's pledge to never grow up.
I'll drink to that!
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Re: Inversion countdown
Old 12-31-2005, 10:27 PM   #57
 
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Re: Inversion countdown

Quote:
Originally Posted by HaHa
I think that if things get rough, and stay that way for a while, a lot of people who didn't think they were market timers will dsicover that they are.

Unfortunately, many of them will discover that they are poor market timers.

Remember-- he who panics first panics best.

Ha- happy to be called a market timer.
I am more bullish on stocks right now than I have been since 1997. The world is awash in liquidity with no home to park it. That said I won't change my allocation, because I know I could be wrong. But I've listened to the bears for about 5 years now. Stocks are more fairly valued now than they have been in years.

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Re: Inversion countdown
Old 12-31-2005, 10:47 PM   #58
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Re: Inversion countdown

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I'll drink to that!
Here's to Beefsteak when you're hungry,
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All the girls you ever want,
and Heaven when you die.

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Re: Inversion countdown
Old 01-01-2006, 02:04 PM   #59
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Re: Inversion countdown

Quote:
Originally Posted by Helen
Justin,

Would you change your asset allocation if we did have a steep inversion curve ?
I probably would stay 100% stocks like I am now. I'm 25 so I can afford to have swings in my asset values. I lost a large percentage of my portfolio in the 2000 crash, so I've experienced large volatility.
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Re: Inversion countdown
Old 01-01-2006, 05:17 PM   #60
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Re: Inversion countdown

Quote:
Originally Posted by justin
I probably would stay 100% stocks like I am now.* I'm 25 so I can afford to have swings in my asset values.* I lost a large percentage of my portfolio in the 2000 crash, so I've experienced large volatility.*
Justin: At your age (25), stocks should probably be front and center in your long range plans.

You mentioned that you lost a large percentage of your portfolio in the 2000 correction.

Congratulations for having more than two nickles to rub together at age 20.
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