It is amazing how little attention this is getting. The yield curve is heavily inverted and is sending major warning signs for the near future. The short-term yields are higher than long-term yields, and I don't remember ever seeing it this exaggerated.
The spread on the 2-year yield and the 10-year yield is about 77 basis points (4.46% vs. 3.69%) as I write this. That is a huge spread.
Even more incredible is comparing the longest-term yield against the shortest. The 1-month yield stands at 4.11%, while the 30-year yield stands at 3.74%. This is a difference of 37 basis points.
The 10-year and 30-year yields are the lowest on the curve right now.
Treasury/ bond investors are willing to take a lower interest rate for 30 years than for 1 month. Maybe the bond market is wrong on this one, but it is basically telling us to expect something along the lines of economic Armageddon.
This is barely being covered in any so-called mainstream news. CNBC does cover the bond yield inversion to a certain extent, but there isn't a ton of emphasis on it. Maybe you can only talk about it for so long, but there is a lot more focus on individual companies and how they are innovating and investing for the future.
The yield curve is so out of whack that it is hard to make sense of it. The only conclusion is that we are headed for some kind of depression next year.
I see the financial "experts" saying that we should expect moderate or slowed growth next year. The perma bulls never predict a recession, which is why they are perma bulls. Still, to be fair to CNBC, they do have some alternative voices on who are sounding the alarm, but probably not loud enough.
There is typically a lag from when the yield curve inverts to when the recession kicks in. But unless the Fed goes crazy with money creation as it did in March 2020, there is no avoiding this major recession. In fact, creating money and lowering interest rates will only prolong and worsen the inevitable.
The yield curve may straighten out before we actually see the recession kick in. This is typical. But it could still take a year to show up. With the massive inversion and the Fed's continued tightening, I wouldn't be surprised to see the recession come earlier in 2023.
The Fed is still fighting the 8 percent price inflation that it created. The Fed will likely raise its target rate again at the December meeting. The Fed is aggressively raising its target rate in the face of a highly inverted yield curve. This is the formula for a massive recession or depression.
The air is already coming out of the Everything Bubble, but expect it to get much worse. The crypto market is largely the face of this speculative bubble, and there will be a lot more damage here. But the decline in major asset prices – particularly stocks and real estate – will be felt the hardest by most people.
And with any bad recession, we should expect that unemployment will start to rise. It has been an unusual time with companies struggling to hire people. As businesses go bankrupt and consumer demand falls, the labor market will shift quickly.
It almost doesn't matter what happens from here. The economic recession or depression is baked into the cake. The thing that will matter is how the government and central bank respond when it hits.
Instead of allowing a cleansing of the malinvestment and letting resources be allocated in accordance with consumer demand, they will likely interfere and prop up failing businesses and industries and inject more "stimulus" to try to cover up some of the pain. This will only make it worse.
We really need a recession like the early 1980s where the Fed doesn't fight it. We need a liquidation of the malinvestment. We need to allow the free market to operate. Unfortunately, I don't see that happening.
The good news is that consumer price inflation may come down, at least for a while. Consumer prices aren't going back to where they were a few years ago, but maybe they will stop rising so fast. Prices of some assets may go back to where they were years ago, but not groceries.
The inverted yield curve is the number one indicator of a coming recession. It is the big economic news that nearly everyone is ignoring. You would be wise not to ignore it.
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