Record Inverted Yield Curve Promises a Recession

A number of financial experts are sounding alarms forewarning of a recession and related stock market crash set to hit before the 2024 election. A stock market “correction” of over 50% has only occurred 3 times previously where the market had to fall 50% of its current value to correct itself to a more appropriate value.

Today investors use the “inverted yield curve” to predict an impending recession leading to a major stock market correction. In brief, when a 2-year Treasury yield eclipses the 10-year Treasury yield (meaning short term investments are better than long term) you have an inverted yield curve, in other words, trouble is brewing. Bidenomics has created increased lender risk whereby the Federal Reserve might have to make a monetary intervention. The Federal Reserve can only influence short term interest rates such as 2-year T-bill rates and not the longer term of 10 years.

We have seen six major US recessions since 1976, as per the National Bureau of Economic Research’s definition (NBER). Today, Monday May 13th, is day 680 of this observation occurring which is historic according to the previous 6 times it happened.

Source: (https://get.ycharts.com/resources/blog/inverted-yield-curve-what-it-means-and-how-to-navigate-it/)

This current yield curve inversion caught many investors attention in 2022. The website Investopedia offers this explanation as to why this is important to them:

“Historically, protracted inversions of the yield curve have preceded recessions in the United States. An inverted yield curve reflects investors’ expectations for a decline in longer-term interest rates as a result of a deteriorating economic performance.”

And as to why investors compare 10 and 2 year treasury bonds:

“Many investors use the spread between the yields on 10-year and 2-year U.S. Treasury bonds as yield curve proxy and a relatively reliable leading indicator of a recession in recent decades. Some Federal Reserve officials have argued that a focus on shorter-term maturities is more informative about the likelihood of a recession.”

Source: (https://www.investopedia.com/terms/i/invertedyieldcurve.asp)

Sunday, Fox had private equity fund manager Grant Cardone offering his warning to Americans about their retirement savings on “The Big Money Show”.

 “HIGH ‘RISK’: US families in jeopardy amid rare market scenario” – Fox Business

What he had to say in his advisement is noteworthy to every American holding long term investments they hope will carry them into and through retirement.

Finally, it is important to note that not all recessions lead to a major decline in the stock market but when a market correction of more than 50% occurs, some argue that is not a correction at all but rather  a “crash” and the pain on investors is significant. This is what investors fear is about to occur.

CONCLUSION:

We at “The Thinking Conservative” have been reviewing this scenario for a long time now. It is very concerning for those who are retired or close to retired as the threat is now publically out there that the older Americans could outlive their retirement savings or nest egg.

 This could prove to be devastating to the pension retirement savings of many average Americans depleting their earnings as much as 50% in a pullback. Some 38 trillion dollars are now sitting in retirement accounts.

Just last month a report was released that the American stock market is overvalued by as much as 65%!

“The American stock market currently appears to be overvalued by 65%. In other words, it would take a 39% drop to bring the market back to its long-run equilibrium level. At the last all-time high, on November 8, 2021, the market was 76.6% overvalued.”

Readers may wonder what the tie is between the stock market and interest rates on treasury bonds.

“Is the stock market going to crash soon by 50% when the inverted yield curve reverses course?” – Edward Ph.D.

Both Grant Cardone and Dr. Edward of two of the videos in this article note that the historic phenomena we are now witnessing has only occurred 3 times previous in 1929, 1974, and 2008 where the inverted yield curve led to a stock market decline of more than 50%. Dr. Edward does not seem to be a big fan of Cardone but both of these thoughtful men give one cause to pause and think. In brief, Cardone seems to want people invest in property while Dr. Edward seems to lean towards precious metals.

Whether this becomes “another brick in the wall” relative to abandonment and isolation by the rich to the poor or “the last nail in the coffin” for Joe Biden’s political career brought on by himself remains to be seen. Many have been sounding the alarm for a long time that America’s “Middle Class” is being wiped out!

Overall, things are not looking good for the Democrats in 2024 as the snowball rolling down the hill is gaining speed and size coming right at them!

You may also want to read:

“Are Predicted Bank Failures in Bidenomics?” by Mark Schwendau

Copyright © 2024 by Mark S. Schwendau