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Inverted Yield Curve risk
August 25, 2019
10:14 pm
Loonie
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Interesting interview with Prof Campbell Harvey, who discovered the relationship between yield curve and recession.
https://www.bnnbloomberg.ca/this-time-isn-t-different-says-the-prof-who-first-linked-inverted-yield-curve-with-recession-1.1305520

August 25, 2019
11:30 pm
Vatox
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Yep, it’s going to hurt big time, this go around.

August 27, 2019
8:20 am
Bud
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The yield curve is a narrative being promoted by interest groups if it wasn't we could all make a fortune. It's dates math r being manipulated to suit the group probably the industry led by leading traders. Sorta like y2k.

The good news is if vatox is right we'll be able to buy assets like currently wildly overvalued stocks cheap

August 27, 2019
1:33 pm
Vatox
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dealjunkie said
The yield curve is a narrative being promoted by interest groups if it wasn't we could all make a fortune. It's dates math r being manipulated to suit the group probably the industry led by leading traders. Sorta like y2k.

The good news is if vatox is right we'll be able to buy assets like currently wildly overvalued stocks cheap  

Oh, the crash and crisis are coming! The stats and conditions are all beyond anything in the past. The only questions are, when will it happen and what will be the trigger? I’m betting on Italy.

August 27, 2019
2:58 pm
Bud
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Great! Look forward to buying dirt cheap assets for a quarter of price.

How do u think depositors will fair?

As long as the system doesnt burn to the ground im cool with billionaires, speculators and idiot money losing big

Vatox got the rate downturn right so far

August 27, 2019
3:23 pm
Kidd
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Vatox said

The only questions are, when will it happen and what will be the trigger? I’m betting on Italy.  

You lost me with "italy". The Italians are a non event. If you'd said China and the crash of their currency, or China recalling American debt. That i would think plausible. Tomato sauce and olive oil will not end the world.

The European P.I.G.S. - Portugal, Italy, Greece and Spain have been bankrolled by the EU. Germany, there might be an issue there, their economy is apparently slowing.

https://fortune.com/2019/02/14/italy-olive-oil-climate-change/

August 27, 2019
3:35 pm
Kidd
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August 27, 2019
4:34 pm
Vatox
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Kidd, Italy’s debt is $2.3 trillion and it’s economy is 10 times the size of Greece. Italy is the third largest economy in the Euro Zone. Unlike China and the U.S., Italy doesn’t control it’s currency, the ECB does. The ECB could just pump liquidity to ease a potential crisis, but all of Europe would suffer and the EU is the third largest economy in the world. That’s a big problem.

Having said that, Sovereign debt problems aren’t know to cause a crisis. The U.S. corporate debt has gone ballistic, buying up stocks to increase dividends instead of investing the borrowed money into new technologies and factory efficiencies. Corporate debt issues could be the next trigger.

Liquidity is going to be the cause, we will just have to see how it plays out.

August 27, 2019
5:42 pm
Bud
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a trillion is becoming peanuts

August 27, 2019
6:36 pm
Vatox
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dealjunkie said
a trillion is becoming peanuts  

Lol, that’s exactly the kind of sentiment that has lead us to the upcoming economic disaster.

World debt is around $244 trillion and that’s 3 times world output. Corporate debt is nasty and so is personal debt. Remember, we don’t live in a vacuum, the ripples and shockwaves will hit all.

August 27, 2019
8:24 pm
Bud
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We r up 6trill

"The total wealth of the world in 2015 was estimated to be $250 trillion dollars by Credit Suisse in their annual global wealth report."

August 27, 2019
11:05 pm
Vatox
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So.. you are proud of a 97.6% debt ratio? Oh, I forgot, some nations are at 250%, so the 97.6 looks okay from that perspective. NOT, but unfortunately you and many others think that way and that’s why it’s all going to burn.

August 28, 2019
5:52 am
Bud
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If it burns rates will shoot up no? due to loss of confidence its happened before e.g. quebec currency crisis n other soverign debt crises

August 28, 2019
7:28 am
Doug
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Vatox said
So.. you are proud of a 97.6% debt ratio? Oh, I forgot, some nations are at 250%, so the 97.6 looks okay from that perspective. NOT, but unfortunately you and many others think that way and that’s why it’s all going to burn.  

+1 to this (wish we had a +1 feature on here, though maybe not a downvoting feature as that is often misused). sf-cool

Cheers,
Doug

August 28, 2019
8:28 am
Bud
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so what assets are best to hold thru the collapse?

August 28, 2019
8:50 am
Vatox
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dealjunkie said
If it burns rates will shoot up no? due to loss of confidence its happened before e.g. quebec currency crisis n other soverign debt crises  

Rates definitely won’t shoot up! We are edging closer to rate decrease territory. I think a rate decrease is a bad idea and that it would simply make things worse in the long run. But the government wants to sell bonds easily. I hope cooler heads prevail and rates just hold.

Edit: you are confusing bond rates with deposit rates and central bank rates.

August 28, 2019
11:21 am
Bud
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r u saying in a financial catastrophe government will still be able to sell bonds at 0 or less percent

i thought bond prices affect deposit rates

August 28, 2019
11:50 am
Londonguy
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dealjunkie said
so what assets are best to hold thru the collapse?  

Gold coins, canned food and lots of ammo....

August 28, 2019
12:21 pm
Vatox
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dealjunkie said
r u saying in a financial catastrophe government will still be able to sell bonds at 0 or less percent

i thought bond prices affect deposit rates  

Bond prices, bond yields and bond coupon rates are 3 different things. Bond rates don’t affect deposit rates. Deposit rates are determined by FIs and can change at anytime but usually move after the central banks change the overnight rate.

Having said that, if bond yields get too low, it may push the central bank to lower the overnight rate which then may cause FIs to lower the deposit rates. The 5 year bond yield is low right now and falling. This is the fear that may bring on a BoC rate drop. I think a rate drop is a bad idea and I’m not just saying that because I don’t want my HISA to pay less. I really do think a rate drop will create an even bigger problem.

August 28, 2019
12:52 pm
Loonie
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I'm not an economist but it seems to me that lower rates encourage more borrowing. This is bad for consumers because it creates more indebtedness that may not be sustainable. And corporations are not reinvesting like they should be so lower rates won't do much good there either. I can't imagine the banks even like it because it reduces their spread.

As an aside, the other day I was at a credit union branch and the rep told me with great excitement that their five year mortgage rate was now X (very low). He knows I have no interest in mortgages, that I'm only interested in higher rates, not lower. It kind of turns my stomach when I see them getting so excited about things like this. It seems like the only thing that gets their juices flowing is more loans, but these can't fuel the future if they can't ever afford to raise the rates because people won't be able to afford to sustain the loans

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