Yield curve getting flatter, and flatter

[imoldernu]

Another point about debt that may be coming in August/September, when the government reaches the authorized limit.
Something to keep in mind, even though it's not happening tomorrow.

https://www.washingtonpost.com/business/2019/07/08/treasury-could-breach-debt-ceiling-first-half-september-much-sooner-than-previously-thought/?utm_term=.b883b981558e

The U.S. government could run out of money to pay all of its bills by early September if Congress doesn’t rush to raise the debt ceiling, a think tank said Monday, a time frame that could force lawmakers to act much sooner than planned.

The Bipartisan Policy Center said that the Treasury Department could breach the borrowing limit in two months because the government has brought in far less tax revenue this year than was projected. The BPC uses economic models to forecast the government’s ability to pay its bills, and its estimates are often studied by the White House and congressional leaders.

 

[bolt]

Quite a few years ago now, Megacorp sent me to a mini-MBA program that involved week-long lock-in sessions with really top academics. IIRC Harvard's David Yoffe was one. In the module on international finance they pointed out basically the same thing. The issue is not exactly that the bonds "devalue". It is that the exchange value of the dollar declines as people decide they don't want to hold dollars, raising the yield on the debt and (not incidentally) kicking off US inflation that can't be controlled by conventional means. On the flip side of this coin, you can read "US inflates its way out of its debt." That's another way of saying the same thing. Bond holders will still get the promised number of dollars; they just won't be worth as much.

This is one of the reason we are in total world market funds like VTWSX, where about 55% of the assets are non-US/not dollar denominated. Those assets will skyrocket in dollar terms when/if the dollar declines in value

It's been a long time since that class, though, and the dollar has not collapsed yet. I also remember the classic: "The market can remain irrational longer than you can remain solvent." So I'm not placing specific bets on the dollar's decline. Just waiting and watching.

Thats my understanding also.
This utube clip is humorous.
Watch the guy sitting next to Greenspans face when he says what he says.

 

[Lsbcal]

The yield curve is getting more inverted. Was at 20 basis points inverted and today the 10 year yield has dropped another 10 bp. So for the 10 year and 3 month curve we have 3 months of inversion:

With stocks dropping this is an ominous sign. I could be selling at the end of August if the SP500 finishes where it is right now.

 

[kgtest]

Well the heat is on, that's for sure. Inevitably it will go back up before both me and DW get paid and subsequent DCA contribution. I always miss the dips on payday it recovers lol.

 

[Freedom56]

The yield curve is getting more inverted. Was at 20 basis points inverted and today the 10 year yield has dropped another 10 bp.

With stocks dropping this is an ominous sign. I could be selling at the end of August if the SP500 finishes where it is right now.

As I stated before, we are headed to much lower interest rates. The inversion will continue unless the Federal Reserve cuts interest rates dramatically. Recall that I predicted the rate inversion over 9 months before it started to happen. There were a few naysayers on this board and they know who they are. The 10 year note yield will test the 2016 low and most likely break below. People holding money markets, individual bonds (of companies with good interest coverage), treasuries, agencies, rental properties, and CDs will do fine. As for the rest of you, look-out below. I'm holding 80% individual bonds and CDs and 20% cash. I'm up almost 7 figures YTD with 5 months of coupon interest payments remaining.

There is too much debt out there for any government to raise interest rates. Consumer debt (excluding mortgages) is now topping $4 trillion. Corporate debt is at record highs with many corporations in energy, retail, mall REITs on the brink of oblivion. Government debt is now increasing by trillions and nobody seems to care. Eventually the debt bubbles will cause massive deleveraging and defaults by consumers and corporations.

There is some good news for people who are cash rich and debt free. Inflation will not be a problem for the next decade, if not longer. The only area where we will see any inflation is in healthcare. Travel will be inexpensive. Consumer goods will become bargains as demand drops and suppliers/retailers are forced to liquidate. This is a golden time to be debt free and retired.

 

[corn18]

Keep an eye on the unemployment rate. Seems to be more news of layoffs these days. When it starts going back up, a recession seems to be right behind. Combine that with the yield curve inversion, and we may already be in a recession and not know it yet.

 

[Lsbcal]

The most recent data reported on Aug 2 says the unemployment rate is steady. The next report is Sept 6. Whatever I do is strictly by the numbers as I'm trying to dial out the emotions.

I'd agree that if the unemployment rate moves up that would be a very negative event when combined with an inverted yield curve and a weakening stock market.