recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. Th

For quite some time now we have been highlighting that the yield curve is inverted. We brought this up because an inverted yield curve can be one of the most reliable forecasters of a recession, or at least an economic slowdown.

To review, when the yield on the 10 year bond rate is lower than the short term 90 day T-bill, we have an inverted yield curve. As a rule, the wider the negative spread of the yield curve, the more bearish the “forecast.” The negative yield spread is increasing. It broke to a new low Friday with the 10 year bond yield being 43 points below the 90 day T-bill.

Historically, inversions of the yield curve have proceeded many of the U.S. recessions. Due to this historical correlation, the yield curve is often seen as an accurate forecast of the turning points of the business cycle. In fact an inverted spread of the current - 43 points relates to a 40% chance of a recession occurring within the next 6 – 12 months.

In September 2000 just before the U.S. equity markets collapsed, most blue chip economists and money managers were telling us that “This time it is different.” If you recall, they specifically focused on the fact that the markets were close to setting new highs, so any talk of a recession was ridiculous. We were told that instead we were heading for a soft landing. Note that in 2000, none of these blue chip economists predicted or even considered that we would have a recession. But what happened – the economy slowed significantly and was in recession by March of 2001. The facts are the “This time was not different.”

We do not know if we are going to experience a recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. The

yield curve, the more bearish the “forecast.” The negative yield spread is increasing. It broke to a new low Friday with the 10 year bond yield being 43 points below the 90 day T-bill.

Historically, inversions of the yield curve have proceeded many of the U.S. recessions. Due to this historical correlation, the yield curve is often seen as an accurate forecast of the turning points of the business cycle. In fact an inverted spread of the current - 43 points relates to a 40% chance of a recession occurring within the next 6 – 12 months.

In September 2000 just before the U.S. equity markets collapsed, most blue chip economists and money managers were telling us that “This time it is different.” If you recall, they specifically focused on the fact that the markets were close to setting new highs, so any talk of a recession was ridiculous. We were told that instead we were heading for a soft landing. Note that in 2000, none of these blue chip economists predicted or even considered that we would have a recession. But what happened – the economy slowed significantly and was in recession by March of 2001. The facts are the “This time was not different.”

We do not know if we are going to experience a recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. Th

cle. In fact an inverted spread of the current - 43 points relates to a 40% chance of a recession occurring within the next 6 – 12 months.

In September 2000 just before the U.S. equity markets collapsed, most blue chip economists and money managers were telling us that “This time it is different.” If you recall, they specifically focused on the fact that the markets were close to setting new highs, so any talk of a recession was ridiculous. We were told that instead we were heading for a soft landing. Note that in 2000, none of these blue chip economists predicted or even considered that we would have a recession. But what happened – the economy slowed significantly and was in recession by March of 2001. The facts are the “This time was not different.”

We do not know if we are going to experience a recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. Th

any talk of a recession was ridiculous. We were told that instead we were heading for a soft landing. Note that in 2000, none of these blue chip economists predicted or even considered that we would have a recession. But what happened – the economy slowed significantly and was in recession by March of 2001. The facts are the “This time was not different.”

We do not know if we are going to experience a recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. Th

recession. We do not know if the housing market will experience a hard or a soft landing. We do not know whether or not “this time will be different.” But as investors we plan to be prepared. Because the mainstream media isn’t worried doesn’t mean we shouldn’t be prepared for an economic slowdown or a recession.

The Fed understands that the inverted yield curve is warning of a possible recession. They will continue to watch the data closely. Bernanke will continue to straddle the teeter-totter balancing between inflation and deflation. If the inversion on the yield curve continues, the Fed will become anxious. They are publicly saying that inflation is their biggest worry, yet if the economy slows or a recession kicks in, they will be very concerned that the consumers will no longer consume.

If inflation is their biggest worry, they will look to raise rates. If a recession is their biggest worry, they will need to turn on the liquidity spigots again and look to lower rates. It is a dicey game to have to play. But while the experts are saying that all is good and the Dow is at a new high, we suspect that this time is no different and that we are in for an economic slowdown at best and a full recession at worst. If we are correct, then it makes sense for us to stay out of the equity markets at this time.