Bond Market Sends Up a Recession Warning Flare

Discussion in 'News of the Day' started by JAC, Dec 5, 2018 at 8:25 AM.

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  1. Dec 5, 2018 at 8:25 AM #1

    JAC

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    Thi is related to yesterday's 800 point drop in the market. I don't understand a lot of it but from what I gleaned the 5 year return is less than the 2 year return and that is not normal. Also major selloffs and no buyers is reflecting happenings in 1929.

    https://www.breitbart.com/economy/2018/12/04/yieldcurveinverts/

    Bond Market Sends Up a Recession Warning Flare
    AFP
    4 Dec 20181666
    3:44
    Part of the yield curve inverted on Monday, the first time this has happened since 2007.

    That sent jitters through the stock market as investors worried it could foreshadow slower growth or even a recession in the future. The Dow Jones Industrial Average fell by 600 points, or 2.32 percent, on Tuesday morning.

    The yield curve is a way to show the difference in compensation investors get depending on how long a bond takes to mature. Most of the time, the curve slopes upward because investors usually want to be paid more in exchange for locking their money up for long term
    Cresco Labs Begins Trading in Canada, but CEO Says U.S. Cannabis Market Is Still Its Focus
    But at times the relationship can flip, or invert, with shorter-term bonds yielding more than longer-term bonds.

    That’s what happened on Monday and Tuesday. First, the yield on five-year Treasurys dipped below three-year Treasurys. That was closely followed by the five-year yield falling below two-year yields.

    This can be an indicator that investors think the Federal Reserve will have to cut its short-term interest rate target because of slumping economic growth or an approaching recession.

    In other words, the inversion is the latest piece of evidence that the Federal Reserve may be acting too aggressively in raising interest rates. Although the economy has many areas of strength, particularly in the labor market and manufacturing sector, the more interest-sensitive areas–such as housing and autos–have been weak.

    The last time the three-year yield fell below the five-year, the economy slipped into a recession in the following year. Recessions also followed similar inversions in 1990 and 2001.

    But the crystal ball of the yield curve is murky. Bespoke Investment Group said in the last three recessions the first inversion of three-year and the five-year yields came an average 26.3 months before the start of a recession, with a range between 17 and 38 months.

    And an inverted yield curve does not always predict a recession. The gap between the two-year and five-year yields turned negative in 1998, for example, but no recession followed until after the gap between the two-year and 10-year yield inverted in 2000.

    [​IMG]
    When the gap between the 10-year Treasurys and 2-year turns negative, the yield curve is said to be inverted. This can indicate a recession is approaching.

    The most closely watched parts of the curve are the gaps between the two-year to ten-year yield curve and the three-month to ten-year curve. These are thought to be the best predictors of a recession. Studies by Federal Reserve economists say we should pay particular attention to the three-month to ten-year gap. And these are still positive, although the gap is narrowing as the yield on ten-year Treasurys has fallen further than short-term yields.

    The 2-year yield Tuesday was around 12 basis points–each basis point is a one-hundredth of a percentage point–below the 10-year yield, while the 3-month yield was about 50 basis points below from the 10-year.

    History suggests that a temporary inversion in discrete parts of the curve is not all that predictive. Nor does a flatter yield curve have much predictive power. So if the three-month and two-year yields stay above the ten-year, a slump or recession may not be in the offing.

    The yield curve may also have lost some of its predictive power. Very large budget deficits have increased the amount of bonds the government is selling. The government’s choices about which bonds to sell could cause an over-supply or under-supply in some parts of the yield curve, which in turn could invert the curve.

    The Federal Reserve’s actions as it shrinks its balance sheet, inflated from years of bond buying under the central bank’s quantitative easing program, may also be putting pressure on the curve. This is largely an unprecedented event so its effects are hard to predict and likely will not be known for years.

    The bond market is often fickle. In the early months of this year, the market was signaling that the Fed was expected to raise interest rates three times in 2019. Now it sees rates rising once or, possibly, twice.
     
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  2. Dec 5, 2018 at 12:36 PM #2

    hiwall

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    The inversion is just an indicator of a possible recession ahead. There are several other indicators that also are now pointing to a possible recession. Plus there is history to look at too. History says a recession happens about every ten years so its time again.
    Bad times Will happen. In 2019 or 2020 are good possibilities but it could drag out longer. Prep up.
     
  3. Dec 5, 2018 at 1:12 PM #3

    The Lazy L

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    I figured the stock-market is way higher then normal and was due to averaging out.

    While it's high I'm trying to figure out how to get money out of my 401K without taking the tax hit.
     
  4. Dec 5, 2018 at 3:56 PM #4

    Meerkat

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    We never know whats next anymore.
     
  5. Dec 5, 2018 at 4:06 PM #5

    Amish Heart

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  6. Dec 6, 2018 at 6:30 AM #6

    zoomzoom

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    Don't take money out, just change your investments to something more conservative.
     
