New York Times on current yield curve as powerful signal of recession

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
SelfEmployed123
Posts: 187
Joined: Sun Apr 15, 2018 8:57 pm

New York Times on current yield curve as powerful signal of recession

Post by SelfEmployed123 » Mon Jun 25, 2018 6:24 am

There's an interesting article in the NY Times today on the current yield curve. https://www.nytimes.com/2018/06/25/busi ... v=top-news

Included are some pretty compelling charts that seem to indicate the party is close to being over. I have to admit the market timer within me is starting to come out. Not to sell current stocks, but to hold of on putting more money into equities. For those who have been through many cycles before, do you always just go full steam ahead with buying regardless of potential indicators of recessions? Rationally I can see why over decades that is a good approach, but my emotions seem to be winning out this morning.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

AlohaJoe
Posts: 3928
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: New York Times on current yield curve as powerful signal of recession

Post by AlohaJoe » Mon Jun 25, 2018 6:40 am

I can't read the article because it is behind a paywall. So maybe it already says all this and I'm being dumb:

The data in yield inversion is limited. It has only worked since 1955 and only 9 recessions happened over that time period. Maybe it is a law of nature. Or maybe it was just 9 times unlucky.

The yield curve could invert 24 months before the recession. Or maybe even more! 24 months is the current record. Who is to say that's the max? Maybe 36 months in the max? Are you ready to stop investing for 2 years? The market could keep going up for those 2 years.

Recessions and stock market corrections aren't the same thing. The Recession of 1945 saw the stock market still return +36%. The Recession of 1949 saw the stock market return +18%. The Recession of 1958 saw the stock market return +42%.

Along with above, if you get out of the market, you need to know when to get back in. Wait too long and you will probably miss some, or all, of the recovery.

If emotions are winning out, you should stop reading the news. I'm serious. Do something else with your mornings. "Being informed" doesn't help you with anything that is actual meaningful in your life.

Jags4186
Posts: 2629
Joined: Wed Jun 18, 2014 7:12 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Jags4186 » Mon Jun 25, 2018 6:49 am

It could be the party is over, or we could be in year 9 of another 25 year bull run like 1975-1999, or something else. Indicators are easy to see and understand after what has been indicated has happened. Even in the period of 1975-1999 where the SP500 returned over 17% per year there were 3 down years.

VinhoVerde
Posts: 90
Joined: Fri Nov 21, 2014 8:39 am

Re: New York Times on current yield curve as powerful signal of recession

Post by VinhoVerde » Mon Jun 25, 2018 7:03 am

I've read of couple of good "it's different this time" reasons for the current yield curve:
(1)-There is enormous demand for long dated bonds from insurance firms and pension plans to match future liabilities now that there are increased yields compared to a couple of years ago.
(2)-Due to continued QE in Europe they are buying US treasuries because of the wide spread in European bonds versus US.
VinhoVerde

texas lawdog
Posts: 92
Joined: Tue Jun 07, 2016 5:33 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by texas lawdog » Mon Jun 25, 2018 7:23 am

For those that can't read articles like this behind a paywall, open in a private or incognito tab by right-clicking the link and selecting to open that way.
Most news outlets will allow a certain number of free articles, but can't monitor how many you have used when doing it privately.

Good luck,

SelfEmployed123
Posts: 187
Joined: Sun Apr 15, 2018 8:57 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by SelfEmployed123 » Mon Jun 25, 2018 9:02 am

AlohaJoe wrote:
Mon Jun 25, 2018 6:40 am
If emotions are winning out, you should stop reading the news. I'm serious. Do something else with your mornings. "Being informed" doesn't help you with anything that is actual meaningful in your life.
I think I was conflating recession with a market downturn. Thanks for setting the record straight. I can't presume to have much expertise about economics, so it is very interesting to hear more. I think your advice to not read the news so often is right on the money. The news will tend to magnify short term issues and ignore long term fundamentals. At some point ignorance of the day to day in the markets can prevent costly behavioral mistakes.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

J295
Posts: 1744
Joined: Sun Jan 01, 2012 11:40 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by J295 » Mon Jun 25, 2018 9:16 am

I'm not intending this to be surly, and if you and others enjoy dialogue on projecting economic trends then good for you. However, the author has no better crystal ball than others, and even if the projections are correct they won't change our asset allocations and plans. Material changes in our financial/life situations could change our asset allocations and plans, although such changes would have to be quite material. Best of luck.

