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This May Not Be Your Father's Inverted Yield Curve

Published Mon, 09 Sep 2019 08:54:31 -0400 on Seeking Alpha

Should we be ringing the recession alarm bell? Maybe. And that is what the most predictive part of the yield curve signaled after it inverted in August. But the last 10 years or so haven’t exactly been typical. In my view, the extraordinarily low interest rate environment following the Global Financial Crisis distorts many of the historical relationships that we’ve come to think of as reliable signals. The distortion could mean that the 10-year and 2-year spread is not the recession indicator it was once. It could also mean that we need different responses to this global slowdown.

This inversion could be a little different
In the past, inversions occurred with the Federal Reserve tightening monetary policy, not loosening. It’s pretty straightforward: the Federal Reserve tightened rates, and the short end moved above the longer end. But the Fed just loosened its monetary policy in July and the curve inverted in August.
And the market is asking for more, perhaps even a 50 basis point cut to manage the yield curve’s trajectory. The argument is that a bigger cut would allow shorter-term yields to drop more, which could flip the curve to a positive slope, i.e., back to normal.

Debt will call
But it’s possible “normal” isn’t what it used to be. Monetary policy responses like those following the 2008–09 crisis might not be the answer this time. Complicating matters is the US’ massive debt, in my view. Debt always comes due, in some form,... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CORNERSTONE TOTAL RETURN FUND 11.38   0.0 0.00 2.48 22.00
PROSHARES ULTRAPRO SHORT S&P 500 25.26   0.0 0.00 0.00 2.32
VANGUARD EXTENDED DURATION TREASURY ETF 137.28   0.0 0.00 0.00 2.29
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 272.32   0.0 0.00 5.67 2.10
PROSHARES ULTRASHORT S&P 500 28.97   0.0 0.00 0.00 1.97
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82
POWERSHARES QQQ TRUST SERIES 1 193.23   0.0 0.00 1.49 0.78
SPDR BARCLAYS CAPITAL 1-3 MONTH T-BILL ETF  

CORNERSTONE TOTAL RETURN FUND - CRF
CORNERSTONE TOTAL RETURN FUND - CRF  


Older articles featuring Cornerstone Total Return Fund (CRF):
Dividends By The Numbers In October 2019
Yield Curve Disinversion
Bond Market History: When The Yield Curve Un-Inverts
Why Does A Yield Curve Inversion Suggest A Recession?
Pay Attention To The Message The Yield Curve Is Sending
Negative-Yielding Debt: Monetary Contagion Spreads
The Dollar, High-Yield Bond Market And S&P 500 Revenue Growth
Two Yield Spreads Are Better Than One For Business Cycle Analysis
Equity CEFs: Where's The Beef In The Delaware Dividend & Income Fund?
Of Slopes And Flops: The Yield Curve Inversion

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