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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: booney1 who wrote (81899)	12/5/2018 1:46:29 PM
From: Clear Eyed	1 Recommendation Recommended By Return to Sender Read Replies (1) \| Respond to of 95546

This yield curve inversion issue is a little like voodoo. Very few people think that an inverted yield curve is causal (of the next recession), but no one feels comfortable when it is or looks like it is about to happen. A few thoughts: - We have never had a yield curve inversion with rates at these low levels. The last time yields inverted (2 yr higher than 10 year) was 2007 when rates were in the high 4% area (~200bps higher than now). The time before that was 2000 when the 2yr and 10 year traded above 6%. Something worth considering is the FED model comparing the earnings yield on the S&P 500 to the 10 year treasury yield. We have never been in a situation where the difference between the earnings yield on the S&P 500 has been so much greater than the interest yield on the 10 year treasury when the yield curve was so close to inverting. In other words stocks look very inexpensive relative to bonds at this juncture. Also, many of the past times when the yield curve inverted 2 and 10 Year treasuries were trading at much higher yields (over 8% in 1990 - over 10% in the late 1970s/early 1980s). Are we going to see a stampede of investors to the 10 year which is trading at 2.9% because of its compelling return profile? - That leads to what's arguably driving the continued strong buying on the long-end of the curve? I submit that it's largely macro fears driven. China/US Trade tensions/uncertainty. We've never done fed rate increases and quantitative tightening at the same time. Brexit worries. Global growth slowdown worries. EU issues with Italy. Etc. - There's also the technical issue of many natural buyers have to buy long-term paper for asset/liability duration matching reasons. There are many price insensitive buyers out there. - Undoubtedly, there's also a lot of algo/quant trading that's driving this - Finally there's some good history out there that shows even if the yield curve inverts, often the stock market does well for at least 6 of more months thereafter. Upshot, most people don't like seeing the yield curve invert because of the correlation with preceding recessions. But might this time be different recognizing: - The absolute low level of rates - The discrepancy between the un-attractiveness of treasury yields and the attractive earnings yield on stocks - The potential for macro fears to tamper down (Powell sounded less hawkish at the economic club of NY, China and US trade negotiations seem to be moving in the right direction, etc) That is the questions.