User avatar
bengal22
Posts: 1466
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: New York Times on current yield curve as powerful signal of recession

Post by bengal22 » Mon Jun 25, 2018 9:20 am

When I see an article like this I always wonder if the publication has a vested interest in portraying the viewpoint expressed. Then I go hmmmmm.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

User avatar
DanMahowny
Posts: 533
Joined: Sun Aug 06, 2017 8:25 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by DanMahowny » Mon Jun 25, 2018 9:27 am

I agree that we are headed for a recession and a long bear market. However, my indicator is my gut, not the yield curve.

I started selling equities in late 2017, and early 2018. I'm glad to sit on the sidelines and watch the DOW decline to around 16,000.
Funding secured

User avatar
WestUniversity
Posts: 147
Joined: Sat Oct 07, 2017 7:27 am

Re: New York Times on current yield curve as powerful signal of recession

Post by WestUniversity » Mon Jun 25, 2018 9:31 am

bengal22 wrote:
Mon Jun 25, 2018 9:20 am
When I see an article like this I always wonder if the publication has a vested interest in portraying the viewpoint expressed. Then I go hmmmmm.
+1. The NYT does not have the best track record when it comes to accuracy in their reporting, in addition to the previous comments about the accuracy of stock market predictions in general...

livesoft
Posts: 62938
Joined: Thu Mar 01, 2007 8:00 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by livesoft » Mon Jun 25, 2018 9:39 am

Actually, the article is accurate as to the facts.

That doesn't mean the viewpoint is not an opinion.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Pajamas » Mon Jun 25, 2018 9:43 am

WestUniversity wrote:
Mon Jun 25, 2018 9:31 am
+1. The NYT does not have the best track record when it comes to accuracy in their reporting
What are the standards and data that you used to support that assertion? Which newspapers would you recommend that have a better track record when it comes to accuracy in their reporting?

livesoft
Posts: 62938
Joined: Thu Mar 01, 2007 8:00 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by livesoft » Mon Jun 25, 2018 9:52 am

For more on inverted yield curve, unemployment claims, manufacturing PMI, etc and how they can all be used by Predictors, please read this ERN blog article:

https://earlyretirementnow.com/2018/02/ ... economics/

Then form your own Viewpoint and become your own Predictor.
Wiki This signature message sponsored by sscritic: Learn to fish.

KlangFool
Posts: 10685
Joined: Sat Oct 11, 2008 12:35 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by KlangFool » Mon Jun 25, 2018 9:56 am

SelfEmployed123 wrote:
Mon Jun 25, 2018 6:24 am
There's an interesting article in the NY Times today on the current yield curve. https://www.nytimes.com/2018/06/25/busi ... v=top-news

Included are some pretty compelling charts that seem to indicate the party is close to being over. I have to admit the market timer within me is starting to come out. Not to sell current stocks, but to hold of on putting more money into equities. For those who have been through many cycles before, do you always just go full steam ahead with buying regardless of potential indicators of recessions? Rationally I can see why over decades that is a good approach, but my emotions seem to be winning out this morning.
SelfEmployed123,

1) Unless you are 100% stock, why should this matters? You just invest according to your Asset Allocation. If you are 100% stock, why are you doing this? It is a bad AA.

2) You can only succeed if you survive. Can you survive the next recession? That is the correct question that you should ask. I am prepared for a recession/down market/unemployment lasting 5 years. How about you? How long can you survive?

3) A recession is always possible at any time. Can you survive the next recession should be the key question?

KlangFool

stlutz
Posts: 4846
Joined: Fri Jan 02, 2009 1:08 am

Re: New York Times on current yield curve as powerful signal of recession

Post by stlutz » Mon Jun 25, 2018 9:57 am

Based on the tenor of the thread it is worth noting that the yield curve is not inverted. Obviously that can change but the curve has been flat many times without inverting.

typical.investor
Posts: 403
Joined: Mon Jun 11, 2018 3:17 am

Re: New York Times on current yield curve as powerful signal of recession

Post by typical.investor » Mon Jun 25, 2018 9:57 am

Pajamas wrote:
Mon Jun 25, 2018 9:43 am
WestUniversity wrote:
Mon Jun 25, 2018 9:31 am
+1. The NYT does not have the best track record when it comes to accuracy in their reporting
What are the standards and data that you used to support that assertion? Which newspapers would you recommend that have a better track record when it comes to accuracy in their reporting?
What facts are in dispute from this particular article?

