anybody smell smoke?

[Leo1277]

While increasing CD rates in themselves are not necessarily a problem, there is one thing that really smells of smoke: we are quickly heading towards an inverted yield curve, which means that short term yields (as from CDs) get near or exceed long term yields. This has been one of the most reliable predictors of an expected recession, as it expresses a lack of confidence in the long-term market. Google it and you will find many comments about it.

 

[Oz investor]

While increasing CD rates in themselves are not necessarily a problem, there is one thing that really smells of smoke: we are quickly heading towards an inverted yield curve, which means that short term yields (as from CDs) get near or exceed long term yields. This has been one of the most reliable predictors of an expected recession, as it expresses a lack of confidence in the long-term market. Google it and you will find many comments about it.

welcome to posting ,

indeed the yield curve ( and implied confidence ) is a gloomy omen ( except , if you believe the pundits , in Australia .... maybe we just twist the figures better over here )

 

[njhowie]

While increasing CD rates in themselves are not necessarily a problem, there is one thing that really smells of smoke: we are quickly heading towards an inverted yield curve, which means that short term yields (as from CDs) get near or exceed long term yields. This has been one of the most reliable predictors of an expected recession, as it expresses a lack of confidence in the long-term market. Google it and you will find many comments about it.

Agreed.

It's all about consumer and investor sentiment and perception. It's why optimism leads to business and economic expansion. By the same token, when there is so much demand for longer term yields that the yield curve flattens, and then goes further to inversion, it is a clear indication of investor uncertainty, with a flight to safety - reducing risk, and less willingness to invest. Perception slowly changes, and the next thing you know, we're in a recession.

It's almost self-fulfilling at this point.

I personally nibble all along the yield curve when I'm offered what I believe are good rates of return for the maturity. It's certainly subjective, though I am heavier in shorter maturities. However, because of the uncertainty of where rates will go, along with where we've been, I don't have much issue picking up 5 year CDs, and even 10 year. A few weeks ago I picked up some strong 18 year municipal bonds that pay 5% after tax equivalent. Today I purchased some 5 year CDs for 3.51%. I can live just fine with these. If these rates continue to trend higher, not a problem - I have maturities monthly which I happily roll out for higher yields.

 

[copyright1997reloaded]

First DOW is such a narrow band of stocks, not sure that reflects the overall markets.... and let's not forget that DOW did have GE in the mix which dropped from $18/sh to $13 and change when it was finally dumped from the DOW as it wasn't reflective of the how US companies are doing. Guess it would be interesting to see how DOW performance would have been without GE.

The dow is a price measured index. GE @ $13.96 was approximately 96 points on the dow (using the divisor when GE was still a member). That is, a complete wipe out of GE in one instant would have dropped the dow jones index by only 96 points. Now Boeing on the other hand..over 2300 points.

 

[copyright1997reloaded]

Considering the top 10 companies comprising the S&P500 and their weighting in the index, you might want to reconsider your statement/belief.

Did you know IBM at one point had a considerably heavier weight in the SP500 than Apple does today? At one point (if I am remembering correctly), it was around 6.5% of the SP500 value. Apple is currently 3.96%. IBM has fallen to 40th place with a weight of 0.52%, and yet we've somehow survived.

Here's an interesting graphic: http://i0.wp.com/siblisresearch.com/wp-content/uploads/2016/06/Weightings-of-Apple-Microsoft.png?resize=770%2C322

 

[njhowie]

Did you know IBM at one point had a considerably heavier weight in the SP500 than Apple does today? At one point (if I am remembering correctly), it was around 6.5% of the SP500 value. Apple is currently 3.96%. IBM has fallen to 40th place with a weight of 0.52%, and yet we've somehow survived.

Please re-read the quote I was responding to.

It had nothing to do with survival. It had to do with the prior posters belief of the S&P being more useful/representative than "the megacaps" of the Dow. Those in the S&P top 10 which are not included in the Dow, are bigger megacaps than a good portion of those in the Dow. The top 10 of the S&P is bloated with technology representing 15% of the entire index.

