On December 4, the market experienced a big selloff. Part of the reason is something we have been concerned about for a while: a yield curve inversion. In simple speak, longer term Treasury notes (10 year) almost always pay more than 2 year notes, for obvious reasons: it’s more risky to lend money for 10 years than for 2 years. When the yield curve inverts, investors receive less interest for 10-year notes than for 2-year notes, indicating they think there is short–term risk. Those short-term risk perceptions could be uncertainty about tariffs or trade wars. Irrespective, an ‘inversion’ is considered a leading indicator of slowdowns and recessions.
The spread on 12/04/18 was 0.11%. That is the lowest the spread has been since 2007, 2000 and 1990, all of which had subsequent recessions.
We have always maintained that the question is not ‘if’ we get a recession, but ‘when’? To that end, we are working on a comprehensive Recession Opportunity Kit. It will be available along with our 2019 Outlook which, rest assured, is interesting. In the meantime, be aware that we are monitoring and planning the next moves.
Leon LaBrecque, JD, CPA, CFP®, CFA
Managing Partner and CEO, LJPR Financial Advisors
5480 Corporate Dr., Suite 100 | Troy, MI 48098 Main: 248.641.7400 | Fax: 248.641.7405