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A very useful caveat from the insightful, and cautious, Howard Marks - > In that regard, the Financial Times noted on June 1 that “the [yield curve] has ‘inver
by elamje 7y ago
A very useful caveat from the insightful, and cautious, Howard Marks -
> In that regard, the Financial Times noted on June 1 that “the [yield curve] has ‘inverted’ before every US recession in 50 years.” (Note, however, that this is different from saying every inversion has been followed by a recession.)
https://www.oaktreecapital.com/docs/default-source/memos/this-time-its-different.pdf https://www.oaktreecapital.com/docs/default-source/memos/thi...
- kkotak 7y agoAkin to - "It always rains on my birthday. It's raining today - it must be my birthday."
- mlpinit 7y agoif p, then q is not equivalent with if q, then p. However this follows: if ~q, then ~p. It's not raining, it must not be my birthday.
- jjwhitaker 7y agoIt's more like: "It only rains on my birthday. It's raining today - it must be my birthday." At least I'm not aware of any inversions of the 10-2 bond yield curve in the last 50 years that was not followed by a recession, however minor.
- vkou 7y agoThere have been inversions in the X - Y bond yield curve in the last 50 years that were sometimes followed, and sometimes not followed by recessions. You didn't come to the number 10 - 2 independently. It was cherry-picked to fit the narrative.
- jjwhitaker 7y agoThe other ratios have inverted over the last 6 months, I think as early as the 5-1 ratio in January. The 10-2 is simply the more extreme indicator and the bigger signal that a recession will probably happen in the coming 12-24 months. I used 10-2 both as it is in the news this week and is the critical indicator that I studied in college. In January I was referencing the 5-1 as an early indicator that without correction would lead to the 10-2 inverting as well.
- pradn 7y agoIf this signal is watched more often now, it might be that it's predictive power is decreased. A metric you act on ceases to be a good metric.
- notJim 7y agoOn the other hand, is it possible it's a self-fulfilling prophecy?
- TearsInTheRain 7y agoDefinitely, if people collectively start acting more cautiously and spend less the economy will contract.
- malandrew 7y agoEconomic contraction isn't necessarily a bad thing so long as it is a cautious, thoughtful and controlled contraction that gets rid of the kind of spoilage that festers into a crash.