Last week was quite a wild week for the equity markets, to say the least.  It started with what’s called an inverted yield curve.  Simply put, the longer people tie up their money, savers would expect to earn a higher interest on the deposits.  And, the shorter amount of time savers tie up their deposits, the funds would earn a lower amount of interest.  Last week, for a brief time, the 10-year Treasury was paying a lower interest rate than the 2-year Treasury.  In the past, this has been a signal of a coming recession.  Hence, the equity market selloff on Wednesday of last week.

Just on a personal note, there seems to be a lot of people pulling for a recession.  Gosh, I wonder why.  I guess it’s hard to run for political office, especially when you’re running against economic policy that has led to record lows in unemployment and accelerating wage increases.  BTW, consumers still go to Walmart in large numbers.

The first article attached has a video interview with St. Louis Federal Reserve president, James Bullard.  I think it’s worth the 6+ minutes it takes to view the entire video.  The second article delves into the history of past inverted yield curves.  Please note, the end of the article has the same caveat as does the end of my weekly emails.

So, will there be a recession?  If we wait long enough, probably.  Is it right around the corner?  I have no idea.  Right now, things look pretty good.  I’m sure a couple of trade agreements would help but we continue to follow the investment course with the portfolios, diversified among broad asset classes and using the options layover to potentially increase cash flow in a rising market and protection against a sudden and dramatic drop caused by some cataclysmic event.  The downside is that in a declining market that drops over time, the portfolios will underperform.

As always, should you have any questions or wish to meet with me, please just email or call the office.  In the meantime, have a super week.

Link to article…

Doug Alden

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