The Nasty R Word

Now that the yield curve is positive again, does that mean we’re in the clear?

Heck no!!

Over the last century, every time the yield curve went negative it was followed by a recession. Check the red words embedded permanently on this chart.

(Click on image to enlarge)

Indeed, we can plainly see that every time the blue line went below 0%, it was followed by a recession. Not always immediately though. Most conspicuously, the curve was inverted from January 2006 to July 2007 and was well into positive territory by the time the 2008 crisis hit.

Is this a guarantee of troubled times ahead?

Absolutely not. The central banks seem to think we’re all good now and stock markets are testing new record highs, so clearly some traders are content with this sudden recovery narrative. After all, just because a yield curve inversion has preceded seven out of the last seven recessions doesn’t mean it will happen again.

There’s no doubt that we’re deep into new territory and witnessing an economic condition that’s never happened before. Prolonged stimulus, artificially suppressed interest rates, and now a significant amount of negative-yielding bonds, this simply has never happened before so it’s kind of hard to know what to expect.

The Tech Case

We’re also in an interesting inflection point as far as technology is concerned. This story has been generating a lot of buzz and has me thinking as well…

Sure, what parent on this planet wouldn’t pay seven bucks a month for easy access to all of Disney’s content? Just think of the titles Pixar, Marvel, Star Wars, the Simpsons, all the princesses. :O

The bigger question in my mind is where those $7 from each person is going to come from?

Netflix (NFLX) hasn’t lowered its prices and it doesn’t seem likely that people will unsubscribe from them any time soon. Furthermore, virtually none of that stimulus money mentioned above is being funneled into personal home entertainment budgets.

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