Yield curve getting flatter, and flatter

[OldShooter]

... I will add that I do think that EMH has validity, but in the soft sense. ...

We probably agree. Over the long term EMH has to work, but over the short term (<5 years or even 10) behavioral finance correctly observes that emotions and illogical behaviors can be a big influence on individual stocks and even on asset classes.

There is a very good video of Fama and Thaler discussing this: Are markets efficient? | Chicago Booth Review Basically I think they are both right.

Fama's last comment: "In general, it would be useful to know to what extent all economic outcomes are due to rational and irrational interplays. We don’t really know that." Me, too.

 

[Freedom56]

10 year note inverted below 3 month t-bill this morning and now also the 1 year. It's a matter of time before the Federal Reserve starts cutting interest rates again or we head into a deep recession.

 

[gstillson]

10 year note inverted below 3 month t-bill this morning and now also the 1 year. It's a matter of time before the Federal Reserve starts cutting interest rates again or we head into a deep recession.

Isn't it always a matter of time before the next boom or bust cycle?

 

[Freedom56]

Isn't it always a matter of time before the next boom or bust cycle?

This bust cycle is going to be particularly painful as both corporations and consumers are forced to deleverage or default. For those who are retired and debt free, inflation will be low and there will be plenty of travel and leisure bargains over the next several years.

 

[OldShooter]

Isn't it always a matter of time before the next boom or bust cycle?

Yes, of course. That's why a flattening yield curve is always followed by a recession. Someday.

 

[gstillson]

The stock market is one of the places where you can be right and wrong at the same time.

Predicting a 20% drop in the market that does happen eventually but not until the market has gone up 30% more first is one example.

 

[audreyh1]

Seems like the Fed is already pretty preemptive. Pulling back on the balance sheet unwind is a biggie.

 

[brewer12345]

https://www.cnbc.com/2019/03/22/bon...happened-to-stocks-last-time-it-happened.html

The above suggests there is typically equity upside for the next year or so.

 

[NW-Bound]

Maybe this time will be different.

Too many people are expecting another 20% stock increase from here. Some will sell at 15%. Some at 10%. Others at 5%.

 

[NW-Bound]

This bust cycle is going to be particularly painful as both corporations and consumers are forced to deleverage or default. For those who are retired and debt free, inflation will be low and there will be plenty of travel and leisure bargains over the next several years.

All right! One must always look for a silver lining. I may be able to procure that class-B motorhome cheaper.

During and right after the Great Recession, there were a lot of RVs on sale. And for many years after that, there was no new design as manufacturers were just trying to survive, and many did not. Now, they all have new designs which will be available to me for the next downturn.

Will I be able hold my nose and buy? That's the real question.

 

[COcheesehead]

This bust cycle is going to be particularly painful as both corporations and consumers are forced to deleverage or default. For those who are retired and debt free, inflation will be low and there will be plenty of travel and leisure bargains over the next several years.

I own a lot of individual bonds and I think the deleveraging has already started. I have had 5-6 bonds called (paid early) in the last week or two. Compare that to having just 2 called all of last year.

 

[pb4uski]

lots of measurbaters on this site for sure lol

hey... I resemble that remark.

 

[ShokWaveRider]

OK, so the Yield Curve actually inverted today...… what now?

 

[Maenad]

Dogs and cats living together! Mass hysteria!

 

[COcheesehead]

Dogs and cats living together! Mass hysteria!

Looks like a picked the wrong day to give up cough medicine.

 

[audreyh1]

OK, so the Yield Curve actually inverted today...… what now?

Wait a year and then all hell breaks loose?

But that assumes that the curve remains inverted.

And I think equities can rally during that year..

 

[COcheesehead]

I am a firm believer in that recessions are also somewhat of a self fulfilling prophecy. If you think things are going to slow down, you decrease your spending which in turn....

 

[corn18]

Try to imagine all life as you know it stopping instantaneously and every molecule in your body exploding at the speed of light. Total protonic reversal.

 

[gstillson]

All right! One must always look for a silver lining. I may be able to procure that class-B motorhome cheaper.

During and right after the Great Recession, there were a lot of RVs on sale. And for many years after that, there was no new design as manufacturers were just trying to survive, and many did not. Now, they all have new designs which will be available to me for the next downturn.

Will I be able hold my nose and buy? That's the real question.

I am more interested in home prices. I want to buy a house but they are $500k in the area I want to buy. A nice big fat recession bringing them down to $200k would be swell.

 

[NW-Bound]

The yield curve inversion is like the stick shaker turning on in a jetliner to warn of an impending stall.

I am reminded of the following Youtube video back when Bernanke was nominated to be the Fed chairman:

"First you move your lips
Hike a few more BPS
When demand then dips
And the yield curve flips
I'll be watching you..."
​

 

[NW-Bound]

I am more interested in home prices. I want to buy a house but they are $500k in the area I want to buy. A nice big fat recession bringing them down to $200k would be swell.

A lot of people will lose their job when things get that bad. Make sure you are FIRE'd and have a low WR before wishing such things.

 

[audreyh1]

Stocks rise about 15 percent on average in the 18 months following inversions, according to Credit Suisse.

 

[MichaelB]

Stocks rise about 15 percent on average in the 18 months following inversions, according to Credit Suisse.

So, are you increasing your equity allocation?

 

[audreyh1]

So, are you increasing your equity allocation?

Not I.

If there is a big run up from here, chance are good that I will have done another major rebalance before the SHTF.

I’m already half way to my rebalance triggers as it is.

 

[marko]

I don't know.

The Great Recession and its subsequent recovery made me quite sanguine about the "R" word.

It was in fact the worst market drop since 1929 but in [-]the end[/-] hindsight it wasn't "the end of the world as we know it" that many had breathlessly implied or expected.

Our dividends did drop for 2 years but not enough for us to have to sell any shares to meet expenses. The key point is that, at least for us, 2008-2010 our lives didn't change one iota.

IIRC, recessions are fairly short-lived events and present buying opportunities rather than a time for just buying antacids.

Might just be me though...it could be a mistake but 2008 taught me to just ride it out. 2008 gave me a "is that all you got??" mindset.