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Fear The Inversion?

An inverted yield curve has proven to be a key indicator in predicting recessions.  Currently the 10-year Treasury yield (2.83%) is now only 0.31% higher than the 2-year yield (2.52%), the flattest curve since August 2007.


But, is it always wise to fear an inverted yield curve? 

9 of the last 9 recessions started with one.

The 2-10 inverted in Dec ’88, May ’98, and Jan ’06.

S&P 500 Index peaked 19, 22, and 21 months later.

It gained +33.2%, +39.6%, and +22.3% AFTER each inversion.

Yield Curve Inversion Explained:  An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.

The shape of the yield curve changes in accordance with the state of the economy. The normal or up-sloped yield curve may persist when the economy is growing and conversely, the inverted or down-sloped yield curve is likely to press on when the economy is in a recession. One underlying reason such a relationship exists between the yield curve and economic performance relates to how a higher or lower level of long-term capital investments may help stimulate or rein in the economy. By issuing longer-term securities with lower-yield offerings, businesses and governments alike can acquire needed investment capital at affordable costs to jumpstart a weak economy.

Hat tip Charlie Bilello, Ryan Detrick,

Employment Report Due Tomorrow Morning

Some color:   The forecast for the forthcoming BLS report is for 190K nonfarm private new jobs and the unemployment rate to remain at 3.8%. Their forecast for the May full nonfarm new jobs is (the PAYEMS number) is 200K.


From yesterday’s ADP report:   “The labor market continues to march towards full employment,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Healthcare led job growth once again and trade rebounded nicely.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.”

Hat tip

Coming Aboard


From   PHILIPPINE SEA (June 20, 2018) An F/A-18E/F Super Hornet assigned to the “Dambusters” of Strike Fighter Squadron (VFA) 195 prepares to make an arrested landing on the flight deck aboard the aircraft carrier USS Ronald Reagan (CVN 76). Ronald Reagan, the flagship of Carrier Strike Group (CSG) 5, provides a combat-ready force that protects and defends the collective maritime interests of its allies and partners in the Indo-Pacific region. (U.S. Navy photo by Mass Communication Specialist 1st Class Darren M. Moore)

One Helluva Run


When the market does correct, and it will, it’s going to be painful.  A 50% correction, similar to the 2000-2002 and 2007-2009 versions, would drop the S&P 500 Index down to the $1775.00 area wiping out all the post election gains in the process.  The 2016 low was set in February at $1810.00.  

Why is the potential for a major correction growing.  Consider:  The current bull market, as measured by the S&P 500 Index, is now 112 months old.  It is now the second longest stock rally in history, only 1990 to 2000 bull run is longer(114 months).  

The current economic expansion reached its 9 year(108 months)birthday last month making it the second longest expansion in history.  Only the roaring 90’s(120 months)stand in the way of  it becoming the longest ever.

Hat tip LPL Research/Ryan Detrick

Time For Gold To Shine?

Some Color:  Since 1975, the second quarter of the year has been by far gold’s worst—with returns dead flat over the 41-year period—and this year has been no exception, with gold down about 1%. On the flip side, the third quarter has been the best, outperforming its closest rival, Q4, by a whopping 40%.

Given the clear seasonal patterns gold has exhibited over the past four decades, investors can use these trends to make strategic purchases when the market is the weakest.

Microsoft Word - 170621_HAA_UOP_Gold_Seasonality_JG_edits_SJ_PRO

The GLD fell to new 2018 lows yesterday under heavy selling pressure.  The index retested its 40 week moving average, which had previously held a major low last December, during Monday’s sell off.  This morning Gold is rebounding nicely and may be in the early stages of a powerful new rally leg.  The seasonal patterns are certainly in line for this.


At time of publication we are long GLD in some managed accounts.


Manufacturing Activity Surges


From  American factory activity accelerated for the second straight month in June, signaling momentum in the U.S. manufacturing sector.

The Institute for Supply Management on Monday said its manufacturing index rose to 60.2 in June from 58.7 in May. Numbers above 50 indicate activity is expanding across the manufacturing sector while numbers below 50 signal contraction.  Economists surveyed by the Wall Street Journal expected a 58.1 reading for June.

Rollbacks matter…

Remember when we were told these jobs were never coming back…

“When somebody says like the person you just mentioned who I’m not going to advertise for, that he’s going to bring all these jobs back. Well how exectly are you going to do that? What are you going to do? There’s uh-uh no answer to it. He just says. “I’m going to negotiate a better deal.” Well how? How exactly are you going to negotiate that? What magic wand do you have? And usually the answer is, he doesn’t have an answer.”

Hat tip


Housing Bubble?

In San Francisco, sure looks like it.   Families Making $117,000 Qualify For Low-Income Housing:



Hat tip Jesse Colombo

Wings of Cotton


From  MEDITERRANEAN SEA (June 26, 2018) An F/A-18 Super Hornet flies over the Nimitz-class aircraft carrier USS Harry S. Truman (CVN 75) during a change of command ceremony for the “Fighting Checkmates” of Strike Fighter Squadron (VFA) 211. Harry S. Truman is operating in Commander 6th Fleet area of responsibility in support of maritime security operations alongside allies. (U.S. Navy photo by Mass Communication Specialist 3rd Class Rebekah A. Watkins)

Stacked Angels


From The Blue Angels, the Navy’s flight demonstration squadron, perform during the Vectren Dayton Air Show in Dayton, Ohio, June 23, 2018. Navy photo by Petty Officer 2nd Class Timothy Schumaker

The Second Weakest Quarter

It begins Monday, the second weakest quarter of the four year Presidential cycle.  Down 0.5% on average, only the second quarter of year four is weaker:


But, then there’s this…from Ryan Detrick:   What happens when the S&P 500 is higher in both May and June (like 2018 will likely be)?   The final six months of the year have been higher the past 11 times in a row. Going back to 1950?   The final 6 months are higher 19 out of 22 times.  Since ’50, full calendar year has never been lower on a total return basis. That is 22 yrs in a row in the green.   Since ’28? 29 of 30 years finished in the green.

Hat tip Ryan Detrick/LPLReseach

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