{"id":1132644,"date":"2019-08-14T16:41:49","date_gmt":"2019-08-14T21:41:49","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107840"},"modified":"2019-08-14T16:41:49","modified_gmt":"2019-08-14T21:41:49","slug":"major-recession-alarm-sounds","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1132644","title":{"rendered":"Major Recession Alarm Sounds"},"content":{"rendered":"

This post Major Recession Alarm Sounds<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Red, red, in every direction we turn today\u2026 red.<\/p>\n

The Dow Jones shed 800 scarlet points on the day.<\/p>\n

Percentage wise, both S&P and Nasdaq took similar whalings.<\/p>\n

The S&P lost 86 points. And the Nasdaq\u2026 242.<\/p>\n

And so the market paid back all of yesterday\u2019s trade-induced gains \u2014 with heaps of interest.<\/p>\n

Worrying economic data drifting out of China and Germany were partly accountable.<\/p>\n

Chinese industrial production growth has slackened to 4.8% year over year \u2014 its lowest rate since 2002.<\/p>\n

And given China\u2019s nearly infinite data-torturing capacities, we are confident the authentic number is lower yet.<\/p>\n

Meantime, the economic engine of Europe has slipped into reverse. The latest German data revealed second-quarter GDP contracted 0.1%.<\/p>\n

Combine the German and Chinese tales\u2026 and you partially explain today\u2019s frights.<\/p>\n

But today\u2019s primary bugaboo is not China or Germany \u2014 or China and <\/i>Germany.<\/p>\n

Today\u2019s primary bugaboo is rather our old friend the yield curve…<\/p>\n

A telltale portion of the yield curve inverted this morning (details below).<\/p>\n

An inverted yield curve is a nearly perfect fortune teller of recession.<\/p>\n

An inverted yield curve has preceded recession on seven out of seven occasions<\/i> 50 years running.<\/p>\n

Only once did it yell wolf \u2014 in the mid-1960s.<\/p>\n

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

Why is the inverted yield curve such a menace?<\/p>\n

As we have reckoned prior:<\/p>\n

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

Long-term rates normally run higher than short-term rates. It reflects the structure of time in a healthy market\u2026<\/i><\/p>\n

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

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

Bond investors therefore demand greater compensation to hold a [longer-term] Treasury over a [short-term] Treasury.<\/i><\/p>\n

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

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

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

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

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

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

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

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

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

It suggests an economic winter is coming…<\/i><\/p>\n

We fretted and moaned recently that the 10-year Treasury and the 3-month Treasury inverted.<\/p>\n

But many believe the 10-year versus 2-year sector of the yield curve is the one to watch.<\/p>\n

Its recession-forecasting talents overmatch all others.<\/p>\n

And now…<\/p>\n

For the first instance since 2007, the 2-year Treasury note and the 10-year Treasury note have inverted.<\/p>\n

That is, yields on the 10-year have dropped beneath yields on the 2-year.<\/p>\n

Its significance is not \u201cfake news,\u201d as explains Justin Walters, co-director of research and investments at Bespoke Investment Group:<\/p>\n

Given prior inversions of other curves… the fact that the 2-year note and the 10-year note has now inverted isn\u2019t \u201cfake news.\u201d Inversions are not a good sign for the economic outlook, having preceded prior recessions with frightening regularity.<\/i><\/p>\n

Bank of America Merrill Lynch strategists claim today\u2019s inversion means \u201cthe equity market is on borrowed time.\u201d<\/p>\n

The question then becomes:<\/p>\n

How much borrowed time?<\/p>\n

But the question is easier asked than answered.<\/p>\n

An inverted yield curve is not necessarily an immediate scourge.<\/p>\n

History reveals the grim effects of an inverted yield curve may not manifest for 12\u201318 months \u2014 or longer.<\/p>\n

Of course… they may also sting earlier. The hour and minute are truly on the knees of the gods.<\/p>\n

But how badly might recession batter the stock market?<\/p>\n

The BAML strategists ransacked the numbers.<\/p>\n

They reveal the S&P often attains maximum height 7.3 months after a 2-year\/10-year inversion \u2014 on average.<\/p>\n

The S&P may therefore run higher through next March.<\/p>\n

But once the inevitable recession comes hammering down\u2026<\/p>\n

Data indicate recession claims some 32% of the S&P\u2019s value \u2014 again \u2014 on average.<\/p>\n

Are you prepared for a 32% trouncing?<\/p>\n

Would you like to know who is not?<\/p>\n

The president.<\/p>\n

The gale might blow straight through the 2020 presidential election.<\/p>\n

Given how he pins his reelection on a roaring stock market\u2026 President Trump had better hope the recessionary forecast is false.<\/p>\n

Below, Robert Kiyosaki shows you why it is more important to own gold \u2014 \u201cGod\u2019s tears\u201d \u2014 than ever. Read on.<\/p>\n

Regards,<\/p>\n

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

The post Major Recession Alarm Sounds<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Major Recession Alarm Sounds<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Bad economic news across the world sends stocks reeling…<\/p>\n

The post Major Recession Alarm Sounds<\/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":"default","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":"","ast-disable-related-posts":"","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-opacity":"","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-opacity":"","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-opacity":"","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-opacity":"","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-opacity":"","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-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[366,463],"tags":[],"class_list":["post-1132644","post","type-post","status-publish","format-standard","hentry","category-dailyreckoning","category-the-daily-reckoning"],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132644","targetHints":{"allow":["GET"]}}],"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=1132644"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132644\/revisions"}],"predecessor-version":[{"id":1132645,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132644\/revisions\/1132645"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1132644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1132644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1132644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}