Update: Core Portfolio down ‘only’ half a percent vs. 2.00% for SPY.
May 13, 2019. China in the news. Markets are plummeting. With this level of turmoil, there is obviously no reason to think about making any changes in the Core Portfolio. Remember that China has NO real incentive to make a deal with the U.S. and Trump does not seem to realize this. Same with N Korea: no real intention of ever making a deal.
So there is no quick resolution to this mess, and we expect long term volatility in the financial markets. If Trump actually manages to pull a rabbit out of the hat, we could see buying opportunities.
If you want a long and detailed explanation of the China tariff situation, GO HERE.
Why do we avoid Facebook? Who needs to read an hour by hour account of a so-called ‘friends’ colonoscopy. YUCK. FB has to be the biggest time-waster of all time. Get off social media and do something constructive to improve yourself.
NOW IN OUR 7TH YEAR
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There is a lot of chatter out there about inversion of the yield curve which apparently ‘predicts’ recessions.
BUT, in the article below, we learn something that we did not know. According to the economist who discovered this relationship, the inversion has to last at least a quarter. Once again, you have to research the crap you hear in the media, and NOT beleiver everything you hear from the financial talking.
Economist Campbell Harvey is credited with discovering the predictive power of yield curve inversions in his 1986 PhD dissertation. He found that an inverted yield curve was bad news for the economy, foreshadowing a recession.
He looked at two parts of the yield curve, the five-year note minus the three-month bill, and the 10-year bond minus the three-month bill. The crucial thing is to use a very short-term interest rate.
So when the 10-year bond minus the two-year note inverts this is of no importance.
Campbell Harvey stressed in a recent interview that the for the inversion to be meaningful, it needs to last for at least a quarter. If it’s a day, so what? GDP is measured quarterly, so we need to measure this quarterly also.
So while a portion of the yield curve briefly inverted recently, it quickly steepened again and didn’t even stay inverted for more than a day. So we can only conclude again that a recession is not around the corner – at least not based on the predictiveness of the yield curve.