My statement/point stands.

 

[morriss003]

A good judge of bad times ahead is the interest rate curve. Here is a link. https://www.treasury.gov/resource-c...interest-rates/Pages/TextView.aspx?data=yield

Starting from the left, each number should be lower than the number to the right. When it's not it's called "inverted." An inversion usually signals a recession.

 

[SnowBound]

How many people refuse to smell the smoke until they see the Inverted Bond Curve (or fire)?

And yes, I'm one of the above..

 

[meierlde]

The dow is a price measured index. GE @ $13.96 was approximately 96 points on the dow (using the divisor when GE was still a member). That is, a complete wipe out of GE in one instant would have dropped the dow jones index by only 96 points. Now Boeing on the other hand..over 2300 points.

Indeed that is why the Dow thirty does not include Amazon because its per share price is to high. Just doing the divisor on Amazon is 9993 points on the dow. Alphabet would be 9700 points using the current divisor.

In any case way back when the dow 30 was industrials, there is a Transport index a Utilities index and a 65 stock index, all are price weighted because they came about long before computers.

 

[meierlde]

Dow on 1/2/18 opened at 24,809. On 6/29/18 it closed at 24,271.

On July 10 the dow 30 closed at 24,919, so a bit ahead for the year.

 

[Dtail]

Still feel that the markets are being held back artificially due to the trade war issues.

 

[njhowie]

Still feel that the markets are being held back artificially due to the trade war issues.

LOL - "artificially" holding the market back? It's a very real concern.

On the other hand, what is artificially supporting the market is hundreds of billions of dollars of stock buybacks taking place, among other things.

 

[audreyh1]

While increasing CD rates in themselves are not necessarily a problem, there is one thing that really smells of smoke: we are quickly heading towards an inverted yield curve, which means that short term yields (as from CDs) get near or exceed long term yields. This has been one of the most reliable predictors of an expected recession, as it expresses a lack of confidence in the long-term market. Google it and you will find many comments about it.

But we are not inverted yet. Until the curve actually inverts, I’m not seeing smoke. It can stay close to flat for a long time.

 

[MichaelB]

But we are not inverted yet. Until the curve actually inverts, I’m not seeing smoke. It can stay close to flat for a long time.

It also doesn’t have to go from flat to inverted. It can just as easily recover to a traditional, steepened slope.

 

[ncbill]

If you're worried about high equity valuations & are retired or at that point consider the "rising equity glide path" to mitigate sequence of return risk:

http://www.etf.com/sections/index-investor-corner/ferri-wisdom-6040-portfolios-timeless?nopaging=1

 

[copyright1997reloaded]

Please re-read the quote I was responding to.

It had nothing to do with survival. It had to do with the prior posters belief of the S&P being more useful/representative than "the megacaps" of the Dow. Those in the S&P top 10 which are not included in the Dow, are bigger megacaps than a good portion of those in the Dow. The top 10 of the S&P is bloated with technology representing 15% of the entire index.

My statement/point stands.

Sorry about that. Your point about the top 10 of the S&P being bloated with technology is true, but on the other hand some sector usually tends to be at the top and bloating the index. As we've become a technology society, one would expect technology to be an increasing portion of the economy and as a result market capitalization.

In reality, each crank of the technology wheel brings new applications for computing devices and more integration of technology into all industries. Is Amazon a technology company or a retailer? Are car manufacturers technology companies?

My investment thesis for many many years now has been to overweight technology and medical oriented companies as I believe there has been and continue to be long term trends which support these sectors.

 

[audreyh1]

It also doesn’t have to go from flat to inverted. It can just as easily recover to a traditional, steepened slope.

Of course it can, and that could happen this time too.

 

[Mr._Graybeard]

It also doesn’t have to go from flat to inverted. It can just as easily recover to a traditional, steepened slope.

I believe a big factor in the flat curve is a lack of interest in long-term borrowing -- money that is usually taken out to make capital improvements. Capital investment produces "healthy" growth. Consumer spending is another strong growth engine, but it can also drive inflation.