{"id":1107865,"date":"2019-03-22T21:26:52","date_gmt":"2019-03-22T21:26:52","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107038"},"modified":"2019-03-22T21:26:52","modified_gmt":"2019-03-22T21:26:52","slug":"deadly-accurate-recession-warning-flashes","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1107865","title":{"rendered":"Deadly Accurate Recession Warning Flashes"},"content":{"rendered":"

This post Deadly Accurate Recession Warning Flashes<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

The flighty birds congregate in the stock market. The wise owls nest in the bond market.<\/p>\n

The bond market will let you know where the economy is heading, say the veterans.<\/p>\n

It will not be so easily deceived by the Federal Reserve\u2019s false fireworks. With knowing eyes it penetrates the magician\u2019s secrets\u2026 and exposes the fraud.<\/p>\n

New York Times <\/em>economics reporter Neil Irwin:<\/p>\n

\n

Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.<\/em><\/p>\n<\/blockquote>\n

Where does the smart money \u2014 the owls \u2014 think the economy is going?<\/p>\n

Answer anon.<\/p>\n

But first a glance at the futureless present… and the stock market.<\/p>\n

Stocks took a dreadful thumping today.<\/p>\n

The Dow Jones plunged 460 blood-soaked points. The S&P dropped 54; the Nasdaq, 196.<\/p>\n

Weakened global growth is one explanation widely on offer. Soft factory data out of Germany, in particular.<\/p>\n

But come we now to the latest message from the bond market, not unrelated…<\/p>\n

AWhat economic future does the smart money presently foresee?<\/p>\n

A lean season\u2026 and diminished prospects.<\/p>\n

Today the bond market blinked an ominous signal\u2026<\/p>\n

An inverted yield curve.<\/em><\/p>\n

The yield curve is simply the difference between short- and long-term interest rates.<\/p>\n

Long-term rates normally run higher than short-term rates.<\/p>\n

It reflects the structure of time in a healthy market.<\/p>\n

The 10-year yield, for example, should run substantially higher than the 2-year yield.<\/p>\n

For the reasons we needn\u2019t look far\u2026<\/p>\n

Longer-term bond yields should rise in anticipation of higher growth\u2026 higher inflation\u2026 higher animal spirits.<\/p>\n

Inflation eats away at money tied up in bonds\u2026 as a moth eats away at a cardigan.<\/p>\n

Bond investors therefore demand greater compensation to hold a 10-year Treasury over a 2-year Treasury.<\/p>\n

And the further out in the future, the greater the uncertainty. So investors demand to be compensated for taking the long view.<\/p>\n

Compensated, that is, for laying off the sparrow at hand\u2026 in exchange for the promise of two in the distant bush.<\/p>\n

But when short- and long-term yields begin to converge, it is a powerful indication the bond market expects lean times ahead.<\/p>\n

The yield curve flattens\u2026 and time compresses.<\/p>\n

When the long-term yield falls beneath the short-term yield, the yield curve is said to invert.<\/p>\n

And in this sense time itself inverts.<\/p>\n

Time trips all over itself, staggered and bewildered by a delirium of conflicting signals.<\/p>\n

In the wild confusion future and past collide\u2026 run right past one another\u2026 and end up switching places.<\/p>\n

Thus an inverted yield curve wrecks the market structure of time. It rewards pursuit of the bird at hand greater than two in the future.<\/p>\n

That is, the short-term bondholder is compensated more than the long-term bondholder.<\/p>\n

That is, the short-term bondholder is paid more to sacrifice less\u2026 and the long-term bondholder paid less to sacrifice more.<\/p>\n

That is, something is dreadfully off.<\/p>\n

It suggests an economic winter is coming\u2026 when investors expect little growth.<\/p>\n

And today a closely monitored section of the Treasury yield curve inverted\u2026 for the first time since 2007.<\/p>\n

The 10-year Treasury yield slipped beneath the 3-month yield.<\/p>\n

This inversion is a near-perfect omen of recession \u2014 conceded even by the Federal Reserve.<\/p>\n

Reuters:<\/p>\n

\n

The 3-month and 10-year spread is the Fed\u2019s preferred measure of the Treasury yield curve as it shows the strongest historical correlation between curve inversion and a forthcoming recession.<\/em><\/p>\n<\/blockquote>\n

President Trump\u2019s chief economic point man Larry Kudlow agrees \u2014 keep a weather eye on the 3-month yield versus the 10-year yield:<\/p>\n

\u201cIt\u2019s actually not 10s to 2s; it\u2019s 10s to 3-month Treasury bills. Very important.\u201d<\/p>\n

Sharpening the point to a poignant maximum is analyst \u201cThe Fortune Teller\u201d:<\/p>\n

\u201cLet me say it loud and clear: The yield curve is telling you that a recession is on its way.\u201d<\/p>\n

It is not a warning to be put off or placed behind the clock.<\/p>\n

According to Bank of America, an inverted yield curve has preceded recession on seven out of seven occasions over the past 50 years.<\/em><\/p>\n

Only once did it holler wolf\u2026 in the mid-1960s.<\/p>\n

An inverted yield curve has also foretold every major stock market calamity for the past 40 years.<\/p>\n

As mentioned, the yield curve last inverted in 2007.<\/p>\n

2007 \u2014 if memory serves \u2014 immediately preceded 2008.<\/p>\n

Prior to 2007, the yield curve last inverted in 1998. Recession was not far off.<\/p>\n

Warns Paul Hickey, co-founder of Bespoke Investment Group:<\/p>\n

When it comes to an inverted yield curve, anyone who ignores its economic message should do so at their own peril.\u00a0<\/em><\/p>\n

In graphic detail, the gray bars of recession following a yield curve inversion:<\/p>\n

\"Chart\"<\/p>\n

And now, early in 2019\u2026<\/p>\n

This doomy portent drifts once again into view\u2026<\/p>\n

And given the extreme duration of the current recovery and the still-inflated stock market, the thumping could assume historic grandeur.<\/p>\n

\u201cWe\u2019re going at least for a 40% decline from the S&P\u2019s top,\u201d warns Otavio Costa, macro analyst at Crescat Capital.<\/p>\n

But is an inverted yield curve an immediate menace, a stormcloud overhead?<\/p>\n

It is not.<\/p>\n

History reveals the dismal effects of an inverted yield curve may not manifest for perhaps 18 months or longer.<\/p>\n

Eighteen months would place late 2020 on watch.<\/p>\n

Of course recession may fall later \u2014 but also earlier. The hour and minute we cannot say.<\/p>\n

The gods have denied us the gift of foresight\u2026 and the wisdom that attends it.<\/p>\n

Unfortunately, the owl of Minerva flies only at dusk…<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/em><\/p>\n

The post Deadly Accurate Recession Warning Flashes<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Deadly Accurate Recession Warning Flashes<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

If you want to know where the economy is heading, look to the bond market… A nearly perfect recession indicator flashes red for the first time since 2007… Recession by late next year?…<\/p>\n

The post Deadly Accurate Recession Warning Flashes<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[2156,484,366,719,398,463],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1107865"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1107865"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1107865\/revisions"}],"predecessor-version":[{"id":1107866,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1107865\/revisions\/1107866"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1107865"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1107865"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1107865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}