It's interesting looking back at articles which were written when the yield curve (2s10s) inverted in August 2019.

There were a few people who wrote that the Fed will respond to prevent a recession, trade uncertainty and the lack of inflation was driving down yields.

1/
Famously, Yellen said that she doesn't think the US economy was heading towards a recession, although she did admit that the odds had clearly risen.

So was this time different? Well, obviously the answer is no.

Every recession since the 1980s has followed a 2s10s inversion.

2/
The yield curve inverted in mid-August 2019. According to the NBER, the recession started in February 2020 - a lag of just 6 months, the shortest lag compared to the last five recessions.

Before the 2020 recession, the average number of months was 17.

3/
Historically, between the date of the inversion, and the official start of the recession, the S&P 500 had actually performed very well.

Before 2020, the average return in these periods was a gain of more than 15 percent, with only one drawdown.

4/
Lastly, stocks have gone into correction, far more quickly than the economy has sunk into a recession following an inversion.
In late 1980 & early 2000, the inversion signaled a quickly approaching stock market peak. In 2020, the recession and peak happened in the same month.

5/
Stats about previous recessions were taken from @awealthofcs - I added the current recession stats.

6/6

awealthofcommonsense.com/2018/02/yield-…

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More from @MichaelGoodwell

9 Feb
US 3-Year Notes - $58BN auction - Results:

- High Yield Rate: 0.196% (prev 0.234%)
- Bid-Cover Ratio: 2.39 vs prev 2.52 vs 6mth avg 2.4

- WI: 0.196%

/1 Image
- Dealers: 31.2% vs prev 33.2% vs 6mth avg 34.3%
- Direct Accepted: 16.0% vs prev 14.6% vs 6mth avg 13.8%
- Indirect Accepted: 52.7% vs prev 52.2% vs 6mth avg 52.0%

/2
Average auction. Auction size was joint largest on record.

Yield was lower than last month auction at 0.234%.

Bid-cover came in a slightly lower than average. The dealers were saddled with less than average.

/3 ImageImage
Read 4 tweets
8 Feb
Central Bank Speeches schedule for the week ahead:
🇪🇺 ECB:

Monday, 8 February 2021: Christine Lagarde
Tuesday, 9 February 2021: Philip R. Lane
Wednesday, 10 February 2021: Fabio Panetta
Wednesday, 10 February 2021: Christine Lagarde
Thursday, 11 February 2021: Luis de Guindos

ecb.europa.eu/press/calendar…
🇬🇧 BoE:

Wednesday 10 February 2021: Andrew Bailey (at Mansion House

bankofengland.co.uk/news
Read 4 tweets
8 Feb
The Week Ahead

A slightly quieter week compared to last week, but still a decent amount of data releases on tap.

/1
Mon:

🇩🇪 German Industrial Production (MoM) (Dec)
🇪🇺🇩🇪 Sentix Investor Sentiment
🇺🇸 BRC Retail Sales Monitor (YoY) (Jan)
🇦🇺 NAB Business Confidence (Jan)
🇳🇿 Inflation Expectations (QoQ)

/2
Tues:

🇺🇸 JOLTs Job Openings (Dec)
🇦🇺 Westpac Consumer Sentiment
🇨🇳 CPI (Jan), PPI (YoY) (Jan)

/3
Read 8 tweets
8 Feb
‘Moment of weakness’: Amateur investors left counting GameStop losses - FT

- Some short-term traders left out of pocket as popular stocks fall after frenzy

/1
- “I rate Elon Musk quite highly and trusted him . . . his tweet was a big influence. With his support it appeared that the retail traders would win,” she said.

/2
- “I built that . . . balance over a three-and-a-half-year period,” he said. “And in a moment of intense hype, in a moment of weakness for me, I messed it all up in a matter of a day.”

/3
Read 5 tweets
7 Feb
Melvin Capital, GameStop and the road to disaster - FT

- Hedge fund faces questions over risk management after losing half its money in a Reddit trading frenzy

/1
- By using the options market for the bet, which forced it to disclose the position, Melvin had put a target on itself.

/2
- The proportion of shares borrowed to back those short positions had been between 50 and 100 per cent of the company’s total stock over the first half of last year, according to IHS Markit. The shares traded between $3 and $6.

/3
Read 4 tweets
3 Feb
Two points I don't understand here.

A. The 2013 taper tantrum occured because Bernanke in a congressional appearance (May 22nd 2013) unexpectedly revealed plans for a taper. What's happening now isn't the same. Communication is clearly a focal point here. ...

/1
The Fed don't want to suggest tapering is in anyway imminent, or on the near-term horizon. If the Fed slowly start floating the idea of tapering, even if they clearly tie it to economic conditions, surely this would prevent a drastic bond market selloff like we saw in 2013?

/2
B. Even in 2013, the 'tantrum' was largely contained in the bond market. Stocks briefly sold off but bottomed soon after the June FOMC meeting. ...

/3
Read 4 tweets

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