Is this not true ..."according to research from the San Francisco Fed. Curve inversions have “correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession,” the bank’s researchers wrote in March."?

What part of the article is not true?

User avatar
iceport
Posts: 4008
Joined: Sat Apr 07, 2007 4:29 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by iceport » Mon Jun 25, 2018 10:03 am

SelfEmployed123 wrote:
Mon Jun 25, 2018 6:24 am
For those who have been through many cycles before, do you always just go full steam ahead with buying regardless of potential indicators of recessions? Rationally I can see why over decades that is a good approach, but my emotions seem to be winning out this morning.
Yes! Stay the course! As pointed out in the article and noted by others here, the timing and magnitude of a market pull-back remain unknown. So while it is valuable and useful to be reminded that a recession is coming, without knowing the timing or magnitude of any associated market crashes, there is nothing actionable for investing.

There were some interesting tidbits in the article, but the big picture take-away for me was the vague sense that we are closer to the end of the expansion than the beginning. Not very precise, right?
AlohaJoe wrote:
Mon Jun 25, 2018 6:40 am
I can't read the article because it is behind a paywall. So maybe it already says all this and I'm being dumb...
Great comments, AlohaJoe, so definitely not "being dumb!" In fact, the article was very responsibly written, and it made almost all of your points, plus a few other interesting ones.

[BTW, texas lawdog identified one way to get past the NYT paywall. I never bump up against the NYT paywall. First, I set my browser to clear the cache every time it closes, so clearing the cache would probably work. But I think more than that is involved, because I'll read way more than the allowed 4 articles in a sitting without restriction. So I bet it's because I block some cookies and all tracking.]
"Discipline matters more than allocation.” ─William Bernstein

User avatar
grayfox
Posts: 4939
Joined: Sat Sep 15, 2007 4:30 am

Re: New York Times on current yield curve as powerful signal of recession

Post by grayfox » Mon Jun 25, 2018 10:03 am

My theory is that they will want to take down the economy in time for 2020, i.e. a recession sometime by 2020. Why? "It's the economy stupid". This can be accomplished by raising interest rates.

Whether or not this will crash the stock market? Probably, but not necessarily.

User avatar
iceport
Posts: 4008
Joined: Sat Apr 07, 2007 4:29 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by iceport » Mon Jun 25, 2018 10:07 am

grayfox wrote:
Mon Jun 25, 2018 10:03 am
My theory is that they will want to take down the economy in time for 2020, i.e. a recession sometime by 2020. Reason should be obvious, but can not be stated on BH. This can be accomplished by raising interest rates.

Whether or not this will crash the stock market? Probably, but not necessarily.
Who is "they"?
"Discipline matters more than allocation.” ─William Bernstein

vested1
Posts: 1613
Joined: Wed Jan 04, 2012 4:20 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by vested1 » Mon Jun 25, 2018 10:10 am

grayfox wrote:
Mon Jun 25, 2018 10:03 am
My theory is that they will want to take down the economy in time for 2020, i.e. a recession sometime by 2020. Why? "It's the economy stupid". This can be accomplished by raising interest rates.

Whether or not this will crash the stock market? Probably, but not necessarily.
I thought conspiracy theories were not allowed on this forum, nor politics for that matter, but some can't seem to resist.

vested1
Posts: 1613
Joined: Wed Jan 04, 2012 4:20 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by vested1 » Mon Jun 25, 2018 10:11 am

Deleted
Last edited by vested1 on Mon Jun 25, 2018 11:33 am, edited 1 time in total.

SelfEmployed123
Posts: 187
Joined: Sun Apr 15, 2018 8:57 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by SelfEmployed123 » Mon Jun 25, 2018 10:14 am

KlangFool wrote:
Mon Jun 25, 2018 9:56 am
SelfEmployed123,

1) Unless you are 100% stock, why should this matters? You just invest according to your Asset Allocation. If you are 100% stock, why are you doing this? It is a bad AA.

2) You can only succeed if you survive. Can you survive the next recession? That is the correct question that you should ask. I am prepared for a recession/down market/unemployment lasting 5 years. How about you? How long can you survive?

3) A recession is always possible at any time. Can you survive the next recession should be the key question?

