“Harbinger Of Doom”: Amigo 3 In Play, But Real Doom Awaits

“The Harbinger of Doom”? Of course, we (well, the media) are talking about the yield curve AKA Amigo #3 of our 3 happy-go-lucky riders of the macro. I have annoyed you repeatedly with this imagery in order to show that three important macro factors needed to finish riding before situation turns decidedly negative.

Amigo 1: SPX (or stocks in general)/Gold Ratio

Amigo 2: 30 Year Treasury Yield

Amigo 3: Yield Curve

In honor of Amigo 3’s arrival to prime time let’s have a good old fashioned Amigos update (going in reverse order) and see if we can annoy a few more people along the way. :-)

Yield Curve

Clicking the headline yields a Bloomberg article all about various yield curves and all the doomed newsyou can use, including a hyperactive interview with an expert bringing us all up to speed on the situation.

With respect to the headline, I would say that tumbling stocks actually show stocks are in a volatile whipsaw that we have anticipated in the making of a top because the yield curve has been flattening since 2013 and our early bird Semi signal registered again, this time to the negative side in 2018.

But the media are giving you sound bites and easy answers to digest so let’s not muddy this simplistic picture with the grinding long-term work that is actually needed (← sarcasm). Let’s just give you another headline (again, click to get the article).

So the key reason is that some lesser watched aspects of the Treasury curve are starting to invert. Inversions tend to precede recessions, after all. But in the cases of the last two inversions (10yr-2yr) the stock market continued to a new high after the curve finished flattening in inversion territory. Today the curve has not inverted, although the media is really titillating itself (and you) with the word “inversion”.

But as we’ve been noting all along, the curve does not need to invert to bring on the bad stuff; that tends to happen when it begins steepening, whether or not an inversion is in place.

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