Forget a Bear Market, Is a Financial Apocalypse on its Way in the Wake of “Inverted Yield Curve”?
While the cryptocurrency market has been in a prolonged bear market that has warranted all kinds of dismal outlooks, the global markets took a hit on Friday and that’s when the dreaded inverted yield curve popped up. For the first time since 2007, the US Treasury 10 years note yields sank below the three-month mark. Looks like, the market is getting worse in the US before they get better.
There were a number of drivers leading to the inversion of “one year to 10-year” yield curve. For the starters, the Federal Reserve is reportedly shutting down the door on any more rate rise this year. The key US IHS Markit manufacturing survey also came much weaker than expected, hitting a two-year low.
Inverted Yield Curves Precede Recessions
While there has been a marginal expansion in the US, a European survey was gloomy. Talking about Germany, for the first time in three years, the manufacturers laid off workers and for six months now, new orders have been declining.
“When you look at the employment trend and new orders, they pose a downside to the outlook,”
noted Markit economist Chris Williamson.
“They look like they will subdue business confidence further and lead to a further retrenchment of spending by businesses and consumers, raising the risk of a recession.”
This has the Wall Street indices and Nasdaq tumbling over 2 percent along with European stocks.
“It is freaking the stock market because an inverted yield curve has a history of predicting recessions. However, it is just one of the 10 components of the Index of Leading Economic Indicators, which remains on an uptrend,”
said Ed Yardeni of Yardeni Research.
The inverted yield curve is a matter of concern as in the past they preceded US recessions. But doesn’t mean you have to go into a fetal position just yet. For one, sometimes, it sends off wrong signals, moreover, there is often a considerable lag time before the recession finally sets in.
Australia On Its Way To Economic Crisis
A financial disaster is looming and according to an Australian economist, everyday Aussies will get caught up in this fiasco. John Adams, former Coalition policy advisor made a grim prediction that this inversion is a sign of an impending US recession and the question is not if Australia would be affected, rather of when and to what extent.
“Australia currently has the largest debt bubble in its history at the same time when the world is experiencing the largest global debt bubble on record,”
He further said ordinary Australians were “completely exposed” to a global downturn and this is the latest market signal that Australia is on its way to an economic crisis.
What’s Your Bet
With Australia looking to see a recession, economic and political turmoil in Europe, a slowing Chinese economy, and the longest running bull stock market in the US in history means hope for the best and prepare for the worst.
Gold is the traditional form of insurance against these rough times however blockchain has provided with one more alternative to diversify the portfolio. Bitcoin has its highs and lows but this is the time to use the leading cryptocurrency to hedge against fiat.