The Damage is Becoming Irreparable…
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- čas přidán 8. 04. 2024
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They say the economy is strong, but not a single person i know feels that way. They all say the same thing "prices are way too high" from grocories to housing, and its only been getting worse. It may be great for investors and fortune 500s, but for the rest of us in the normal world this economy sucks. Our government lives in fantasy land and believe printing money has zero consequence.
The problem is that we've never printed 8 trillion dollars before. I think that might be why a lot of these classic indicators aren't as accurate as they used to be
The unemployment is not low, the people who aren't working just are not being counted. They don't label you as unemployed if you are not actively searching for a job within a 4 week period. So if you stop searching for a month, you are no longer "unemployed" apparently and don't count towards the rate.
For the last two years, I have never seen markets where everything is the opposite. It's the george costanza of markets. Interest rates hikes that have never been seen before. Equates to a bull market and a runaway Housing market???? Gold goes up as the dollar goes up.??? Even more disturbing is the Length of time that these continue to happen.
I honestly don’t believe the economy is doing that well. Corporate price gouging is unchecked and while corporate profits may be extremely high the middle class is vanishing. People can’t afford to buy a home or even afford rent in many places. Costs of food and consumer goods, gas are so overpriced and in many cases low quality. Since the US is an oligarchy there is just a huge imbalance of wealth. that doesn’t make for a strong economy when only a small percentage of people hold the majority of wealth
Neat story, but it wasn't oil price that triggered recession in 2008, it was housing loans. It's not inverted yield curve that erodes financial conditions, it's differing expectations that inverts the curve and expectations drive the markets. Interesting data points however and everyone should expect some downwards movement after such long rally up.
By the end of the decade I bet we have a new definition of a Great Depression
Remember 9000 US bank's went bankrupt during the Great Depression. Depositors lost over 7 billion in their savings accounts with no recourse. That fact seems to get overlooked when discussing the Great Depression.
I can safely say... Something will happen, at some point.
There is so much manipulation and distortion in the markets from Fed intervention over the last 15 years that historical indicators and patterns are mostly impotent. We've been in an asset bubble for at least 7 years now and still kicking that can down the road. It's brand new territory. It's really different this time!
Could you imagine how resilient our economy would be if we didn't have speculative investors? Overnight recessions would be a myth of the past. Our well-being could be determined by our actual resource production and labor, and not by how much investors want to make a quick buck off of owning us.
So where are you going to run? Cash? (Or other fiat-denominated securities?) In 1929 people sold their stocks for dollars that were backed by gold. What backs your dollars these days?
If you print enough money everything will go up.
If the economic indicators you pay attention to are based on a fiat currency everything looks great.
Then you look at the real rate of inflation (not the one provided by the government) and you see a very different picture.
If we live in a system that must constantly borrow more, we are doomed.
I believe from the bottom of my heart that a severe recession or even a depression is on the horizon given all the leading economic indicators such as the yield curve inversion and the M2 money supply shrinking dramatically. I think wars will play a big role in the next economic downturn.
"The economy is doing that well", seriously?! The stock market WAS doing OK, but the economy was basically an anxiety riddled mess. Corporate profit taking, large scale layoffs, and short terms gains prioritized over long term.
It's very simple. The inversion doesn't cause the recession, the recession end the yield curve. When do central banks cut interest rates? When the economy is beginning to contract. That's why this indicator has a perfect track record. JPOW isn't going to start cutting rates until he sees softness in the economy. That's the signal that the party's over, not the inversion itself.
okay! so.. what is a yield curve.
Excellent video. People who think "nothing will break" must absolutely watch this. Something always broke. Something will once again break.
5:40 Seems like the downturns usually come after the yield curve has corrected itself at least back above zero -- if not after climbing a little back up into the positive even.
The unemployment rate is deceptive. The difference is in the types of jobs people have. Temp and part time, mostly service oriented, with lower pay rates. Skilled trades and professional level jobs are on the decline. And many college grads have useless degrees.
The problem with this, as you mentioned in the end of the video, is that we can end up closing positions that are about to rally and miss out. I use to follow a guy called Ron Walker who was constantly saying a crash was coming. That made me sell positions in Feb last year includind nvda, meta, crm and tsla just to see them sky rocket in the following months. What I am trying to say is that being exposed to growth stock during a crash is bad but selling before a rally is as bad and damaging. That guy I mentioned cost me thousands of dollars because of the fear he caused on me. Just be aware of that.
