Succinct Summations of Week’s Events 8.23.19 (plus 7 Tips for Investors When the Yield Curve Inverts)

So I've been exactly one month off, one month of settling into my new condo and, more importantly, closing up my old house in Keego so I can stop paying two rents, working night and day to accomplish these objectives.  There is still much unpacking and decorating to do but I can take all the time in the world for that stuff now. I turned my keys in to the Keego house on Saturday and turned off the utilities and those were the final tasks that had deadlines attached to them.  Now I can enjoy some much deserved relaxation to the end of a a very consuming summer that began the first week of June when I was told my rented house was sold and I had to vacate.

I have been keeping up with the daily market news the past few weeks, just not taking the time to publish it.  But I've missed publishing this blog and look forward to getting back into the daily post.  The news has mostly been same old, same old.  One day they think the trade war is going to end and the market zooms up, the next day that it will not and the market plummets.  The tit-for-tat exchange of tariffs has been playing havoc on everything.  Trump threatens a tariff, then the Chinese actually have the nerve to call his bluff and counter-attack.  Then our prez counters their counter which is almost immediately followed by them countering his counter of their counter.  Does this ever end?  This is like a bunch of sixth graders playing swords in the boys locker room.

Then there's that pesky inversion curve between the 2-year and 10-year bonds.  Every time it inverts for a day, everyone screams RECESSION!  There is one myth that really does need to be exploded.  The inversion curve has not predicted most every recession we've ever had.  It's true that most every recession has been preceded by an inversion but there have been many times that the curve has inverted and there's been no recession.

Why people take this so seriously is beyond me.  There has been much writing about this in the past few weeks.  Yes, it makes sense that the inversion would pre-date a recession.  After all, it only means that, with the yield being higher on the 2-year than the 10-year, that investors have lost faith in future growth.  When they lose faith, they stop buying.  A decline in buying triggers a recession.  So it is probably much more accurate to say that, rather than the inversion creating a recession, that it rather sets up a self-fulfilling prophecy.

But this past week in particular some of the experts have finally spoken the truth about the inversion curve -- that when there is a recession, the inversion lasts for several months, not just several days.  As long as the economy keeps growing, even at a reduced rate, as long as the majority of S&P quarterly earnings continue to beat estimates, we are a long way from a recession.

It is for this reason that your bonus this Sunday night is a recent article from U.S. News Invested about this very topic of the inverted yield curve on the bonds.

So I welcome myself back and am very pleased, looking at my stats, that everyone has continued to check in on this blog to see when I'm coming back.  I've had 411 views since I announced my sabbatical last month so I'm very pleased that everyone's still finding this useful enough to keep checking in.

Hope everyone had a great weekend.  I've at least had a relaxing one for the first time since early June.

8-14-19 7 Tips for Investors When the Yield Curve Inverts | Stock Market News | US News


Succinct Summations of Week’s Events 8.23.19

August 23, 2019 5:00pm by Barry Ritholtz

Succinct Summations for the week ending August 23rd 2019

Positives:

1. FOMC meeting in Jackson Hole seems to be progressing well without POTUS complications
2. Index of leading economic indicators rose 0.5% in August, above the expected 0.2%
3. E-Commerce retail sales rose 4.2% q/o/q, higher than the previous increase of 3.6%.
4. Existing home sales came in at 5.420M for July, above the expected 5.385M.
5. Same store sales rose 4.9% w/o/w, higher than the previous increase of 4.4%.

Negatives:

1. More trade war mania sends Markets lower for a 4th consecutive week
2. Bond yields plummet on recession fears;
3. Home mortgage apps fell 4.0% w/o/w, lower than the previous increase of 2.0%.
4. Kansas City Fed Mfg Index fell 5 points m/o/m from -1 to -6.
5. PMI Composite FLASH shows 50.9 for August, below the expected 51.9.

7 Tips for Investors When the Yield Curve Inverts

Despite the market sell-off, there’s no need to panic.

By Wayne Duggan, Contributor Aug. 14, 2019, at 2:00 p.m.

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7 Tips for Investors When the Yield Curve Inverts

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 CREDIT

What a yield curve inversion means for investors.

Investors witnessed one of the most historically bearish leading economic indicators on Aug. 14 when bond yields on the 10-year U.S. Treasury note dropped below yields on the two-year Treasury note. The transition is known as a yield curve inversion given yields on longer-dated Treasury notes are typically higher than shorter-dated yields. Yield curve inversion between the two-year and 10-year notes has occurred prior to each of the last nine U.S. economic recessions, according to the San Francisco Fed. Here are seven tips for how investors should handle the ominous signal.

 CREDIT

Don't panic.

When it comes to long-term investing strategies, panicking is never a good idea. Yield curve inversions and recessions have happened plenty of times throughout history, and the stock market has ultimately recovered. Investors shouldn’t even be rushing to dump stocks. “The yield curve inverting is a worrisome sign, but don’t forget it isn’t the best timing signal, as a recession doesn’t start for an average of 21 months after the initial inversion,” says Ryan Detrick, senior market strategist for LPL Financial. In other words, the initial 600-point drop in the Dow Jones Industrial Average was a bit of a knee-jerk reaction.

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