KlangFool
Hi Klangfool,

1. I am not 100% stock. I'm pretty low net worth at the moment due to just getting out of graduate school and establishing my career. I have a large amount of my net worth saved in a prime money market account (ER + house downpayment). Due to that all new money coming in that I am investing is going to equities. I am in my mid 30s, so I have a long way to go and will need to ride out many boom-bust cycles.

2. That's a great question. My spouse has a very stable job as a state employee. Worst comes to worst we could basically survive on her income alone. I am self-employed. I haven't had to ride out a recession yet. As a psychologist in private practice I'm not sure what the implications of a recession are on my business. Either people lose their jobs and therefore cutback on what they perceive as non-essential expenses or they get more stressed out and are more in need of my services. I am somewhat diversified in what I do clinically to guard against that. Also, the area where I practice is heavy with state and federal employees, so I may see less of an impact in the next recession than if I were practicing elsewhere. I suppose worst comes to worst my business would suffer, but I'm confident we could survive.

3. See above :D

Thank you for your thoughts.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

jebmke
Posts: 8465
Joined: Thu Apr 05, 2007 2:44 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by jebmke » Mon Jun 25, 2018 10:17 am

KlangFool wrote:
Mon Jun 25, 2018 9:56 am
3) A recession is always possible at any time. Can you survive the next recession should be the key question?
This is a key question and one should always be examining their human capital as well as their financial situation. One way to survive a recession is to keep your skills and experience tuned up and make yourself as least expendable as possible. Sometimes that might mean taking a lateral step just to get the experience and skills rather than money and title.
When you discover that you are riding a dead horse, the best strategy is to dismount.

onourway
Posts: 1379
Joined: Thu Dec 08, 2016 3:39 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by onourway » Mon Jun 25, 2018 10:23 am

SelfEmployed123 wrote:
Mon Jun 25, 2018 10:14 am
1. I am not 100% stock. I'm pretty low net worth at the moment due to just getting out of graduate school and establishing my career. I have a large amount of my net worth saved in a prime money market account (ER + house downpayment). Due to that all new money coming in that I am investing is going to equities. I am in my mid 30s, so I have a long way to go and will need to ride out many boom-bust cycles.
As a new investor you need to break any temptation to time your contributions right now. The most likely outcome to you following that path is that you cost yourself a tremendous amount of money over your career. Set a savings goal. Make your investments automatic and hands-off. Focus on the more important parts of your life than your investments.

Whether the economy goes up or down in the short term should have zero impact on your investment decisions. Just keep contributing month after month with no breaks, no major changes to your investments, and no pulling out of the market.

TravelGeek
Posts: 2460
Joined: Sat Oct 25, 2014 3:23 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by TravelGeek » Mon Jun 25, 2018 10:25 am

bengal22 wrote:
Mon Jun 25, 2018 9:20 am
When I see an article like this I always wonder if the publication has a vested interest in portraying the viewpoint expressed. Then I go hmmmmm.
Did you actually read the article? I did, and I don’t see it as one-sided or biased reporting at all. After all, the last section, six paragraphs, dives into why “there is an argument to be made against reading too much into the yield curve’s moves” and the story ends with this paragraph:
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.
OP - thanks for pointing out this story. I found it interesting and learned something this morning.
Last edited by TravelGeek on Mon Jun 25, 2018 10:27 am, edited 1 time in total.

User avatar
HomerJ
Posts: 11942
Joined: Fri Jun 06, 2008 12:50 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by HomerJ » Mon Jun 25, 2018 10:26 am

One should ALWAYS have an Asset Allocation assuming a stock crash could start tomorrow.

Because it could.

If you do that, you never have to worry anymore.

It's like always carrying an umbrella around. If someone runs up to you in panic, and says "The chance of rain is higher today than it was yesterday because of indicator x and indicator y and indicator z", you DON'T CARE. Because you already have an umbrella.
Last edited by HomerJ on Mon Jun 25, 2018 10:27 am, edited 1 time in total.
The J stands for Jay

KlangFool
Posts: 10685
Joined: Sat Oct 11, 2008 12:35 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by KlangFool » Mon Jun 25, 2018 10:26 am

SelfEmployed123 wrote:
Mon Jun 25, 2018 10:14 am
KlangFool wrote:
Mon Jun 25, 2018 9:56 am
SelfEmployed123,

1) Unless you are 100% stock, why should this matters? You just invest according to your Asset Allocation. If you are 100% stock, why are you doing this? It is a bad AA.

