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Don't Panic Over Inverted Yield Curve; Here's The Key Chart For Dow Jones
IBD ^ | 03/25/2019 | Jed Graham

Posted on 03/25/2019 9:33:32 AM PDT by SeekAndFind

Recession talk flared up on Friday as the 10-year Treasury yield tumbled below that of the 3-month Treasury. While this signal has a spot-on track record in predicting a recession, there are reasons to take it with a grain of salt now. But another key economic indicator also flashed a worrying sign. The breakout of copper prices last month signaled that 2019 might be like 2016. That year saw the global economy rebound and the Dow Jones start a new leg to much greater heights. Yet that breakout failed on Friday, casting doubt on whether a new global upturn is at hand.

The 10-year Treasury tumbled 10 basis points to 2.44%, the lowest since late 2017, while the 3-month Treasury eased just 2 basis points. When long-term rates fall below short-term rates, it's called an inversion because it's upside down relative to the way things usually work during an economic expansion.

Meanwhile, the Dow Jones industrial average shed 460 points, or 1.8%, while the S&P 500 lost 1.9% and the Nasdaq composite 2.5%.

Copper prices fell 2%, though part of the weakness stemmed from the stronger dollar. The U.S. Dollar Index, which measures the greenback against a basket of advanced-economy currencies, rose 0.75%. The dollar has remained stubbornly strong, despite the Fed's dovish shift.

(Excerpt) Read more at investors.com ...


TOPICS: Business/Economy
KEYWORDS: bonds; dowjones; recession; stockmarket; yieldcurve
Financial markets are now pricing in close to 60% odds of a rate cut by December. Bank stocks, particularly regional and super-regional banks, have tanked the past several days as the yield curve turned against them. Banks borrowing at short-term rates and lending at longer-term rates see their net interest margins compressed as the yield curve flattens and inverts.

The bull thesis has been that, as in 2016, a dovish Fed shift and Chinese economic stimulus would lift the global economy. A China trade deal has been viewed as another catalyst this year, though the date of a deal-signing summit keeps getting pushed back. While it's too early to throw in the towel on the bull market thesis, copper prices are signaling that it's no sure thing.

Bottom line: Don't worry about the inverted yield curve unless copper prices confirm that we have a problem. Right now, the signal is still fairly weak, but it's still concerning.

1 posted on 03/25/2019 9:33:32 AM PDT by SeekAndFind
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To: SeekAndFind

Dr. Copper, eh?

And the Baltic Dry Index as well I think.


2 posted on 03/25/2019 9:50:50 AM PDT by MichaelCorleone (Jesus Christ is not a religion. He's the Truth.)
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To: MichaelCorleone

“Baltic Dry decreased 14 or 1.97% to 695 on Thursday March 21 from 709 in the previous trading session. Historically, Baltic Exchange Dry Index reached an all time high of 11793 in May of 2008 and a record low of 290 in February of 2016.”

https://tradingeconomics.com/commodity/baltic


3 posted on 03/25/2019 10:08:30 AM PDT by Pelham (Secure Voter ID. Mexico has it, because unlike us they take voting seriously)
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To: SeekAndFind

Why is copper price considered a bellwether?


4 posted on 03/25/2019 10:09:20 AM PDT by aquila48
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To: SeekAndFind

An inverted yield curve is a sure sign of too much manipulation by the Fed. That’s why it’s such a great predictor of recessions.

Economic growth does not cause inflation. We have to get the Fed away from that fake claim.


5 posted on 03/25/2019 10:12:22 AM PDT by Moonman62 (Facts are racist.)
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To: aquila48

Perhaps because it’s reflective of demand for electronics, motors (like for capital equipment) and related wiring?


6 posted on 03/25/2019 10:20:26 AM PDT by M1903A1 ("We shed all that is good and virtuous for that which is shoddy and sleazy...and call it progress")
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To: SeekAndFind

The yield curve means nothing and has never predicted anything. The yield curve simply displayed in graph form that the fed had risen rates past the expected ten year rate. The front part of the curve is controlled by the fed. And the back part by the market. When the market was convinced that the Fed was going to cause a recession, the market would start buying ten year bonds causing the ten year yield to go down. That is not what is happening today.