  7. Dec 6, 2018 at 7:17 AM #7

    The Lazy L

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    401K is already as conservative as I can go. At my age I can't afford to start over. Be bonus for me if I could withdraw while the market is above average.
     
  8. Dec 6, 2018 at 9:38 AM #8

    JAC

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    I heard a rumor that this along with the Fed hiking rates is being done on purpose to make Trump's economy bad. Considfering all that has happened during his administration and how everything is manipulated I wouldn't doubt it. Supposed to keep an eye on it today. (Thursday ) We are down 450 this morning already. @The Lazy L you may be already running out of time. This also had an effect causing losses: Huawei executive's arrest renews trade fears.
     
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  9. Dec 6, 2018 at 10:28 AM #9

    Meerkat

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    I agree, and more sure. My friends hubby lost SEVENTY thousand $s :ghostly: in 401s last economic fiasco. He was retired from GM Auto Assembly Plant.
     
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  10. Dec 6, 2018 at 12:02 PM #10

    Caribou

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    Right now would be a good time to be debt free. Anything in the pantry is immune to inflation or bank collapse.
     
  11. Dec 6, 2018 at 12:20 PM #11

    Meerkat

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    I agree Car. Times are not looking promising. We want to get good at growing potatoes and beans just in case.
    Not storing up a lot of stuff for those who may kill us for what we have. But do like to keep preps from storms and the like.
     
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  12. Dec 6, 2018 at 2:26 PM #12

    Sewingcreations15

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    Well we are in Australia but it will have a global influence even for us as our dollar against the US is going down with currency conversion rates which will mean things will become more expensive for us here too, watch out Canadians you are on the almost the same conversion rates as us.

    This is well why we have been stocking our pantries and equipment up as well as fuel. We unfortunately will have a small mortgage to pay off but will be paying that at record rate to get it done and dusted early. We saw this coming a while ago and it happens on average once every 10 years so we are due for it and I wouldn't be surprised if Australia goes into recession shortly too. Always worry when the powers that be start over exaggerating more and more how wonderful your economy is as you know it is the opposite or at least should know.
     
    Last edited: Dec 6, 2018 at 2:31 PM
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  13. Dec 6, 2018 at 2:44 PM #13

    The Lazy L

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    Lost $70K of his money, GM matching funds or profit? To keep my sanity, matching funds or profit really isn't my money until I have it withdrawn from the 401 and in my hands.
     
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  14. Dec 6, 2018 at 2:55 PM #14

    JAC

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    I think if everything crashes it won't matter if you are in conservative investments or not. Lost is lost.
    @The Lazy L, I don't think there is any way to avoid the penalty for cashing in. I believe that you can roll it over into an IRA but then can lose it there as well if I'm not mistaken.
     
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  15. Dec 6, 2018 at 3:07 PM #15

    Amish Heart

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    I don't think the Fed hiking rates is to make Trump look bad.
    I think our deficit is crazy and we're ready for a crash.
    I don't think the Fed has any choice.
     
  16. Dec 6, 2018 at 3:30 PM #16

    JAC

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    I disagree. They ddn't raise rates through most of Obama's tenure. Now that Trump is in they want to raise rates in a pretty fast fashion. No reason not to raise them but not so fast as to cause the economy to loose it's momentum.
     
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  17. Dec 6, 2018 at 4:51 PM #17

    Meerkat

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    LazyL I'm not sure I just know it was in his GM 401 plan. And I am not familiar with the plans at all. Anyway hope you can find a way to safely keep your money.
     
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  18. Dec 6, 2018 at 6:31 PM #18

    hiwall

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    It could be rolled into an IRA that has no stocks. A money market account or even a physical gold account.
     
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  19. Dec 6, 2018 at 7:03 PM #19

    JAC

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    @hiwall Can you explain a physical gold account to me? is that having physical gold but deposited in a bank or a safety deposit box? Exactly how does that work. Can you actually see and put your hands on your gold somehow? This can be done without paying a penalty? Does it have a maturity and can you eventually take it out and bury it under a tree in your back yard without paying a penalty on that?
     
  20. Dec 6, 2018 at 7:59 PM #20

    Amish Heart

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    I think they didn't raise them during the Obama administration because it would make Obama look bad. I don't think they have much choice right now.
     
  21. Dec 6, 2018 at 9:24 PM #21

    Sewingcreations15

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    They have to raise the interest rates over there as when it all comes crashing down they have room to lower them.
     
