Published Tue, 28 May 2019 20:42:27 -0400 on Seeking Alpha
Introduction Is your favored metric housing or the yield curve? Depending on which one you prefer, the economy is either careening towards recession or else “no worries.” Because the two very important leading metrics are giving completely different signals this spring. Is there a way to break the tie? I think there is, and I’ll explore it below.
The yield curve has not been a perfect indicator
Let’s start with the yield curve. At present everything between the Fed Funds rate and the three-year-bond is inverted (and largely has been for almost 6 months). The 5-, 7-, and 10-year treasuries are also inverted as against all maturities shorter than one year. On the contrary, the 20- and 30-year maturities are not inverted vs. short-term maturities, and from the 5-year maturity out, the yield curve is normal. I’ve depicted these several maturities in the graph below:
I want to emphasize something important: none of these individual yield curve metrics is perfect. For example, the long end inverted for almost the last 1/2 of the entire 1960s, but only inverted for about one month before the “Great Recession”:
The 10-year minus three-month spread also inverted slightly in 1966, but just as importantly failed to invert at all before the 1990-91 recession:
Short-Term maturities also inverted in 1966 and several times in the 1980s and 1990s:
Indeed, most maturities registered a false positive in both 1966 and 1998.
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|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|NUVEEN REAL ESTATE INCOME FUND||10.65||0.0||0.00||0.00||7.18|
|COHEN & STEERS REIT||21.50||0.0||0.00||0.00||6.90|
|RMR REAL ESTATE INCOME FUND||19.20||0.0||0.00||0.00||6.89|
|COHEN & STEERS QUALITY INCOME REALTY FUND||14.20||0.0||0.00||0.00||6.80|
|COHEN & STEERS TOTAL RETURN REALTY FUND||14.36||0.0||0.00||0.00||6.68|
|SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST||265.56||0.0||0.00||4.99||1.91|
|SPDR S&P 500 ETF||293.06||0.0||0.00||3.99||1.38|
|PROSHARES ULTRAPRO SHORT S&P 500||28.33||0.0||0.00||0.00||1.16|
|PROSHARES ULTRASHORT S&P 500||31.13||0.0||0.00||0.00||1.15|
|POWERSHARES QQQ TRUST SERIES 1||187.11||0.0||0.00||1.08||0.79|
|ISHARES COHEN & STEERS REALTY MAJORS INDEX FUND||116.42||0.0||0.00||0.00||0.00|
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