2) You can only succeed if you survive. Can you survive the next recession? That is the correct question that you should ask. I am prepared for a recession/down market/unemployment lasting 5 years. How about you? How long can you survive?

3) A recession is always possible at any time. Can you survive the next recession should be the key question?

KlangFool
Hi Klangfool,

1. I am not 100% stock. I'm pretty low net worth at the moment due to just getting out of graduate school and establishing my career. I have a large amount of my net worth saved in a prime money market account (ER + house downpayment). Due to that all new money coming in that I am investing is going to equities. I am in my mid 30s, so I have a long way to go and will need to ride out many boom-bust cycles.

2. That's a great question. My spouse has a very stable job as a state employee. Worst comes to worst we could basically survive on her income alone. I am self-employed. I haven't had to ride out a recession yet. As a psychologist in private practice I'm not sure what the implications of a recession are on my business. Either people lose their jobs and therefore cutback on what they perceive as non-essential expenses or they get more stressed out and are more in need of my services. I am somewhat diversified in what I do clinically to guard against that. Also, the area where I practice is heavy with state and federal employees, so I may see less of an impact in the next recession than if I were practicing elsewhere. I suppose worst comes to worst my business would suffer, but I'm confident we could survive.

3. See above :D

Thank you for your thoughts.
SelfEmployed123,

The question is

A) If you are unemployed and/or no business, how long can you survive?

B) If both you and your spouse are unemployed, how long can you survive?

If your answer to both (A) and (B) is at least 2 years, you are probably fine.

<<I have a large amount of my net worth saved in a prime money market account (ER + house downpayment).>>

I do not believe in saving for the house down payment. But, that is another topic for you to explore if you are interested.

KlangFool

SelfEmployed123
Posts: 187
Joined: Sun Apr 15, 2018 8:57 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by SelfEmployed123 » Mon Jun 25, 2018 10:33 am

onourway wrote:
Mon Jun 25, 2018 10:23 am
As a new investor you need to break any temptation to time your contributions right now. The most likely outcome to you following that path is that you cost yourself a tremendous amount of money over your career. Set a savings goal. Make your investments automatic and hands-off. Focus on the more important parts of your life than your investments.
iceport wrote:
Mon Jun 25, 2018 10:03 am
Yes! Stay the course! As pointed out in the article and noted by others here, the timing and magnitude of a market pull-back remain unknown. So while it is valuable and useful to be reminded that a recession is coming, without knowing the timing or magnitude of any associated market crashes, there is nothing actionable for investing.
Thanks to both of you. Sounds like great advice.
KlangFool wrote:
Mon Jun 25, 2018 10:26 am
I do not believe in saving for the house down payment. But, that is another topic for you to explore if you are interested.
I'm interested in exploring that. Please feel free to PM me links to any articles expressing that viewpoint.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

WhiteMaxima
Posts: 1499
Joined: Thu May 19, 2016 5:04 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by WhiteMaxima » Mon Jun 25, 2018 10:33 am

the market is already peaked in Jan. 10 year treasure is 3.0%. What are you going to do? stay out or stay in course. We know market will return 7% long term. Are are satisfy with 3% or 7%. Compounding power told us that even 1% more return over long term will be significant. It is very hard to time the market.

KlangFool
Posts: 10685
Joined: Sat Oct 11, 2008 12:35 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by KlangFool » Mon Jun 25, 2018 10:51 am

SelfEmployed123 wrote:
Mon Jun 25, 2018 10:33 am
onourway wrote:
Mon Jun 25, 2018 10:23 am
As a new investor you need to break any temptation to time your contributions right now. The most likely outcome to you following that path is that you cost yourself a tremendous amount of money over your career. Set a savings goal. Make your investments automatic and hands-off. Focus on the more important parts of your life than your investments.
iceport wrote:
Mon Jun 25, 2018 10:03 am
Yes! Stay the course! As pointed out in the article and noted by others here, the timing and magnitude of a market pull-back remain unknown. So while it is valuable and useful to be reminded that a recession is coming, without knowing the timing or magnitude of any associated market crashes, there is nothing actionable for investing.
Thanks to both of you. Sounds like great advice.
KlangFool wrote:
Mon Jun 25, 2018 10:26 am
I do not believe in saving for the house down payment. But, that is another topic for you to explore if you are interested.
I'm interested in exploring that. Please feel free to PM me links to any articles expressing that viewpoint.
SelfEmployed123,

Start a new topic with your specific details and we can discuss whether it makes sense for you to save for the house down payment. For example, if you do not max up your tax-advantaged accounts, why do you pay taxes and save for the house down payment?