Today the Fed has a strong market. Which is an island in an ocean of weak markets. The ten year is not moving because of the Fed. Its moving because the rest of the world is forcing down their interest rates. The current interest rates are historically very low. And the US economy is growing faster than all the other major 1st world economies.

The reason the market is spooked by an inverted yield curve has to do with computer traders that have inverted yield as a strong sell sign. Even though all the data says that the US will chug along at 2.5%, these computer traders will panic sell every time the yield inverts. Its just easy for a computer to see an inverted curve. That’s why they have it programmed in.

The reality is that the world is in a depression. The major first world economies have created too much debt. And now they are devaluing their currency slowly at the same time. As long as the world devalues together, there is no adverse affect. The result is only that the debt gets monetized. No smaller currency like the Swiss Franc can afford to be out of step with such huge currencies as the Euro, Yen and Dollar together.

You have nothing to be afraid of. The Fed has a put on the market. But even still, there will be less growth. And if you think the world is coming to an end, then watch the US GDP. If it goes negative and the Fed can’t fix it. Then the world will be in depression for a while. Hold cash.


7 posted on 03/25/2019 10:29:31 AM PDT by poinq
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To: SeekAndFind

Worth noting:

“The main takeaway from the inverted yield curve is that the Fed erred in hiking interest rates in December 2018, as should have been clear at the time. If the Fed were to immediately cut rates by a quarter point, then the yield-curve inversion would disappear. While the inverted yield curve probably does signal that the risk of recession is rising, it’s not a given. Global central bank bond buying, low inflation, and negative interest rates in Japan and now Germany are among the factors that complicate the typical yield-curve analysis.”


8 posted on 03/25/2019 10:49:51 AM PDT by NobleFree ("law is often but the tyrant's will, and always so when it violates the right of an individual")
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To: M1903A1; aquila48

Tangible metals are stable compared to the purchasing power of the dollar.


9 posted on 03/25/2019 10:52:46 AM PDT by Openurmind
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To: SeekAndFind
Copper? I thought it was orange juice.


10 posted on 03/25/2019 10:54:41 AM PDT by TADSLOS (I gotta see the candy first, then I get in the van. I’m not stupid.)
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To: TADSLOS

Randolph Duke : We are ‘commodities brokers,’ William. Now, what are commodities? Commodities are agricultural products... like coffee that you had for breakfast... wheat, which is used to make bread... pork bellies, which is used to make bacon, which you might find in a ‘bacon, lettuce and tomato’ sandwich.

[Billy Ray turns and gives a long look at the camera]

Randolph Duke : Randolph

[continuing]

Randolph Duke : And then there are other commodities, like frozen orange juice... and GOLD. Though, of course, gold doesn’t grow on trees like oranges.

[chuckles]

Randolph Duke : Clear so far?

Billy Ray : [nodding and smiling, even though it ISN’T clear to him] Yeah.

Randolph Duke : Good, William! Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them.

Mortimer Duke : Tell him the good part.

Randolph Duke : The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.

Mortimer Duke : Well? What do you think, Valentine?

Billy Ray : Sounds to me like you guys a couple of bookies.

Randolph Duke : [chuckling, patting Billy Ray on the back] I told you he’d understand.


11 posted on 03/25/2019 10:56:57 AM PDT by SeekAndFind (look at Michigan, it will)
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To: SeekAndFind

The curve inverted because the Fed said they weren’t going to raise rates again until next year, and some believe they may cut by the end of the year - not because people think the economy is softening - it’s not a worry....


12 posted on 03/25/2019 12:15:06 PM PDT by Intolerant in NJ
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To: poinq

I appreciate your take. Most impressive.


13 posted on 03/25/2019 1:17:05 PM PDT by fhayek
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To: aquila48; M1903A1

“Why is copper price considered a bellwether?”

It’s an indicator of industrial demand when its price rises. Copper is used in a lot of products.


14 posted on 03/25/2019 2:32:12 PM PDT by Pelham (Secure Voter ID. Mexico has it, because unlike us they take voting seriously)
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