• Howard Kline

WHAT IS THE INVERTED YIELD CURVE AND WHAT IT PORTENDS FOR THE ECONOMY?

We are hearing all kinds of warnings about a slow down in the economy and signs of an upcoming recession. Today,  Peter and I will be talking about possible conflicting economic indicators, from a lay perspective. As part of our conversation, we will be discussing the Yield Curve; what it is and what does it mean? We will also be discussing other economic indicators, including wage growth and  retail bankruptcies.  This show was live on August 29, 2019 at 4:00 pm, PST. The video, audio only podcast and summary outline are below.

To watch the video recording, click on the video, above. The audio only version can be downloaded or listened to on this page, below.


SHOW TOPICS

THERE ARE CONFLICTING ECONOMIC SIGNALS

INDICATIONS OF A RECESSION IN THE NEAR FUTURE

WE HAVE SEEN ECONOMIC GROWTH FOR A RECORD, MORE THAN 10 YEARS

A RECESSION IS INEVITABLE

INVERTED YIELD CURVE

WHAT IS REFERENCED AS THE YIELD CURVE?


“A yield curve is a way to easily visualize this difference; it’s a graphical representation of the yields available for bonds of equal credit quality and different maturity dates”. https://tinyurl.com/fidelity-yield-curve


“A yield curve is a way to measure bond investors’ feelings about risk and can have a tremendous impact on the returns you receive on your investments.” https://tinyurl.com/fidelity-yield-curve


“The one you’ll probably hear referred to most often as “the yield curve” reflects the short, intermediate, and long-term rates of US Treasury securities. The Treasury yield curve is often referred to as a proxy for investor sentiment on the direction of the economy.” https://tinyurl.com/fidelity-yield-curve


Generally, a normal yield curve is when short-term bonds and treasury notes yield lower returns than longer term bonds and treasury notes


WHAT IS AN “INVERTED YIELD CURVE”?

Generally, when long-term bonds and treasury notes yield lower returns than short-term bonds and notes.


WHAT DOES IT MEAN?

May evidence investor’s lack of confidence in the economy

Focus is on liquidity.


THE RICH AREN’T SPENDING

See CNBC Article https://tinyurl.com/Rich-rnt-spending

  • A sudden pullback in spending among the wealthy could cascade down to the rest of the economy and create a further drag on growth.

  • High-end real estate is having its worst year since the financial crisis.

  • Luxury retailers are struggling while discounters like Walmart and Target thrive.

  • At this month’s massive Pebble Beach car auctions, the most expensive cars faltered on the block. In the first half of 2019, art auction sales were down for the first time in years.

How accurate is the data?


CONTINUING RETAIL BANKRUPTCIES


FOREVER 21 RUMORS

Forever 21 has 815 Locations

CNBC reports that “Forever 21 is Simon’s seventh largest in-line tenant in terms of how much rent it brings the landlord, with 99 stores across Simon’s portfolio. CEO David Simon had told analysts in July that he would consider infusing more capital into distressed retailers, not naming names specifically, in order to guarantee keeping stores open. Simon helped buy teen apparel retailer Aeropostale out of bankruptcy court roughly three years ago ” https://www.cnbc.com/2019/08/28/forever-21-reportedly-preparing-potential-bankruptcy-filing.html


Yahoo Finance reports that “A bankruptcy filing would help the company shed unprofitable stores and recapitalize the business, said the people, who requested anonymity discussing private negotiations. Representatives for Forever 21 didn’t respond to a request for comment. Co-founder Do Won Chang had been focused on maintaining a controlling stake in the company, which limited its fundraising options. A faction of Forever 21 officials, without the approval of Chang, had asked its biggest landlords to consider taking a stake in the company amid a disagreement within its leadership, Bloomberg previously reported.” https://finance.yahoo.com/news/forever-21-prepares-potential-bankruptcy-201802375.html


B. ANNE TAYLOR AND DRESS BARN HTTPS://TINYURL.COM/RETAIL-RUMORS

The New York Post has reported that “Mahwah, NJ-based Ascena, which also owns Ann Taylor, Loft, Lane Bryant and tween retailer Justice, has not returned the lenders’ calls and emails for at least a month, raising concerns about whether the publicly traded company is preparing to file for bankruptcy protection”. The Post noted that there are no reports that payments to the lenders have not been missed.


A telling story might be whether rent payments have been missed.

A bankruptcy strategy can be to hold off on rent payments to bankroll a bankruptcy.


Is keeping count of closings, only an accurate indicator of the health of retail?


CONTINUING ECONOMIC EXPANSION AND STRENGTH

ECONOMY IS STILL ROARING

UNEMPLOYMENT AT RECORD OR NEAR RECORD LOWS

WAGES ARE GOING UP

There is a push to increase minimum wage. See Bisnow article at https://www.bisnow.com/national/news/economy/minimum-wage-increases-putting-pressure-on-hotel-retail-and-industrial-businesses-100509

  • Conflicting reads on rise of wages/minimum wage

  • People spend more money, which in a consumer economy raises prices (inflation) but continues a strong economy

  • May put downward pressure on profits by increasing costs

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