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comment by wasoxygen
wasoxygen  ·  1983 days ago  ·  link  ·    ·  parent  ·  post: US Treasuries Never Wrong - well, not really

I see; the yield curve chart is a smooth estimate of the rates you could imagine getting if terms were offered between the official periods like 6 months, 1, 5, or 10 years.

Per Mr. Laird, the animation is intended to show that today's rates are poor estimators for future rates. I can't imagine why anyone would think they are good estimators. It seems to me that today's 3-month rate is a better guess for the October 2023 3-month rate than today's 5-year rate, if you had to guess.

I wouldn't know where to begin to make such a prediction, so I am impressed by your effort. I will take the cowardly, easy route and predict that at least one of these will NOT happen:

• The 2-year T-bill rate is higher than the 10-year T-bill rate on any day from 1 January 2019 to 31 March 2019.

• If such an inversion occurs, then the S&P 500 Index as reported by Google will have a higher value on at least one of the 365 days before the inversion date, or during days 395 to 760 after the inversion first occurs, than it does at its highest value in the 394 days following the inversion.

• If such an inversion occurs, NBER will add a new business cycle to its list of business cycle reference dates with a "peak" date during the six months following the S&P 500 maximum described above.

My confidence level is 90%, not because I know what I am talking about, but because of the conjunction law.





blackbootz  ·  1974 days ago  ·  link  ·  

When would be a good check-in date to resolve this? The conceivably-latest point at which my prediction would still hold would be August 2020 (if NBER states a recession started at least as late as February 2020).

wasoxygen  ·  1329 days ago  ·  link  ·  

Hey blackbootz, how are things? Welcome to August 2020. Let's see how your predictions worked out.

    I place 70% confidence that a 10-year US Treasury compared to the 2-year US Treasury will invert sometime within a month of February 2019,

The 10-2 inversion happened in August 2019.

    and then within 12 months of that inversion we will see the peak of the bull run,

The Dow and S&P 500 peaked in February 2020.

    and then 6 months from the peak will be a recession.

NBER called the recession in February 2020.

Your predictions were very good, with a little allowance for timing! Yield curve inversion remains an impressive indicator.

blackbootz  ·  1321 days ago  ·  link  ·  

That's remarkable. I edited the typo in the prediction, because indeed I meant February 2019 not 2018. That said, to the extent my prediction counts for something because I was accurate about the cause, I feel I was wrong. My understanding of the yield curve is that it's something like a bet about the state of interest rates in the future. Implicit in estimates of low rates in a year or two (which gives the curve its inversion) is that the Fed pursued a course of accomodative monetary policy in response to some crisis or business cycle. Now, the Fed certainly did do that, but not for "standard" recession reasons which I prophesied, something original to the financial sector, not a pandemic. It feels hollow to claim victory.

But it's fun to follow up on these. More predictions!

wasoxygen  ·  1974 days ago  ·  link  ·  

I’m free then.