This market just flashed a major danger signal!
March 5 (King World News) – Gerald Celente: On 26 February, the yield on the 10-year U.S. treasury note fell below that of the three-month note. This “inverted yield curve has had a sterling prediction record over a 12- to 18-month timeframe for downturns going back decades,” CNBC reported.
The Federal Reserve Bank of New York has so much faith in the signal that it provides a monthly update of the yield relationship between the two securities and uses it to calculate current odds of the U.S. falling into recession in the coming 12 months.
At the beginning of February, the odds of a downturn were 23 percent, the bank calculated.
“Now that is almost certain to change” as the curve has flipped, CNBC said.
“This is what one would expect if investors are adopting a much more risk-averse attitude due to a growth scare, which one periodically sees late in business cycles,” RSM chief U.S. economist Joseph Brusuelas wrote in a note.
“It’s not clear yet whether it’s noise or a signal that we’re going to see a more pronounced slowdown in economic activity,” he added…
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Markets typically pay more attention to the relationship between yields on the ten-year and two-year notes. However, the correlation between the 10-year and three-month treasuries is more sensitive to the central bank’s federal funds rate. The spread between them had been lessening recently before flipping last week.
The signal is not foolproof; the curve most recently inverted in October 2022 and no recession has appeared since.
However, investors now worry that what they thought would be a pro-growth agenda under a Donald Trump presidency might now produce the opposite result, CNBC noted.
The 10-year’s yield rocketed up on Trump’s re-election but has now dropped by 0.32 of a percentage point, bringing it down to virtually where it was on November’s election day.
Although economic indicators remain strong, The Conference Board’s February outlook index slumped to levels consistent with a recession ahead after its newest survey of executives.
TREND FORECAST:
It’s true that the last time the yield curve inverted no recession followed. However, things are different now.
Then, the U.S. was finding its way toward a post-COVID artificial economic recovery. After being locked down for three years, people wanted to live again, businesses were in a hiring frenzy and people were spending.
Now companies are laying off workers, consumers are paring back their spending, and Donald Trump’s broad-brush tariffs have been a wild card game changer.
Investors will keep one eye on the inverted curve. If it remains as is and other indicators fall deeper into negative territory, those investors will jump quickly to safe-haven assets.
The facts are plain and simple, should the U.S. equity markets crash, and we are forecasting Dot-com Bust 2.0, so too will the economy.
Gold & Silver On The Move
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