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hey welcome back to two super guys transo I'm Dylan and I'm VI and holy crap we're finally seeing yield on inversion after the longest period of interest rate yield inversion in history we're going to talk about what it means and we're talk about what it can imply for the US economy all right so um this is a lovely chart I pulled from one article uh this is actually accurate so you're displaying it now where we're seeing the uh you know we're gonna get to the actual chart itself here in a minute but like you know basically the relationship between yield inversion and recessions as graad areas so I have a quick question did we hit this earlier is it just we didn't close is that the thing yeah so we were we were teasing it all of all of like August basically you know like that thing that you enjoy doing what do you call it again edging edging edging edging yeah um so we're finally now closing in positive territory here on the the federal like actual database right uh so this is from uh the Federal uh you know reserve of the United States uh and you're you're seeing it now here as a positive number you know right 0.06 this is the two 10y year and twoyear treasury inversion right those are particularly the ones that people tend to watch there's a couple other but like this is like the big dog if you will and why does this matter right so this is just a general kind of representation of the cone of uncertainty in general you things out further into the future things get more like less and less predictable right this has the coolest name the cone of UN certainty okay I'm I'm interested let's go it's actually a nickname for someone's rectum too um an entirely different category of jokes here the idea behind this is that an investor should be paid more When there's less uh kind of certainty in terms of future performance of of investment so that's why it tends to be or would logically dictate that longer dated you know instruments like just 10year bonds should have a higher premium than shorter dated ones we've been living in lot land where that's been inverted for the last like two years effectively right but we're now snapping back out of that and going back to reality like that song right um so a few articles I pulled some some Snippets from here um but out of the last six recessions in the US faced since 1980 five were preceded by a yield inversion of at least 20 days all right this one's well past 20 days you know there's actual record is in here uh yeah 793 days so we slightly okay got it we made we made that 20-day threshold just a little bit and then the sixth one all right uh actually resulted from the co pandemic and there was an inversion but it was shorter right it was only six days yeah that recession whatever that was throws off so many of these statistics because it was such a unique scenario because it had nothing to do with macroeconomics and just it just the world shut down so it just it was really weird well one of the challenges with these any sort of applying this to prior recessions is that this is a a very unique one followed you know following another very unique episode um but we don't get a lot of data points right you're talking about six recessions since 1980 right yeah uh that that's that's majority of like you know an investment lifestyle is 45 years uh and you know we're looking at just six events during that time period it's not a very good data set um but this time the yield curve had been inverted for 793 days or about 26 months and still hasn't you been recession all right typically recession occurs between 6 and 24 months after the 2 and 10 year inversion all right now you know 6 and 24 months is kind of a useless time Horizon too right because it's like you could always be within six and 24 months of almost anything yeah it's like that is a a harvey hairy Dent statistic that's okay yeah so at some point in the future we'll have a recession cool cool someday um a chart mapping the yields of the debt has inverted and it is tempting to say things have malfunctioned in the bond world that we uh we should just give the US economy a clean bill of health when yields on the 10year debt finally end a trading day above those are the two-year notes but it's too soon to stop warning all right that's kind of like the the main the main point here as far as like the the timing goes even if the yield curve uh yield curve normalizes once and for all it doesn't mean the economy won't stumble right so we're normalizing now uh but we may be looking at economic uncertainty uh I got a couple data points on that towards the end too uh history has shown that the problems begin when prolonged periods of inversion end all right so it's at the end of these time periods is when the hits the fan so to speak right looking up at my ceiling fan as I say that uh the four most recent recessions 1990 2001 2007 2020 started only after the curve turned positive which is what has happened now in each case a downturn started between three and six months after the current uh turn uh curve turn positive just you know Reading Public public reading so this would be a good kind of segue we we did another video when I was looking at the labor market and we took a tally of you know a bunch of comments and it seemed like no one was saying the market would be negative within the next year that there would not be a recession soon within 6 to 12 months so we're in the minority here but it's just okay all right yeah you know it's funny too like uh you this is a chart that will kind of represent exactly what Dylan's talking about but from like a corporate government standpoint um the uninverted all right so it's a bullish rally in the price of treasuries across the board but you're seeing a more aggressive rally in the 10 year than you are in the two-year all right um those on the short end have fallen faster this often happens when investors are optimistic about future economic growth in other words it could signal up perfect soft Landing as well so that's another Counterpoint to this maybe they're just really happy about how good Chum Paulo has done this far job I do think he has done a good job he does so this right here is actually that that chart that was in the background of the uh the title slide um this is you know a great one where it's showing the yield on inversion and then recession timing period here all right this this is the the amount of time between the two as well so that gives you an idea of what sort of range we're talking about here remember that three months or six months um so we're looking at the shortest one is this 84 days the longest one is 287 days so less than a year all right before you hit that recession time time period during all of these episodes you know of course the 2021 didn't quite qualify in the traditional rule of 20 days of inversion or more it was only six days but if you give it credit for this is the kind of time Horizon you're looking for okay yeah and this is a performance during those time periods for this S&P 500 right so they actually three are positive impressive that is weird that one that one's throwing me a little bit so during the recession the S&P 500 is it from the start of the recession to the end of the recession the gray that it was positive that's a good question I don't know I don't know that's a good really important to know and I don't know it because I'm an idiot because it could be like a 12 