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  22. Dec 6, 2018 at 9:55 PM #22

    hiwall

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    I am not a financial consultant here! A physical gold IRA is stored in a depository somewhere (supposedly, I don't think you ever get to see or touch). This depository charges you yearly for keeping your gold safe. You don't earn anything on this gold though there is the possibility that the value of your gold will go up. It can also be silver instead of or in addition to gold. Only certain gold and silver items are eligible. That is all I know or that I think I know. I checked into once but because of the cost of storing the gold I lost interest in pursuing this type of IRA. I don't know if it is a good idea or a bad idea. I guess if gold went way up while everything else went way down it would be a good investment (and that happening is certainly a possibility). I assume (but don't know) if you take possession of the gold before age 59 1/2 then you would pay some kind of penalty. There would be no interest earned on this so I don't know how the tax on interest thing would work or if it just does not apply. Feel free to investigate and report back to all of us!
     
  23. Dec 7, 2018 at 7:34 AM #23

    Amish Heart

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    How do you physically get the gold if SHTF happens?
     
  24. Dec 7, 2018 at 8:20 AM #24

    The Lazy L

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    Same way you physically get the money that's electronically stored in your 401. You don't.
     
  25. Dec 7, 2018 at 8:29 AM #25

    JAC

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    So really in the end it doesn't sound like there is much difference in this and owning gold on paper. You never see the gold either way, never touch it. I'm guessing that you just are told on paper that you own it and have to pay extra to store something that you have never seen or held while investing in gold on paper you know up front that you do not actually own any physical gold. Just paper. Now if the banks crash right after the markets crash just like so many did on 2008 then I'm guessing that you will still never see your gold. If in fact you were to close out the gold account then I would guess they would have to send you the gold that you supposedly own just as closing a 401 would get the money sent to your bank account? Or would they simply pay you in cash the value of the gold that was supposedly held in storage for you?

    I found this article but I didn't see where it mentions closing such account and what you get. I'm guessing a number deposited into a bank account.

    https://www.investopedia.com/articles/personal-finance/091814/analysis-should-you-get-gold-ira.asp
     
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  26. Dec 7, 2018 at 8:33 AM #26

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    :sarcasm::LOL::Thankyou:for the laugh LazyL.
     
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  27. Dec 7, 2018 at 8:33 AM #27

    JAC

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    Isn't that the same thing? While they should have raised them during Obama's term they didn't because it would make him look bad so they are raising them now and not just a bit but fast enough to affect the economy to make President Trump's improved economy look bad.
     
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  28. Dec 7, 2018 at 8:39 AM #28

    Meerkat

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    Back when we got a small inheritance about 14 years ago, I ask Swiss Gold for $5000 in silver dimes. The guy told me " I'm not going back there digging out $5000 worth of dimes" true story.
    So either he was havign a bad day or my amount of dimes was not worth dealing with, So I never got any precious metals. I was going to buy from pawn shops but never did.
     
  29. Dec 7, 2018 at 11:00 AM #29

    angie_nrs

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    I was going to say the same thing. If you cash out of the IRA, you will pay regular income tax and applicable penalties on it. You can however, change your investments within your IRA and it won't cost you anything. You can move into a money market account and it will sit there as cash. It won't make anything, but (historically) won't lose anything either......unless you are expecting the BIG ONE where everything loses everything. If that is the case, we will likely be dealing with bigger problems than our IRA values.

    You could also park it in a gold fund, but gold and other PM's go up and down in those accounts as well. If you wanted to just make sure your account didn't go down, I would think the money market account/fund would be the way to go. You can also invest in annuitites within the account as well where those accounts don't lose value and do actually gain a small percentage regardless what the market does, but usually those have a time limit in which you have to stay in them for like 10 years or so. You could also consider converting to a Roth IRA and then withdrawing from that. It would be worth asking your financial advisor and tax person about. Depending upon your tax bracket, converting to a Roth might be a good way to go, since the governement doesn't have as many restrictions on withdrawl with Roths as the taxes have already been paid on it, so you might be able to avoid some penalties for early withdrawl. You'd have to work the numbers both ways to see what nets the better amount.

    If you just want the cash in hand right now instead of the IRA numbers on a sheet of paper, then the only way to get there is to cash out and pay the piper. I will not be doing that.....I have many years before I plan to use those funds anyways and I also have other backup plans. So, my IRA will sit there and do what it will do.....good or bad. I don't fixate on my IRA numbers anyways so when it goes down I always consider it an opportunnity to buy at a discount.
     
    Last edited: Dec 7, 2018 at 1:30 PM
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  30. Dec 7, 2018 at 12:42 PM #30

    hiwall

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    Really with any retirement account or any savings account, you have two choices.

    1. You leave the money in those accounts whether in cash or in stocks or bonds or whatever and hope things don't go bad or if they do you have enough time to pull your money and pay whatever penalties but get the cash in time to use it before things really crash.

    2. You cash out all your stuff and have the money at home whether in cash or PM's or in preps. Then you actually have the value in your possession so you actually own it and know just what you have.

    Obviously there are good reasons to do either of these two things and there is no right or wrong choice, there is only the choice that you are comfortable with doing.
     

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