Investment BS Thread - Stocks/Futures/Mutual Funds/Bonds/Commodities/Options/ETFs/401ks/Etc

markets are flipping out about the yield curve today.

Treasury yields dropped in tandem and yield curve is now closer to zero. At the lows of december - around 13 BP from flat. This is the 2 and 10 year yield curve.

What you are seeing in the news is not this. It is the 3 month and 10 year yield curve they are talking about. I have never heard of this comparison before, I don't plan to take it seriously.




Here's a funny one (from MarketWatch)
"As equities came under pressure, investors bought bonds, forcing the spread between the 3-month Treasury bill and the 10-year note to invert for the first time since 2007. A so-called yield curve inversion, where the rate of longer-dated debt falls beneath its shorter-dated counterparts, is widely viewed as an accurate recession indicator, and the spread between three-month and 10-year yields is the most closely followed by economists."

Oh really? That's the one most closely followed? I call bullshit. Last year it was the 2 and 10 year yield curve that was most closely followed by economists. And the data backs that one up. The 3 month and 10 year yield curve? Sounds a bit easier to invert and less likely to be a true indicator of a looming recession. Calling #fakenews on this one.

Here's another direct quote, from the paper they so generously cited in their article (which by the way, was released in August of last year):
Furthermore, when interpreting the yield curve evidence, one should keep in mind the adage “correlation is not causation.” Specifically, the predictive relationship of the term spread does not tell us much about the fundamental causes of recessions or even the direction of causation. On the one hand, yield curve inversions could cause future recessions because short-term rates are elevated and tight monetary policy is slowing down the economy. On the other hand, investors’ expectations of a future economic downturn could cause strong demand for safe, long-term Treasury bonds, pushing down long-term rates and thus causing an inversion of the yield curve. Historically, the causation may well have gone both ways. Great caution is therefore warranted in interpreting the predictive evidence.

Here is what the yield curve looks like. One of the weirder shapes I've seen (notice how the yield drops and then goes back up). I'm going to guess that this is an outlier event that will soon correct itself in the bond market.



Compare that to the beginning of this month, and you get a normal looking yield curve, still flat, but normal looking.

 

99% of my portfolio is red today

 

same.

 

So here's an investment. I live alone in a 2100 sq/ft house. I do have 2 GSD though.

long time friend is going to move in with me, neither of us drink or smoke anything like that, and there will be a contract with expectations of each of us.
he started working near where I live, about an hour+ from where we grew up. He's going to pay me $600 + half bills.

That's basically free money on things I'd be paying anyways. Houses are solid investments. lol

 

Yahoo Finance:
Selloff intensifies as manufacturing data disappoints, yield curve inverts

This is so annoyingly disingenuous - only PART of the yield curve has inverted.. and it's on comparison I've NEVER seen compared before until today. The 3M/10Y yield curve metric is conjured up nonsense.


BUY THE DIP

 

They just make up something every time the market goes up or down big. "Yield curve!" "Fears over global slowing!" "Good earnings!"

They have no idea, I think they come up with these things after they see where the markets are going for the day.

 

Add in a bit of yield curve stuff into this circle.

 

I guess I am guilty of buying household names .I sold goog and Amzn in the end of aug 2018 after what I thought were nose bleed prices and bought T and F which both were allready pretty low . I am close to even with T , and ahead when adding the divs. I am down more on F .
I was hoping they will eventually will become an electric vehicle maker and supply self driving vehicles for uber and lift etc.. In the mean time no matter how nongreen it is they seem to be selling enough trucks and suvs to support the div.
I am open to a different strategy for income though . I have about 125K in the 2 of them to play with to try to get some div income . Some time before the end of this year I will be adding another 30K to it also.

 

ok so apparently the wiki page on yield curve DOES talk about the 3M/10Y.. funny I've never heard about this until now. Ninja edit? Who knows. The NY Fed article they cite for this metric makes no mention of the yield curve at all. So whatever.

Either way, what they are saying is that now a rise in unemployment should I occur. So we will see. Average time to wait is about 12 months.
https://en.wikipedia.org/wiki/Yield_curve#Relationship_to_the_business_cycle

 

What is the average return for the year or two after the yield curve inverts to the time the market begins to crash during the recession? I am too lazy to look it up, but I think it's somewhere around 18% a year.

 

No clue. I think it's considerable because I remember we talked about it before.

 

Are you looking for growth with a decent yield, or just high yield for income? If you're just looking for high yield, there are a lot of mortgage REITs that yield 10% and higher. That's better than F and T with similar growth prospects. For dividend growth, you'll be looking at about a 3% yield max, and there are a ton of stocks out there like this.

Edit: Some good high yield mortgage REITs: ARI, BXMT, CIM, LADR, NRZ, STWD.

 

I will look these up . I know nothing about REIT's for when they do well or poorly or how liquid they are . Thanks .

 

They are probably as liquid as stocks. Mortgage REITs usually have higher yields, but don’t actually own any property like an equity REIT does. They benefit when the yield curve is steep, because they benefit from borrowing at lower rates and giving loans at long-term higher rates. One might argue that they aren’t good now with a flat curve, but they seem to do fine in that environment. I think this is because people are getting out of stocks in fear of a recession, and these provide an attractive yield. I guess it counters their inevitable under performance due to the flatter yield. A 10% yield is awesome even without much capital gain growth.

 

For what its worth since I had some relations with a NW real estate firm- they are forecasting a 2020 pull back on residential. As everyone is probably aware Real estate ebs in flows in value. Consider a expected price correction. I wonder though if REITS pull income from flipping or from rental income. One consideration is the Retail massive store closures and the vacancies that they will leave. It would be good to know what the commercial mix maybe.

I do have some Ford as well- they have the release of the Ranger and upcoming Bronco that I thought should play well in the market space. Also some changes at the board level along with structural changes in operations that looked good for a long term hold. Also the VW partnership with electrical vehicle development. Anyway that is what drew me to the stock - market upside with dividends. I got to re read these last two pages to see if I can get up to speed on the metrics you are all referencing though.

 

Wondering about the real estate market as I am looking to buy. Don't think a recession would affect the real estate market due to stricter lending standards but, still could happen. The whole west coast housing market is out of control though.. I'm sure that'll be interesting if there's a tech bubble burst

 

Everybody thinks it will slow down in 2020.

 

slow down is fine, that's why I'm looking now. Not sure if there will be a decline though. Not that it matters if I'll be there for 5-10 years at least.. just don't want to be hella underwater.

 

I don’t think anyone has a crystal ball, evident in the mortgage rate predictions I have heard and the rates still are low... but with housing prices just look to days on market trend. Anything under 3 months is considered a sellers market year over year price growth at the 3-6 months it’s neutral and one would expect to see some price softening on the property’s that need maintenance and if 6- over and it’s buyers market a more recessionary. I have not head the term recession used but if prediction comes to be true, expect on the 3-6 month scale

 

Funny you mention that, just did an analysis on the area I am looking.
Seems like there's stuff across the board at this point. Probably still tipping in the "seller's market" direction.