month for the year and if because I've shown that graph multiple times usually during these recessions the first 3 months of the 12 are you lose everything everything so it's it's a huge drop and then if you go 12 months from the start you actually you could be positive yeah yeah exactly that was like basically last week's Point um this is another one I wanted to highlight here this is a chart looking at the number of mentions of the word recession on uh earnings calls uh yeah you see where we are okay just as you were saying not only are people on our YouTube comments saying that it's not possible that the actual CEOs on these ears calls are also saying like recession what recession like we have no idea what you're talking about yeah and we don't know anything I will and that's not a sarcastic thing we don't know what we're doing so that would seem like okay maybe not H how can you have recession when they're they're revising GDP data up and you're getting now 3% on an annual basis where we you know at US economy generally 2% is of what we hope for so you're getting upward revision and big sexy numbers like 3% so 3% very very solid September 26 is going to be very important because if that one is low than the one after that if it is lower than whatever September is that would be the two gdps this is weird because when you look at the definition of a recession they're always like just two negative uh GDP quarters but you also have to have the labor market coincide with that it's not as black and white as that there's a lot of different factors you can't have two negative GDP quarters and like record low unemployment and everyone making more money it doesn't yeah there's a US Government Department that actually has to officially declare the recession and they can do it significantly after the recession you know it's very common for them to be declaring the recession started six months ago like we don't even know we've been living in like this La La Land it's like you know kind of a little six sense Bruce Willis when he figures out he's actually you know a ghost spoilers dude come on totally it's only been out 30 years oh the other interesting uh kind of data point we got this week was uh unemployment right I know you saw a slight tick down in the unemployment rate uh down to like I was 4.3 to .
2% I think was the the headline number um the number of jobs created is still like overall downward Trend but um you know better than expected yeah it it was better so that was what I was most nervous about because generally the next couple months can be very very important as employment starts to shoot up it usually shoots up quite quickly so that was nice to see and this is the way pow prefers to look at unemployment data he looks at available uh number of jobs per available worker um and if you saw down here for quite a while we were down at this like 0.5 meaning that there was two jobs available for each worker that was in the market we're coming back into balance here we're approaching this this one level meaning that there'd be approximately one job available for every worker that's looking for work so you know much more balanced job market and the other thing he looks at too is quits number of people just saying you know what screw it I'm out of here like I'm G to go find another better job uh quits have come down significantly you know and kind of back towards like this pre PR pandemic level um you know were approximately there so the job market has definitely come back into balance but we haven't seen any significant disruption from what would be like a normal job market or pre-pandemic job market uh so you know he hasn't seen any sign they has to be really aggressive we're looking at the Federal Reserve meeting coming up here and you know the 50 basis points probably not going to happen I think it's GNA be 25 this is what I wanted to close on here though all right so J and I love talking about this major macroeconomic data and like all these crazy Trends going on and like worrying things and positive things but um it when it comes to where I put my money it's I am still continuing to dollar cost average into like index funds outside of the money that I actively play with um but that's where I contribute because of this chart right here you know you shouldn't start trying to time things based upon these macroeconomic events um they're fun to listen to and fun to kind of try to figure out and predict the future um but if you start making your actions based upon th those those you know guesses those estimations you can really shoot yourself in the foot here and your returns will really fall off rather dramatically if you just miss a certain number of really good days just days all right so so I agree for the most part however so for instance I'm not like I'm not going to sell any of my Holdings so like for instance if there isn't one I'm I'm fine it's not it's not a big deal I have a certain percentage collector interest on cash I have a a certain percentage in TLT and a certain percentage in stocks I feel like this chart is more for the people who are like all right I'm going to sell everything right now and then buy when it's low that's a bad idea you we never know when it's going to happen the next two years it seems impossible to me could be the best two years of the market ever and I I'll be fine because I have all my Holdings but what I do do and what I have done in the past is I'll take like a small amount like 1 to 2% of my portfolio and do like a a short option or something right and then if I'm wrong okay I lost one to 2% the stock market went up I got those gains I have I you know still positive but just not as positive as I could be if I'm right it's just a little usually when you're right on those you're really right um it just Insurance you just it's a little bit of an insurance policy so for instance I'm a strong believer right now in TLT when rates were super super low and TLT was very very high kind of Common Sense has to come down so I took a certain percentage made money and then I put it into stocks so it it's super risky to just put all your money like what is it Wall Street beted style and just be like oh yeah CS like do may like one depending on how much money you have but don't risk a lot here that is not worth it cuz you can I mean the stats will show you you will be wrong the vast majority the time exactly yeah yeah so try not to time the market you know you have to just kind of ride the wave and figure out that over your working career that you will return approximately like that 11% on average uh pre-inflation adjusted dollars the S&P 500 classically returns and just kind of ride it out you have to ride through these Cycles whether or not you think the economic data is looking softening and particularly in a time right now where it's very very murky and uncertain as to what the data is really telling us yeah you also you can time companies like you can time Nicola short like anytime the last three years and made money like it's not like but that's not the market that's like one shitty company and there's going to be more and more shitty companies and possibilities to do that like that was that was free money for a long time so that's the caveat yeah the right time to short Nicola is when the market is open yeah there you go they're actually all right they're so low it's scary all right guys see you later next one y
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