The issue you left out is the growing M2 money supply. Data before 1971 should not be used as we were on the gold standard and could not print ourselves into a boom. Today, they are more than willing to print the next boom even at higher rates.
You forgot to say usually recession comes 1-2 years after inversion. Until then markets will go up.
It is dangerous to try and time it. If it is expensive just park in cash and do nothing. Doing nothing is the hardest investment advice but it is why Warren Buffett is so rich. Not him trying to get a few weeks of gains.
Yeah, but THIS TIME is different. ;)
I have experienced most of the recessions that you have referred to (except the one in 1929) and although the phrase, 'this time is different' is much maligned, these days things may be different. For example the largest companies in the S&P are technology companies with lots of cash, and little debt so interest rates are less of a concern compared to heavily indebted industrial companies. Some are suggesting that the neutral fed rate may be higher than once thought and perhaps oil is less critical to our economy than it once was. Unfortunately most recessions are caused by the fed leaving interest rates too high for too long.
Our market, our economy, and our social system is a joke. I feel as if everything besides tech advancements is a lie
I have a theory that the reason why oil prices are final boot drop before a crash is because it acts like a siphon. When oil prices rise is sucks up liquidity which forces a crash in our debt based system.
How was the Bitcoin in 1929?
Kk but what is yield curve.
Gas prices in CA have been steadily rising… now about $5
Imagine the coming QE.....lol
There are other interesting indicators, such as looking at the price of stocks, ie PE ratios, PEG ratios and gold vs S&P, etc. Typically the stock market gets more and more expensive over time until suddenly the music stops. It isn't a hard limit on these indicators, but it usually is good to compare historical data.
Plus, if looking for a strategy, I'd suggest cash diversification. A simple one is don't put all your cash in stocks. Leave some in stocks to grow as the market keeps melting up, but in the meantime keep lots of powder dry. Keep increasing your cash (and now getting ~5% on it) the higher things go. When the whole thing craters, start selling some cash to buy shares, if it craters again, sell more cash. Buy other assets as well, and adjust as desired.
That's a mammoth inversion.
I think it's going to be all over red rover when these AI stocks eventually pop, when people realise they're nothing but pies in the sky.
Could someone explain to me why this yield curve talk is disregarding inflation expectation?
Second, if the treasury wouldnt lean on the front of the curve so much, it would surely look different. Right?
If real rates are less or not inverted, does that change anything?
If we just print money then why do we have to pay taxes
I just wish i knew what a yield curve is... i feel like that would help me understand this video!
Great analysis. Keep up the good work!
Reading some comments of Panic selling before this crash comes.
Long story short: Dont panic sell.
Long story: Keep your Positions, maybe they will rais another 60% that means you can tank a -40% beore starting to lose money, that you recover fast by buying low (Time in the market always beats timing it). My advice should you be afraid of a crash: Keep all you positions and relocate new funds, maybe funds from your monthly investmentpayment into other assets, like Gold (-mines) or Bitcoin and Diversify.. so should a crash come, maybe this positions retain their value and the money of the last couple of months, do not need 15 years to return to buy-in-hifh
Love this data and all of your presentations. Keep up the good work.
My hypothesis is between Sept & Dec this year we will know if the crash will happen or not. That's about where the 12 month lag period is from the interest rate changes.
I smell opportunity.
Does anyone know where we can track the inversion day count?
Seems to me that "economy doing good, stock market doing well, and low unemployment" are not in any way giving an accurate picture of the situation. I'm not exactly well educated in economics but these terms have been in use for a while and it doesn't seem like these conditions are beneficial in any manner to the common person, i.e. lower 70% of earners.
Very usefull. Thanks! In 1929 everybody was investing with borrowed money and even before that, in the roaring twenties they had inflation, which for a moment looks as if the economy is booming, but it is not in real terms.
Bond market is manipulated, longer duration bond yields are artificially low making yield curve inverted. Now without us government manipulating bond market the yield curve might have been uninverted since begining of 2023. So hard to say really..
The duration of the inversion might have something to do with the amount of money printing that took place leading up to the inversion. The Fed has been deflating for 24 straight months. It does this by allowing government securities it holds to mature without replacing them. The government pays them and the Fed just poofs the money out of existence.
The assets the Fed is holding is mostly short term government securities. When the Fed allows one to mature and doesn't replace it, the government must try to sell one like it to someone else. This drives down the price of shorter term government securities. Thus inverts the yield curve.
