Please disable your Ad Blocker to better interact with this website.

Image Image Image Image Image Image Image Image Image Image

Affluent Christian Investor | April 8, 2020

Select a Page:
Select a Page:
Scroll to top

Top

Email Featured
No Comments

Remember The Media’s Obsession With This Recession Metric?

(Photo courtesy of vpsi) (CC BY) (Resized/Cropped)

It’s called the inverted yield curve, and it happens when the 10-year treasury interest rate goes lower than the 3-month interest rate. Why should that matter? Because it tends to occur when markets believe that the Fed is going to hike interest rates. Since the Fed traditionally only sets interest rates in the shorter duration part of the bond universe, that shows up in short-term interest rates. That makes sense. If I was pretty sure that the Fed was going to hike overnight rates in the next month or so, that would affect my willingness to buy 30-day bonds at current rates. After all, if rates are going higher in just a month, you bond sellers have got to give me some kind of incentive to buy your 30-day bonds now. That’s why overnight rates and 30-day rates move closely together and both of them tend to move to the Fed’s music.

So, there is nothing inherently magical about an inverted yield curve. The bad magic which tends to trigger recessions is rapid, large rate hikes, which tend to end easy money bubbles.

So if the rate hikes that trigger the recessions and inverted curves are just a symptom or marker or proxy for that, then why not look at rate hikes? Because the media lives on access to your eyeballs, and you are adapted over the aeons to look at what scares you, so scaring you is an easy way to get you to look.

And it worked. Google shows a spike of searches for the word ‘recession’ in late March.

But let’s zoom out a little:

The inversion was short-lived, very short lived. The shortest lived on record.

And quite tiny. Let’s zoom out a lot:

The recently obsessed-up inversion is so tiny in the great scheme of things that it disappears from view in the Fed’s automatic chart scaling. Yes, by the grey recession bars, you can see that inversions go together with recessions — sometimes during, sometimes after long delays. But look at the difference in size and duration. These inversions sometimes are a full or half percentage point in magnitude. This recent fortnight-long inversion peaked at -.05 percent, one twentieth of one percent for two days. Find something else to worry about.

 

 

Originally published on Townhall Finance.

 

Join the conversation!

We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.

Trending Now on Affluent Christian Investor

What We’re Looking At Today

  • Full video: Jordan Peterson on the Channel 4 Controversy and Philosophy of "How to be in the World"
    January 28th, 2018
  • Be Grateful for the Intelligent Design of Your Eyes
    December 23rd, 2017
  • TAX REFORM: The Most Important Things You Need to Know
    December 22nd, 2017
  • What Is 6th Gear? » Intermittent Fasting And Keto
    December 18th, 2017
  • DiscoveryInstitute
    December 7th, 2017
  • The King’s Choice – SAMUEL GOLDWYN FILMS
    October 12th, 2017

    • Follow Us

    Facebooktwittergoogle_plusrss

    Like us on Facebook

    Affluent Investor

    The Affluent Mix

    Become An Insider!

    Sign up for Affluent Investor's free email newsletter and receive a free copy of our report, "How the Trump Impeachment Crusade Costs you Money ."

    Send this to a friend