KlangFool

livesoft
Posts: 62938
Joined: Thu Mar 01, 2007 8:00 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by livesoft » Mon Jun 25, 2018 11:14 am

WhiteMaxima wrote:
Mon Jun 25, 2018 10:33 am
the market is already peaked in Jan.
Yes, but small-cap value funds are higher in June than their January peaks and higher than the January market peak in terms of total return. :twisted:
Wiki This signature message sponsored by sscritic: Learn to fish.

AlwaysWannaLearn
Posts: 230
Joined: Mon May 28, 2018 8:37 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by AlwaysWannaLearn » Mon Jun 25, 2018 11:28 am

HomerJ wrote:
Mon Jun 25, 2018 10:26 am
One should ALWAYS have an Asset Allocation assuming a stock crash could start tomorrow.

Because it could.

If you do that, you never have to worry anymore.

It's like always carrying an umbrella around. If someone runs up to you in panic, and says "The chance of rain is higher today than it was yesterday because of indicator x and indicator y and indicator z", you DON'T CARE. Because you already have an umbrella.
+1. Well said, HomerJ.
Suitable for framing, actually. Or at least for cutting-and-pasting, in response to every new thread yipping about the (allegedly imminent) next recession or bear market.... Zzzzz....

Engineer250
Posts: 1067
Joined: Wed Jun 22, 2016 1:41 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Engineer250 » Mon Jun 25, 2018 11:29 am

Actually it's going to be 2020. So all you with money on the sidelines enjoying the flat market have two more years to wait.

(I have no proof to back up this prediction. I've felt it was going to be 2020 for several years now despite any results of the 2016 election. Crystal ball comes with disclaimer that results are not guaranteed. I'm not doing anything about this prediction, I continue to invest and will do so whether my prediction comes true or not).
Where the tides of fortune take us, no man can know.

neilpilot
Posts: 1920
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: New York Times on current yield curve as powerful signal of recession

Post by neilpilot » Mon Jun 25, 2018 11:35 am

WhiteMaxima wrote:
Mon Jun 25, 2018 10:33 am
the market is already peaked in Jan. 10 year treasure is 3.0%. What are you going to do? stay out or stay in course. We know market will return 7% long term. Are are satisfy with 3% or 7%. Compounding power told us that even 1% more return over long term will be significant. It is very hard to time the market.
Some of the posts where seem to look at the options as two extremes, "stay in course" or "stay out".

In 2015 my equity:bond&cash ratio was 70:30. In January 2018 I reduced it to 55:45. This was based on my desire to reduce risk and the projection that I was comfortably FI and would be fine without the inflation protection of long term equity growth.

I'm now considering a further reduction to 45:55 or even 40:60, for the same reasons. I also admit that there's a bit of market timing involved. I don't look at my changes as "stay in course" or "stay out", but as "course adjustment". Maybe it's just semantics.

I have no problem if the recession comes this year, 2019, 2020 or never. I do sleep well. But I keep my umbrella in the trunk of my car.

carolinaman
Posts: 3329
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: New York Times on current yield curve as powerful signal of recession

Post by carolinaman » Mon Jun 25, 2018 11:37 am

Pajamas wrote:
Mon Jun 25, 2018 9:43 am
WestUniversity wrote:
Mon Jun 25, 2018 9:31 am
+1. The NYT does not have the best track record when it comes to accuracy in their reporting
What are the standards and data that you used to support that assertion? Which newspapers would you recommend that have a better track record when it comes to accuracy in their reporting?
The WSJ

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Pajamas » Mon Jun 25, 2018 11:50 am

carolinaman wrote:
Mon Jun 25, 2018 11:37 am
The WSJ
Based on what standards and data?

