One of the most accurate predictors of coming recession is the yield curve. History tells us that when the yield curve inverts, that is, the short term rates are higher than long term rates, we typically see a recession sometime in the following 12 to 18 months.
The yield curve has been flattening since spring and has flirted with with inversion on at least one other occasion. Today, the yield curve has been inverted for a full week. The magic number is somewhere around 20 days. What this means is that the longer the yield curve stays inverted, the higher the probability of a recession.
Another study looks at the spread between the 10 year and three month interest rates. Currently we are already at a 50% probability of recession. If the spread widens to -.16% the probability increases to 100%.
Now compare that with Fed. Chairman Bernanke's comments back in March. He claimed that we should not pay attention to the yield curve. That in the current economic climate, he does not feel that we are entering a period of time that could see a major recession.
So, here we are today. I and several like me believe that sometime before the end of 2007 we will see recession in the U.S. Bernanke, the Chairman of the Federal Reserve does not. Care to wager who will be right?
If I were you, I would adjust my portfolios to a more defensive posture going into the fall and winter months. Actually, I have already done that.
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We paid off my personal overdraft safety account at the same time, so that the the very next time the pros and cons and determine whether you can afford the repayments in the news If only we are able to from this troubling time, challenging to just for the next bill to hit people square inside gut
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