Why then is the Fed doing this? Because they printed 80% of all the money in existence in 2020 and 2021. Now they are unprinting it. They can print about as fast as they want to but unprinting is this monthly process I described above. The more they print, the longer it takes to unprint until there is a recession. Because we had record printing, we might have a record number of days of inverted yield curve. So far, they have unprinted 17% of everything they had ever printed in its 111 year history.
Hey, nice vid as always! I always wonder what do you use to make the on-screen animations and where do you get the data for them?
Wow, excellent work
What program do you use for your exceptional graphics. Envious! Jerry
Which are the dates used for the inversion of the 10 year - 3 month yields that took place before the financial crisis?
Brilliant. The question is, at which point of the "recovering" YC is the market finally a Buy? A better chart would be: Call start of YC
The market up 98% in 2 years since the yield curve inverted in 1929. How much has the stock market risen currently since the yield curve inverrted?
Can you tell what needs to happen to come out of inversion?
Nothing bad happening?
Have you seen the prices of even the most mundane items in stores?
Very informative and intuitively presented videos, thank you GoTs.
Reading and hearing more these days about the "unsustainable debt bubble" combined with more countries trading without the US dollar, reducing need and DEMAND for US dollar and our debt unsustainable reducing appetite for the US bond sales the fund our annual govt deficits. I believe in a proactive govt and the many benefits we enjoy here from regulation, in spite of it's red tape and burdens, but we j have to reform our tax and spend plans to face this issue, bring a swift end to annual deficits, and start paying down that debt rather than "inflation it away" and devaluing the dollar further.
Would love a GoT video on that topic.
But..... in 1929, was there housing and govt debt bubbles? Everyone struggling with high inflation? No, all other crashes were just the market, this time its EVERYTHING!!!! Whatever this crash is, it has to be at least 50% and maybe 70-90% with housing 30-50% Min and in fact in US, some places are already down that much.
Maybe area under the curve (depth and duration) vs duration?
The time for our big shorts will come boys, just stay patient and keep some money on hand.
The monetary policy responses of the Fed reserve over the last two decades of open market operations, sustained decade long quantitative easing, discount rate adjustments of ST yields, and reducing the reserve requirements of banks had put is in an unprecedented place where inflation was 2% for a decade and savings interest was 2.5% for a decade (2010 till the pandemic). The market still has priced in that about 7 years from now the interest rates will be closer to that. Given the bond market is the largest asset market in the United States (besides foreign currency), there’s definitely room for violent swings of value if it seems these longer term bonds should begin to reflect similarly higher interest rates than have been normal since 2007 when at scale open market operations have begun. If there is a recession, I think it will more so be a paper recession of the value of stocks and bonds falling. The consumer recession already hit in 2023 with the insane degrees of inflation and price gouging. We live in an incomparable world now…
I love how a good chunk of my early teens was lived in the shadow of a massive recession destroying the economy and leading to my family having almost no money. Now I'm an adult, finally living on my own, and I get to live through another historic recession! Really makes a person believe that capitalism is the most efficient system to distribute wealth and there are no flaws in it.
Sorry, but the 10y-2y has been inverted for 644 days, looking at Tradingview. Inverted on the 6th of July, 2022.
If you want to solely look at the yield curve to predict future potential recessions you need to be very aware of the way you are thinking about it. As most of you know, it is a measure of short-term yields relative to long-term yields, nothing more. In other words, it can be interpreted as a measure of how investors expect future interest rates to look. In times of high inflation people expect interest rates to rise in the short term, but level out over the longer term. Therefore, a recession do not come simply because of the reinversion of the yield curve, but rather, economic tumult causes short term rates to fall (fed cuts interest rates), normalizing the yield curve. Therefore, an inversion of the yield curve do not guarentee a future recession (altrough it has been a good predictor), since it basicly all boils down to whether the fed is able to effectively balance inflation and unemployment, i.e., that they are able to cut rates before the economy has taken damage (hence, the infamous soft landing).
TLDR: While the yield curve has historically been a good predictor for upcoming recessions, keep in mind that it is simply a measure of investor's expectations of future interest rates. This means that whether a recession are to happen or not, depends on the fed's ability to orchestrate a "soft landing".
Fantastic video and T.A.!!!!!!!
We broke trend this week, if CPI comes in hot tomorrow, forget your theory about a blow off top.
This is probably the best information channel in its field. Keep up the good work.
