4 ms·

Hence the good old phrase: "The Stock Market Has Predicted Nine Of The Past Five Recessions"

by mrep 8y ago

dragontamer 8y ago
Yeah, but that doesn't apply to the yield inversion indicator. The yield inversion doesn't have a false positive over the past 40 years. The 5 times the 10-year yield inverted, were followed by 5 recessions: 1980, 1984, 1991, 2001, and 2008. That's 5 for 5.
- mrep 8y ago
  When your sample size is 5, claiming your algorithm has a 100% success rate and no false positives isn't saying much at all.
  - dragontamer 8y ago
    MY sample size is 40 years. And there are other studies that go back 100+ years with similar conclusions. https://faculty.fuqua.duke.edu/~charvey/Research/Thesis/Thesis.htm https://faculty.fuqua.duke.edu/~charvey/Research/Thesis/Thes... So it isn't a perfect indicator over 100+ years, but its still a damned good one. Furthermore, there are solid fundamental economic principles and calculations which back up the thesis. Yield Curve seems to predict GDP (or more specifically: the market participants predict a recession, which causes the market participants to buy/sell bonds in a specific way to make an inverted yield curve). This isn't some hokey theory positioned by bear websites like zerohedge. This yield-curve inversion is a fundamental attribute taught in major schools of modern economics. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.519.6890&rep=rep1&type=pdf http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.519... > The historical record does not show this connection to be only a post-WWII phenomenon. The yield curve inverted between June 1920 and March 1921 and again between January 1928 and November 1929.7 Data from the 19th century are incomplete and do not easily lend themselves to analysis.8 Nevertheless, support for the thesis of the yield curve as a predictor of business cycles can be traced as far back as the mid-1800s.9 We're looking at a pattern that has been relatively reliable since the mid-1800s. Inverted yield curves STRONGLY (but not perfectly) predicts recessions over a period of ~150 years, and perfectly predicted recessions of the last 40 years. This is one of the best indicators of all of economic theory.

Hence the good old phrase: "The Stock Market Has Predicted Nine Of The Past Five Recessions"

by mrep 8y ago

Hence the good old phrase: "The Stock Market Has Predicted Nine Of The Past Five Recessions"

Yeah, but that doesn't apply to the yield inversion indicator. The yield inversion doesn't have a false positive over the past 40 years. The 5 times the 10-year yield inverted, were followed by 5 recessions: 1980, 1984, 1991, 2001, and 2008. That's 5 for 5.

mrep 8y ago
When your sample size is 5, claiming your algorithm has a 100% success rate and no false positives isn't saying much at all.
- dragontamer 8y ago
  MY sample size is 40 years. And there are other studies that go back 100+ years with similar conclusions. https://faculty.fuqua.duke.edu/~charvey/Research/Thesis/Thesis.htm https://faculty.fuqua.duke.edu/~charvey/Research/Thesis/Thes... So it isn't a perfect indicator over 100+ years, but its still a damned good one. Furthermore, there are solid fundamental economic principles and calculations which back up the thesis. Yield Curve seems to predict GDP (or more specifically: the market participants predict a recession, which causes the market participants to buy/sell bonds in a specific way to make an inverted yield curve). This isn't some hokey theory positioned by bear websites like zerohedge. This yield-curve inversion is a fundamental attribute taught in major schools of modern economics. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.519.6890&rep=rep1&type=pdf http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.519... > The historical record does not show this connection to be only a post-WWII phenomenon. The yield curve inverted between June 1920 and March 1921 and again between January 1928 and November 1929.7 Data from the 19th century are incomplete and do not easily lend themselves to analysis.8 Nevertheless, support for the thesis of the yield curve as a predictor of business cycles can be traced as far back as the mid-1800s.9 We're looking at a pattern that has been relatively reliable since the mid-1800s. Inverted yield curves STRONGLY (but not perfectly) predicts recessions over a period of ~150 years, and perfectly predicted recessions of the last 40 years. This is one of the best indicators of all of economic theory.