6 November 2017: Yield curve inversion

The yield curve is a graphic representation of the yields of fixed-interest securities (a.k.a. ‘bonds’), plotted against the remaining time until they reach maturity. Short-term bonds usually offer lower yields than long-term bonds.
The spread (difference) between the 2-year and the 10-year yields is one of the (many) popular recession indicators. It is said that when this spread narrows, and the yield curve flattens (which it does now), a curve inversion is in the making. This key indicator has a solid reputation of forecasting a pending economic recession: the majority of recessions since World War II were preceded by inverted yield curves.
So this is what might happen, according to These Dutch Guys: we will see this inverted yield curve indeed occur. But unlike so many times before, this time the yield curve inversion will not be followed by a recession, and the unstoppable bull market will remain true to its reputation: unstoppable.

white-chapel-logo-smallA slightly disappointing October jobs report didn’t prevent investors from pushing up the indices to new records on Friday. Apple’s strong fourth-quarter earnings were the tailwind that not only pushed up Apple stock, but all indices as well. The Dow and the S&P 500 both gained (0.10% and 0.31% respectively), and the NASDAQ was even up by 0.74% Friday. Both the Dow and the S&P 500 posted their eighth consecutive weekly gain, the NASDAQ its sixth. Market volatility eased significantly Friday. The VIX closed almost 8% lower. During the week, the VIX hovered around the level of 10 points, but on Friday it settled in the single digits again, closing at 9.14 — its lowest close on record (our historical data start at 1/1/1990). Short term future traders apparently were less impressed by the data that boosted the markets. Volatility ETFs hardly moved Friday: UVXY ETFs lost 0.59%, XIV ETNs gained 0.15%.
Danny Daredevil‘s RSS fell from just above, to below 24%. Adventurous Anny remained unchanged, as she is holding cash. Solid Suzy and Lazy Larry profited slightly: their RSS rose to below 69%.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

23.53%

-69.36%

-11.34%

12%

Adventurous Anny Cash 6 March 2017

15.37%

15.37%

6.34%

24%

Solid Suzy XIV 6 March 2017

68.67%

68.67%

15.31%

119%

Lazy Larry
XIV 6 March 2017

68.67%

68.67%

15.31%

119%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 


Meanwhile in Japan

Japan is known as ‘the land of the rising sun’, but its sunsets are not bad either. Yesterday, René jumped on the bicycle and visited Moto Ujina, a former island. Nowadays it is a peninsula, as a road connects it to the mainland. The area is mostly forested, and has the feel of a nature preserve. As you walk by the big white lighthouse and a big old campher tree, you follow a narrow winding path that leads to the beach. René took several pictures of the beach, just before sunset. They are probably not that much different from those you will find by doing a Google Image search on ‘Moto Ujina’, and therefore not worth posting on this blog. On his way back, as the sun had already set behind the mountains, René stopped his bicycle and took this picture. Some photo opportunities are not to be missed.