02nz
Posts: 579
Joined: Wed Feb 21, 2018 3:17 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by 02nz » Mon Jun 25, 2018 11:57 am

WestUniversity wrote:
Mon Jun 25, 2018 9:31 am
bengal22 wrote:
Mon Jun 25, 2018 9:20 am
When I see an article like this I always wonder if the publication has a vested interest in portraying the viewpoint expressed. Then I go hmmmmm.
+1. The NYT does not have the best track record when it comes to accuracy in their reporting, in addition to the previous comments about the accuracy of stock market predictions in general...
I'd beg to differ re: the NYT's accuracy, but leaving that aside - this article is not at all about stock market predictions. Rather, it's about the correlation between a specific interest rate indicator and the overall direction of the economy. It contains factual statements about the correlation in the past that are pretty much irrefutable. That doesn't necessarily mean it will hold for the future, as the article also makes quite clear.

Fallible
Posts: 6566
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: New York Times on current yield curve as powerful signal of recession

Post by Fallible » Mon Jun 25, 2018 1:28 pm

SelfEmployed123 wrote:
Mon Jun 25, 2018 6:24 am
There's an interesting article in the NY Times today on the current yield curve. https://www.nytimes.com/2018/06/25/busi ... v=top-news

Included are some pretty compelling charts that seem to indicate the party is close to being over. I have to admit the market timer within me is starting to come out. Not to sell current stocks, but to hold of on putting more money into equities. For those who have been through many cycles before, do you always just go full steam ahead with buying regardless of potential indicators of recessions? Rationally I can see why over decades that is a good approach, but my emotions seem to be winning out this morning.
I like being as well informed as possible, in this case knowing what's on Wall Street's mind and what it might mean for Main Street based on solid sources such as those used in the NYT article. After that, it's up to me, as it is to any reader, to decide what to do with the new information based on my own goals, time horizon, financial capacity, and emotional risk tolerance (also referred to as need, ability, and willingness to take risk).

It's not the "market timer within" you coming out; it's your personal tolerance for risk. In setting your asset allocation, did you ask how much you can afford to lose in a market downturn before needing the money?

Meanwhile, you may find this blog on recessions from Ben Carlson helpful:
http://awealthofcommonsense.com/2015/03 ... ecessions/
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Pajamas » Mon Jun 25, 2018 2:07 pm

SrGrumpy wrote:
Mon Jun 25, 2018 10:24 am

+2. And @Pajamas, I'd pick a paper that didn't proclaim on P1 every day that (SOMETHING) had an 80-90+ percent chance of (HAPPENING).
You might not like a newspaper's editorial slant or the topics that it chooses to cover and even how it covers them, but that is different from accuracy.

A Boglehead (or any investor, for that matter) should have a least a basic understanding of what odds and risk and possible outcomes mean in practice.

For instance, a model may predict that a retirement plan has a 99% chance of success and a 1% chance of failure. Failure is an expected outcome and does not necessarily imply inaccuracy.

As another example, taking higher risk for expected higher return with investments, such as using a 100% equity portfolio, does not guarantee a higher return. It means there is a possibility of greater return or loss that may or may not materialize.

StrangePenguin
Posts: 52
Joined: Tue Mar 27, 2018 11:35 am

Re: New York Times on current yield curve as powerful signal of recession

Post by StrangePenguin » Mon Jun 25, 2018 2:22 pm

Since there seems to be a perhaps politically-driven undercurrent in this thread about the reliability of the NY Times versus other news sources such as the WSJ, let me point out that this is about the 20th article I've read in the last 4 or so months about the flattening of the yield curve. There have been many articles in publications like Yahoo News, CNBC, etc. (Largely they have all rehashed the same basic facts.) This was one of the more thorough ones I've read, probably because they took their time. I do not have a subscription to the WSJ but a quick google search reveals articles from the last few months in WSJ entitled, "Flattening Yield Curve Raises Warning Flag" (WSJ, Apr 18 2018), "A Deeper Look at the Flattening Yield Curve" (WSJ, March 18, 2018), "Trade Tensions Pinch U.S. Yield Curve" (June 2018), and "Flattening Yield Curve Isn't Just the Fed's Problem" (Apr 22 2018).

finite_difference
Posts: 1086
Joined: Thu Jul 09, 2015 7:00 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by finite_difference » Mon Jun 25, 2018 2:42 pm

