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Matt Winkler
Matt Winkler
Articles (96) 

How I Learned to Stop Worrying and Trust the Yield Curve

The yield curve has now flattened to 20 basis points with arguments still being made that 'it's different this time.' It’s probably not

August 24, 2018

Rating: 5.0/5 (9 votes)

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CamHarvey
CamHarvey - 2 months ago    Report SPAM

Thanks for featuring my research and linking to that 2008 deck. To be clear, I didn't get everything right. I did correctly forecast the recession (global financial crisis) more than one year in advance. You are correct that I did not get the magnitude right. That said, the drawdown in real GDP during the crisis was -4.1% (2007Q4-2009Q2). Let me remind you the draw down 1929-1933 was -27%. I standby my remark on corporate balance sheets. Usually, we separate the financial sector from the rest of the US corporations. The main problems were the financial sector (with some exceptions like some autos). As for "awash in liquidity," I was referring to the actions of the Fed. If you are interested, my recent analysis is here. (https://www.fuqua.duke.edu/duke-fuqua-insights/harvey-yield-curve) .

ekalavya4mohnishpabrai
Ekalavya4mohnishpabrai premium member - 2 months ago

Just right article for currrent times. What do you think of next recession. I am predicting it to be in next 6-12 months?

TonyTiger
TonyTiger premium member - 2 months ago

Great article! Several authors argue a flat or inverted yield curve stops banks from creating new credit. They borrow short and lend long, with a flat or inverted yield curve their business model is broken.

As liquidity is one of the main drivers for stock market returns (people buy shares when they have money), and the current bull market is definitively driven by liquidity:

What do you think about the yield curve as a leading indicator for stock market drawdowns?

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