With 300,000 baby boomers retiring every MONTH, the labor shortage makes a recession very difficult, even with a negative yield curve. So you go short, and I will go long.
Get ready.. the sh.. will hit the fan....
Was it allways around atums time when recession hit in the past?
Short and precise. The charts are very helpful. Great video as usual.
Excellent charts and summaries, some of the best on the internet, thank you!
When the "dollar stores" shuts down in USA things are dire. Brace, brace...
we are going up 38% this year the inverse of 2008 rally barely started I am selling in August near top after huge blowoff rip. dont miss it
While I’m waiting for the potential economy correction to come I’m going to position myself in a better spot so I may benefit from it. I will not let this opportunity pass again.
This is the best yield curve breakdown I've heard. Nicely done!!!
When I learned one thing in my study program, it is we cannot look into the future. All this chart analysis is useless to predict anything. It is just describing the past, never the future.
Correlation not causation. Nothing is certain
Thank you!
inflationary depression is coming, everyone will get rekd.
Hold on though correlation doesnt imply causation. You have to look at the great depression in a historical context, and it was in the 1930s when the US was helping rebuild europe, europe defaulted on their payments and thus the whole thing came crashing down
Brilliant!
No offense, I worked as a stock bond and commodity broker from 1985-1992 and the yield curve in 1989 was -3. The yield curve ring now is about -.75 so the graph is wrong. Or more likely they are picking maturities that lead to wrong conclusions. The short term rates are about 3/4 of 1% higher than longer term rates. the graph shows 2% higher or something.
So while the short term rate is less than 1% more than the long term rate, in 1989 it was 3-4 % less then the short term rate. The thing you are not taking into account is Demographics.
The inversion of negative real interest rates was not the inversion of positive real interest rates. The current episode is of shorter duration than indicated by the simple analysis of nominal rates.
Lets see what happena...I am going 100% gold long term...😅
This is one of the best videos of this channel yet. Well done chap.
The yield curve is an absolute indicator of faith in the future. When it pushes back to positive it results in many people that are poorly positioned losing equity due to excessive and unsustainable debt.
So, as a new investor, what should I do? Shift to cash in July 2024 to avoid the expected drop?
Inversion does not mean much as everyone expects short term rates are expected to be high for a longer period of time without the FED raising rates to unaffordable levels.
Superb analysis. But, as you say, situation today is different...
Look at oil / m2. We could see about 260 a barrel next spike!
so if i'm correct here, the long term trendline should be the norm, and when in the short term the deviation from this is excessive then it will usually end in it falling or rising when whatever caused this has been rectified or ended leading to either recession or a bull market?? am i correct in this?
The depth of the inversion appears to be as pronounced as the duration, relative to past instances.
Great video! Considering that its the everything bubble after a 5 month furious rally this market can only go down from here! Microsoft value is Germanys GDP!!!
these numbers provided keep changing every minute. Once this inversion is 530 days, next time it's 540, first the worst one is 600 days, next time it's 700, next, the time after the worst one is over 2 years, a few seconds later, and the longest time between start of inversion and stock market high is 657 days, which is way less than 2 years, and so on, and so on.....
So, yea, I have just a _little_ trouble believing anything in this vid, to put it mildly
It is not important when the inversion starts, but when it ends. At that moment the countdown starts.
maybe make a model that quantifies recession risk, I think that predicting one event from happening in the future has a probability. Now you have made a prediction in the future (I do agree and think that you are on to something) but you also did in the past. Quantifying based on different factors might be a great tool for traders!
Fun fact- as of this comment (2024-06), the us is NOT in a recession.
The fact that there hasn’t been deflation (vs disinflation) means that even if prices aren’t rising as much from 2023, they are still much higher than 2019 levels, where people are still thinking of.
And wages? They have advanced for the bottom of the market, but not really as much for those higher up, let alone whether it keep’s up against inflation.
Of course, we’d rather not have high unemployment (right?)… but nobody really notices that unless if they are
- fired
- looking for a job
High prices, even if wages catch up, are always noticed
I’m more worried about the Fed getting too antsy about inflation and giving us the Recession We Didn’t Have To Have (because we could’ve just held out cut)
Im sorry, but you need to stop comingling the terms causing and correlation. Oil prices did not cause recessions, rather oil.prices droppee because there was a recession. Inversions do not cause recessions. It is an indicator of institutional investor confidence for long and short term risk adjusted outcomes.