I am a fan of Campbell Harvey, economics professor at Duke University, and a partner at Research Affiliates. I’ve referenced his work in the past (see this or this). He sat down with the guys to discuss the meaning of the yield curve indicator, which he discovered in 1986 while working on a dissertation.
Campbell cites the fact that 7 out of the last 7 recessions had been presaged by a yield curve inversion – which is what happens when it longer term bond yields fall below shorter term bond yields in the Treasury market. He believes that this phenomenon occurs when the market participants begin to grow more pessimistic about the economic outlook. The behavior of executives, lenders, borrowers and investors can change enough during these times to actually become a self-fulfilling prophecy – producing a negative feedback loop that drives a weakening economy into a full-blown recession.
As noted before, Recessions are a normal part of the business cycle. When the person who invented the yield curve as an indicator tells you he has some concerns, you stop to hear what he has to say. Josh & Mike did a great job throwing questions at him.
Check it out:
It’s a Code Red: Inventor of the Yield Curve Indicator on the State of the US Economy
Source: The Compound
How to Invest and Profit in the Next Recession (June 21, 2019)
A Recession is Coming . . . A Recession is ALWAYS Coming (October 14, 2016)
How Imminent is a Recession? (April 9, 2016)
CFOs: Recession Has Already Started (March 13, 2008)