Author Topic: Why will yield curve inversion NOT be followed by a recession?  (Read 4939 times)

effigy98

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #50 on: October 09, 2019, 08:49:17 AM »
We will see a recession, if nothing else it will be causation from everyone knowing about the indicators. Make sure you are diversified (gold, commodities, emerging, long term treasuries, etc) and you will not notice it much and your perpetual money making machine can keep on working over the long term.

ChpBstrd

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #51 on: October 09, 2019, 09:59:04 AM »
There's nothing to suggest that this will lead to price controls. Anyone telling you this is either being disingenuous or doesn't understand macro-economics.

The Fed arbitarily determines the single most important price in the economy: the price of money. Anyone telling you otherwise is either being disingenuous or doesn't understand macro-economics.

The cost of money is interest minus inflation. While the fed has demonstrated a strong influence on interest rates, they have been unable to exceed or even hit their own 2% inflation target with any consistency since it was established in 2012. “Control” is perhaps too strong a word.

There has been much discussion about the flattening of the Phillips Curve and the economy’s deflationary drag during the past decade. Some explanations revolve around market expectations for inflation. If the fed has to react to changing market expectations for inflation, is that “control”?

On another note, haven’t “Austrian economists” been calling for economic collapse, hyperinflation, and $10,000 $100,000 an ounce gold since... well... forever? At what point does an economic theory that has been proven defunct, with literally multiple human generations of wrong calls, lose the status of “economic theory”?

bwall

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #52 on: October 09, 2019, 11:12:52 AM »
I think it might be a good time to define some terms here.

Price stability = prices set by the free market, but very little change in nominal terms (or real terms).

Price control = prices set by government mandate, not the market.

The Fed's mandate has been employment maximization and price stability. They work to achieve these goals by manipulating the Federal Funds rate, which in turns affects the price of money. By making the cost of money either cheap or expensive, they can either spur the economy or reign the economy in.

The main economist of Austrian economic school for decades was Joseph "Creative Destruction" Schumpeter. In fact, he was even on Austria's currency for a long time even though he had emigrated to the USA and lived his last two decades there, teaching at Harvard. Von Mises' career was less distinguished.

PDXTabs

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #53 on: October 09, 2019, 05:53:52 PM »
The main economist of Austrian economic school for decades was Joseph "Creative Destruction" Schumpeter. In fact, he was even on Austria's currency for a long time even though he had emigrated to the USA and lived his last two decades there, teaching at Harvard. Von Mises' career was less distinguished.

Absolutely, but he isn't Jesus. Much like Thomas Robert Malthus theorized in a manner that explained his time Schumpeter could not have been expected to get everything right in perpetuity.

v8rx7guy

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #54 on: March 15, 2020, 03:29:40 PM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

American GenX

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #55 on: March 15, 2020, 03:48:37 PM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

We were ripe for a correction, but coronavirus is going to make it much worse.  The Fed and government are doing what they can to prop things up, but I feel there's no stopping the downward trend for a while.

ChpBstrd

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #56 on: March 15, 2020, 03:52:38 PM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

It remains an undefeated predictor!

Also, valuations matter all of a sudden.

v8rx7guy

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #57 on: March 15, 2020, 03:54:51 PM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

It remains an undefeated predictor!

Also, valuations matter all of a sudden.

I wish it wasn't such a loose, "well there will be a recession / correction in 0-2 years once it inverts" , but it does seem to have correctly predicted this one yet again.  I'm going to watch closer next time, but still probably won't do anything...

vand

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #58 on: March 16, 2020, 01:50:43 AM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

It remains an undefeated predictor!

Also, valuations matter all of a sudden.

Hee hee!

Valuations have always been the single biggest correlating factor in predicting long term stock returns, but nobody wanted to hear it when the Dow kept pushing to new highs ever week.

All we got was the usual permalbull crap.. "oh well, I missed out on 10%pa, looks like I'll have to settle for 7% pa", "past returns can't predict the future" etc.



ChpBstrd

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #59 on: March 16, 2020, 06:37:39 AM »
Wait a minute... I just realized.  Did the Yield Curve predict this crash?  It obviously could not have predicted the Coronavirus, but was the yield curve telling us we were ripe for a correction and it just so happened to be CV that kicked it off?

It remains an undefeated predictor!

Also, valuations matter all of a sudden.

I wish it wasn't such a loose, "well there will be a recession / correction in 0-2 years once it inverts" , but it does seem to have correctly predicted this one yet again.  I'm going to watch closer next time, but still probably won't do anything...

I'll accept the fuzzy timeline. In spring and summer of 2019 when the yield curve inverted, I was setting up the collar options strategy at 2 year durations with a maximum rate of decay of like 3% per year. People on bogleheads said I was crazy to accept such hedging losses.

I don't think so, given the everything bubble and the yield curve inversion. It's akin to buying homeowner's insurance to protect against wildfires once a drought has already been declared, or maybe once there is a tornado warning. I think there would have been a correction/recession even without Covid-19. Unemployment was so low, no businesses could expand anyway.

I enjoy following Campbell Harvey on LinkedIn. He's the economist who discovered the relationship back in the 80's.
https://www.linkedin.com/in/camharvey/

PDXTabs

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #60 on: March 16, 2020, 06:46:49 AM »
I'm going to watch closer next time, but still probably won't do anything...

Yup, I watched with bated breath, but I didn't change anything. My IPS says 100% VT so I stayed 100% VT, I just wanted stocks to go on sale.

effigy98

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Re: Why will yield curve inversion NOT be followed by a recession?
« Reply #61 on: March 16, 2020, 09:44:16 AM »
We will see a recession, if nothing else it will be causation from everyone knowing about the indicators. Make sure you are diversified (gold, commodities, emerging, long term treasuries, etc) and you will not notice it much and your perpetual money making machine can keep on working over the long term.

My IPS, golden butterfly, and MacroVoices podcast saved me. It only took 2 of these over 10 years to teach me to be more conservative. Still on track to FI on expected date in a couple years. May keep working another year or two if there are a lot of real estate available from fire sales from inheritance of younger people not wanting to deal with it and selling at low prices or foreclosures. This could be a boon for younger people who were priced out of the real estate market.
« Last Edit: March 16, 2020, 09:53:03 AM by effigy98 »