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Author Topic: Predicting recessions with yield curve inversion  (Read 45 times)
TradeFortress
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July 11, 2018, 07:53:32 AM
 #1

The yield curve inversion is probably the most watched indicator in the US economy now, and that makes me curious if plans to market time their entry / exit into the stock market based on this figure.

I was able to make a simple model in Google Spreadsheets that exits the stock market completely when the minimum T10Y2Y of months T9-T21 is less than -0.2%, and that would have successfully avoided every recession with a re-entry position around the bottom.

Obviously, those are very backtested results and I optimised the parameters based on the past recessions, and the big question is if the future will hold the same. I'm curious if there is anyone out there thinking of exiting the stock market, about 9 months after the yield curve inverts and getting back in 21 months later?
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July 11, 2018, 03:46:28 PM
Merited by frodocooper (3)
 #2

It sounds like a self-fulfilling prophecy if a large number of market participants believe it and start selling. And it's not just the inversion, the interest rates going up in general make bonds more attractive so possibly less money going into stocks.

I'm not planning to exit (because taxes and AGI) but have stopped putting new money in. Not based on any data, just a gut feeling on where the economy is going.
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July 12, 2018, 07:45:47 AM
 #3

I believe that the current fiat monetary system is coming to the end of its life cycle. This could be the cause of an inversion of the yield curve. If an efficient and stable alternative is created, then it could lead to a period of economic growth, but it is also likely to trigger a substantial transfer of capital away from the current banking elite.
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July 12, 2018, 04:09:15 PM
 #4

This metric (shape of the yield curve) only mattered when a functional market actually existed.

What if the QE tapering causes a serious crash in equities, and the Federal Reserve respond by propping it all up again? All they have to do is simply underwrite everything they need to so that the system continues to tick away. 2008 proved that the extent of corruption in the financial system was so prevalent and so severe that more or less everyone needed to be bailed out. That means that there should exist now zero discipline in the behaviour of the financial market big players and zero belief in any consequences for that. Where's the incentive to care about the FRN yield curve, when you know you can keep borrowing money for nothing and spending it on your own stock price? There's nothing stopping the Fed from manipulating the bond market too, why does it even matter?

To me, the commodity markets are the key to the bubble bursting. Despite hundreds of % inflation of the money supply, everyday living has been shielded from corresponding inflation. That can't last, as soon as the rest of market runs out of real assets to buy up, demand has to find somewhere else to go. Obviously there's been some general inflation (and it's been masked in the official numbers of course), but not multiple hundereds of %. At some point, it's going to suddenly go crazy.
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July 13, 2018, 12:39:40 PM
 #5

ppt... protection plunge team...

who cares of the yields... they can just buy on an nolimit off book account...

smoke and getting thinner mirrors.

normally demo = low rates
repub = high rates.

normal repub want to make alcohol prohibition the law of the land, ban abortion, jail plant users...

they normally must be destroyed at all cost, but with the raise of the MAINLAND...

the us is in a panick...

compare EU+US vs CHINA rapes... and specially who commits them... and laugh your ass off on how treasonous this so called security infrastructure as become... remember the SS in which country having prostitutes... that tells you a lot about the level of morality...

but when you the whoreness level of the western females...

where is the hope?

terminal stage of an infection...

the guilt of christianity to hide the crimes of the ruling class while preaching a better next life through the allowance of those crimes here and now.

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