logo1
Follow me on Twitter  View our profile on LinkedIn  View our videos on YouTube  Like us on Facebook
November 10, 2017
Here are the 3 scary words that Wall Street is fixating on and why you should too

 
They are - INVERTED YIELD CURVE - and we haven't had such a condition since 2006, shortly before the Great Recession started in 2007. In fact, an inverted yield curve correctly predicted the last 7 recessions going back to the 1960's! It isn't a perfect forecaster; it had a false positive: an inversion in 1966. So, overall, it's is a pretty darn good indicator of a recession in about a year's time.
 
What is an inverted yield curve? When short term rates, typically measured by 2 year Treasury bonds and shorter expirations to maturity, actually rise above long term Treasury yields, as measured by the 10 year Treasury note.
 
There are a litany of things that could affect interest rates. But suffice it to say that right now, the yield on the 10 year Treasury note is only a little over 80 basis points (.8%) above the 2 year Treasury bond. That difference is called "the spread" between the 2 and 10 year. It's a narrow spread, to be sure.  
 
Currently, the yield on the 10 year note is slightly lower YTD. The 2 year yield is higher YTD. Generally, it is accepted that long term yields should be rising if the economy is improving, driving inflation higher. Unless investors think the economy is near the end of its current growth phase, that is. Regardless, if the 2 year and 10 year yields were the same, we'd have a flat yield curve. Those two interest rates being equal is rare and generally when they're close, the yield curve is called a "flat yield curve". Like I wrote above, the yield spread is narrow, but for now, the yield curve is very modestly upward sloping, indicating modest economic growth near term. 
 
Yield curve analysis, taken from the Federal Reserve Bank of Cleveland, is currently forecasting a low probability of a recession going out 1 year, as per the chart below:
 
 
 
The flatter the yield curve gets - the narrower the spread between the 2's and 10's - the lower the forecast is for GDP growth. When the spread is negative, the chance of an outright recession rises.
 
With all of the global central bank interference over the last 8 years, is yield curve analysis less useful? No one knows for sure, which is why it bears watching. But we do know that if banks are borrowing short term and lending at rates below those short term rates (because banks lend at long term rates), they'll lose money. Banks would hold back on lending, which would choke off the economy - just like the last 7 recessions. In other words, the "4" scariest words on Wall Street are "it's different this time". It's not. The bank lending math you just read never changes.
 
Here's another chart, Yield Curve Spread and Real GDP Growth, form the Cleveland FED. The shaded bars indicate recessions. When the yield curve goes down, the shaded bars come next. Yup, scary words indeed.
 
   
 

Thanks for reading,
Mitch
 
 
I opened ClientFirst Strategy, Inc. because I believe that the only way to help my clients potentially achieve their goals is by offering unbiased advice & investment management expertise. To my clients, thank you for your continued vote of confidence. If you are not a client but would like to explore the possibility of becoming one, I invite you to call me directly, visit my website, join my email list, and/or connect with me on social media.
  
 
          
 To view articles and original content, click HERE.

Your thoughts are valuable! Email me to let me know what you think of this. I'll reply!
MGoldberg@ClientFirstStrategy.com

   
All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. 
  
  

Mitchell O. Goldberg, AAMS, President | Investment Professional

OSJ Manager 

 

ClientFirst Strategy, Inc.

290 Broadhollow Road, Suite 200 E, Melville, NY 11747  

(D) 631-920-6622 (F) 631-920-6624 (C) 516-818-0338

mgoldberg@clientfirststrategy.com | www.clientfirststrategy.com

      

MissionStatement:

To financially empower our clients so that they can achieve their most

important goals and to confidently plan for the future that they envision.

  

- Asset Management:
~Asset Allocation Strategies 
~Unbiased advice 
~Strict mutual fund screening 
~Alternative investments 
~Retirement plans 
~401(k) rollovers 
~College savings plans 
~Donor Advised Fund/ Charitable Giving 
Insurance: 
~Life
~Long Term Care
~Disability Income
~Health
~Annuities, fixed & variable
~Life settlements

-Group Benefits:
~401(k) plans
~Group health plans




-
Individual Client Services: 
~401(k) plan review and advice
~Financial plans
~Specific goal planning

 

*Some services provided by close affiliations. Additional fees may apply.

Some fees may be lower or may be waived for clients.

 

 

Securities & Investment Advisory Services Offered through NEXT Financial Group, Inc., member FINRA/SIPC.

ClientFirst Strategy, Inc. is not an affiliate of NEXT Financial Group, Inc.