Comments on: Is a Recession on the Way?

By: Mighty Bargain Hunter » Roundup for week of 8 January 2007

Mighty Bargain Hunter » Roundup for week of 8 January 2007 — Sat, 13 Jan 2007 08:26:45 +0000

[...] All Financial Matters wonders if we’re headed for a recession. Discussion of the inverted yield curve included. [...]

By: Frank Kelly

Frank Kelly — Fri, 12 Jan 2007 20:07:54 +0000

I’d be shocked if a recession was not on it’s way – at least at some point – regardless of the yield curve.

However the inverted yield curve which has been in place since 2005 and was called a “conundrum” by Greepsance (http://www.federalreserve.gov/boarddocs/hh/2005/february/testimony.htm) has several other factors e.g. Foreign-buying of treasuries etc.

On the positive side – the low yield for 10- and 30-year treasuries means the US Govt doesn’t have to pay so much to service it’s debt which is a good thing for all of us.

-Frank

By: mbhunter

mbhunter — Thu, 11 Jan 2007 07:50:42 +0000

Gary North, one of my twice-weekly newsletter reads, talks about this a lot. It’s one of the more accurate leading indicators of a recession. Probably this year.

Thanks for the graph!

By: jr

jr — Thu, 11 Jan 2007 04:04:38 +0000

One more thing… the yield curve was inverted in 1998 and also in Dec 05 – Jan 06. The economy did pretty well then, although I do believe that the yield curve is a good indicator of a slowing economy or a recession.

By: jr

jr — Thu, 11 Jan 2007 03:22:02 +0000

[I don't think those graphs are quite right]

There’s a good tool and commentary on the inverted yield curve at smartmoney:
http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve

The yield curve has been flat-to-inverted for months now, but the rate isn’t as inverted has it was in the early eighties (something like 250 basis points).

By: Sam

Sam — Thu, 11 Jan 2007 03:00:40 +0000

Hasn’t the yield curve been pretty flat for the last year or so? Seems I read somewhere that banks that borrowed short-term to lend long-term were not getting the interest rate spread that they used to enjoy.

By: Young

Young — Wed, 10 Jan 2007 22:58:35 +0000

Nice article!

By: LAMoneyGuy

LAMoneyGuy — Tue, 09 Jan 2007 18:49:03 +0000

JLP,
Good info, well presented. This is an important indicator. Perhaps the most widely followed indicator that tends to preceed recessions/bear markets. To answer Chris’ question, the yield curve has been inverted for several months. The extent and duration of the inversion are also factors that economists/analysts look at.

By: JLP

JLP — Tue, 09 Jan 2007 15:22:06 +0000

Golbguru,

I deleted Mark Davis’ comment as it was SPAM! I guess I didn’t get it quick enough since you saw it.

My question is:

If he makes $600,000 per year off of his website, then why the heck is he hanging out on my little blog?

Of course, we know the answer to that!

By: Chris Hynes

Chris Hynes — Tue, 09 Jan 2007 13:36:26 +0000

Accrued Interest has an interesting analysis of this article here: http://accruedint.blogspot.com/2007/01/grading-wsjs-understanding-of-yield.html, coming to the conclusion that “it seems like the 10-year is priced about right.”