SrGrumpy wrote:
Mon Jun 25, 2018 10:24 am
Pajamas wrote:
Mon Jun 25, 2018 9:43 am
WestUniversity wrote:
Mon Jun 25, 2018 9:31 am
+1. The NYT does not have the best track record when it comes to accuracy in their reporting
What are the standards and data that you used to support that assertion? Which newspapers would you recommend that have a better track record when it comes to accuracy in their reporting?
+2. And @Pajamas, I'd pick a paper that didn't proclaim on P1 every day that HRC had an 80-90+ percent chance of winning.
The NYT is one of the finest papers in the US. Does it generally have a liberal viewpoint? Yes. Does it have some biases (e.g. strongly favorable of its flavor of US worldview vs other countries)? Yes. But that doesn’t mean it doesn’t have quality journalists, integrity and a commendable history of supporting free press (1st amendment). The NYT and most other papers were wrong because polling completely failed. And now the pollsters are all eating crow. The data was wrong. Not unlike how stock market predictions work wonderfully until they don’t ;)

I would argue NYT is 99.9% more accurate than most news on the internet. I had to fight to not put news in quotes, because most stuff on the Internet is garbage. In the beginning, people probably thought if it was on TV it had to be true. But unless you’re a noob it’s not actually very hard to separate fact from fiction on the Internet. (Use multiple search engines, use multiple sources, and realize that you can generally put more weight on peer-reviewed journal articles in quality journals, books by qualified academics, and yes reporting by major publications since journalism is actually a profession with professionals, at least in places where there is freedom of the press.)
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by Pajamas » Mon Jun 25, 2018 2:47 pm

finite_difference wrote:
Mon Jun 25, 2018 2:42 pm

The NYT is one of the finest papers in the US. Does it generally have a liberal viewpoint? Yes. Does it have some biases (e.g. strongly favorable of its flavor of US worldview vs other countries)? Yes. But that doesn’t mean it doesn’t have quality journalists, integrity and a commendable history of supporting free press (1st amendment). The NYT and most other papers were wrong because polling completely failed. And now the pollsters are all eating crow. The data was wrong. Not unlike how stock market predictions work wonderfully until they don’t ;)

I would argue NYT is 99.9% more accurate than most news on the internet. I had to fight to not put news in quotes, because most stuff on the Internet is garbage. In the beginning, people probably thought if it was on TV it had to be true. But unless you’re a noob it’s not actually very hard to separate fact from fiction on the Internet. (Use multiple search engines, use multiple sources, and realize that you can generally put more weight on peer-reviewed journal articles in quality journals, books by qualified academics, and yes reporting by major publications since journalism is actually a profession with professionals, at least in places where there is freedom of the press.)
The NYT has also won a great deal of awards, such as as various Pulitzers for journalism. That's not a direct measure of accuracy but it certainly reflects its journalistic reputation. The same is true for the Washington Post.

http://www.pulitzer.org/prize-winners-categories

User avatar
g$$
Posts: 447
Joined: Wed Dec 21, 2011 12:17 am
Location: San Francisco

Re: New York Times on current yield curve as powerful signal of recession

Post by g$$ » Mon Jun 25, 2018 3:19 pm

The current yield curve is not inverted.

Maybe I'm missing something?

jminv
Posts: 645
Joined: Tue Jan 02, 2018 10:58 pm

Re: New York Times on current yield curve as powerful signal of recession

Post by jminv » Mon Jun 25, 2018 3:37 pm

The yield curve is not yet inverted and if you look at historical data you can have long periods of time at current spread levels before a recession ever hit. Or you could have a recession much sooner and the trend could just be a fluke that humans have made into a pattern since we like to seek them out.

Reporters normally uses the 10 year, 2 year spread but the Fed uses the 10 year, 3 month spread which is currently 0.97% which is not close to inverted at all. You can look at New York feds sight for yield spread data back to the 50s along with probability of recession occurring, according to their model.

Problem with being ‘uncomfortable’ with current market and selling is you can sit out large gains. Of course you could also sit out large losses which you’ll then attribute to your superior forecasting skills when it’s more likely to be luck. This can lead people to move in and out of markets frequently to the detriment of their long run wealth. Even when the yield curve has inverted there’s often growth in the stock market for even several years. Then there’s the whole problem with picking when to re-enter the market. Too soon and you could lose money, too late and you could miss the gains. Best for most, not necessarily all, people to be buy and hold investors according to their own asset allocation preferences.

User avatar
LadyGeek
Site Admin
Posts: 49216
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: New York Times on current yield curve as powerful signal of recession

Post by LadyGeek » Mon Jun 25, 2018 3:37 pm

This thread has run its course and is locked (not actionable, conjecture, straying into political opinions). See: Non-actionable (Trolling) Topics
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked