22 Yield Curve Inversions: Recession at Hand, Buy Gold

-edited

Yields dropped across the board today as the Fed said it would be patient. A "Dot Plot" shows no hikes expected in 2019.

The lead chart shows interest levels today vs those on December 18, the last meeting in which the Fed hiked rates.

22 Inversions!

  • 7-Year with FFR, 1-Month, 3-Month, 1-Year
  • 5-Year with FFR, 1-Month, 3-Month, 1-Year, 2-Year, 3-Year
  • 3-Year with FFR, 1-Month, 3-Month, 1-Year, 2-Year
  • 2-Year with FFR, 1-Month, 3-Month, 1-Year
  • 1-Year with FFR
  • 3-Month with FFR
  • 1-Month with FFR

A 10-year vs 3-month inversion is only 8 basis points away. A 10-year Fed Funds Rate inversion is a mere 4 basis points away.

Deficit Warning Sign

Note the stubbornness of the 30-year yield. It's only down 9 basis points since December 18 whereas every duration between 2 years and 10 years inclusive is down a minimum of 25 basis points.

Three-year notes through 7-year notes are down 30 basis points since December 18.

Also, please note the spread between the 30-year long bond and the 10-year note was 18 basis points on October 18, 2018; 25 basis points on December 18, 2018; and 44 basis points on March 20, 2019.

I repeat my view that the long end of the bond market is very concerned about US government deficits exceeding $1 trillion dollars for the next five years minimum.

Recession Warning

The bond market today provides a clear recession signal. If you prefer, the Fed is strongly acting to prevent one.

However, this is out of the Fed's hands.

  • The global economy is slowing rapidly.
  • Europe is already in recession (that viewpoint just has not been officially recognized yet except for Italy). Brexit, no matter the outcome, has sealed the European fate.
  • China and Japan are both cooling rapidly.
  • The US will not be immune.

Do not discount the possibility that a US recession has started already.

Trade and Budget Deficit Concerns

  1. Trump's trade deficit reduction ideas via tariffs are "Mission Impossible": Tariffs Didn't Reduce the Trade Deficit (Deals Won't Either)
  2. As noted above, action in the long-bond suggests bond market deficit concerns. For discussion and projections, please see Projected US Budget Deficit Lie in Four Pictures.
  3. For a comparison of Fed rate hike projections today vs December 18, 2018 please see Fed Pledges "Patience", Dot Plot Suggests No Hikes in 2019

The most likely way the trade deficit shrinks is via recession. See the "Mission Impossible" case above for discussion.

Buy Gold

Meanwhile, buy gold. The budget deficit picture will get much worse in a recession.

Mike "Mish" Shedlock

Comments (24)
No. 1-13
Bam_Man
Bam_Man

You could see the way "they" attempted to smash Gold futures this morning, ahead of the Fed's total capitulation. It worked for all of 2 hours. Things are going to get interesting.

AWC
AWC

The plot thickens. In the present market environment, news like this could drive the DOW to 30K. /s

sunny129
sunny129

As long as the price of paper GOLD is controlled by the vested interests, what's the point of hoarding physical gold? Gold is just a trade for me for primarily option trading with small portion in AUI.

Realist
Realist

I'm beginning to feel badly for you Mish. A recession will arrive eventually, but probably not this year; unless Trump expands his trade wars. Is he truly that stupid? Only time will tell.

2banana
2banana

obama had four years of deficits $1 trillion+ and added more to the national debt than ALL other administrations in the history of the United States combined.

Mish yawned.

Gold went sideways.

truthseeker
truthseeker

Also I wonder if gold is being helped today by Trump’s goofy, guilty behavior as the Mueller report may really be coming soon.

Casual_Observer
Casual_Observer

Still dont see a true recession. I suspect we get slow growth until rates are cut again. We will be like Japan with rising deficits and meager growth but unlike Japan we have a population that spends when they can. John Mauldin called the last decade the muddle through but we may get another decade of that with near 0 rates. The Fed didn't get far enough into its hiking cycle to slow the economy down appreciably. The bond market will love being able refinance debt at lower rates. What say ye?

Casual_Observer
Casual_Observer

By the way the MMT people and Fed and US policy arent that far off. They just spend money on different things. Debt is meaningless as long as rates dont rise. This can go for decades as Japan has shown. Liquidity is the only necessary element.

Escierto
Escierto

The PPT was working hard today to drive down gold and ramp up the stock market. These guys will be doing some heavy lifting all year to keep this shit show together.

Casual_Observer
Casual_Observer

What happen to PPT today ?

inonothing
inonothing

Where would Mish buy gold? I don’t trust online sellers holding my gold in their vaults.

sunny129
sunny129

If spending DEBT on DEBT would bring prosperity, we ALL would be RICH!

BTW DEBT is meaningless until, the cost of the servicing of that DEBT goes up but revenue or income goes down!

Just a matter of time!

Buffett Mkt cap to GDP over 140% Global DEBT to GDP 250 T/ 100 T! all record levels!

sunny129
sunny129

Tt is hard to physical GOLD when it is getting affected by the Price of paper GOLD, manipulated by vested interests especially CBers, every day. Buy it, keep it at home and worship it?

GOLD is just a TRADE for me NOT a religion. I can accomplish the same with option trading (calls! & PUTS!) Same with oil and many other things. Any thing traded online!

If the dooms day comes, it matters little!