Uh, oh! Yields Inverting Again!

90-day / 10-year yields inverted again... :eek:

https://www.tsptalk.com/images/mb/013020c.gif

After a brief steepening, inverted yet again...
https://www.tsptalk.com/images/mb/021020a.gif

So when is the crash coming? I keep thinking we're in the crash territory, and yet, every day, we eek out something positive. This just doesn't make common sense.

1. Inverted yields.
2. Hindenburg Omens.
3. Overextended price/earnings ratios.
4. So many new highs it's amazing.

Somewhere, something has to give.

(I'm riding the roller coaster but I know the track is wobbling).

Like we've seen since 2009 when interest rates went to 0%, I think the historically low rates are actually making it "different this time."

Stocks would have a hard time sidestepping a recession, but we haven't had a recession meet 0% rates. The problem is when we do get one, the Fed won't have much ammunition to fight it. But where else can investors put their money when rates and yields are so low?

That's rhetorical as I think aloud - writing. :)

Imagine a market, if you will, that might have been a bit frothy in 2006.
We know it was frothy, but was it an unmitigated mess?
Then from Peak to Trough it dumped 57%.


So, look at things this way...

The marked crashed 57%, but made it all back in three years. That is, the crash should have been a correction of about 30% given that the S&P 500 grows by about 10%/year - which seems on the high end of expectations. I think I was guessing a 15% - 20% to get back to normal.

Let us project the S&P 500 from 2006/12/31 (S&P 500 = $1,418) at the average of 10% growth to now:

• 0% drop = $4,895
• 10% Correction = $4,405
• 15% Correction = $4,159
• 20% Bear = $3,915
• 25% Bear = $3,670
• 30% Bear = $3,428
• 35% Crash = $3,186
• 40% Crash = $2,938

Now, look back in these very threads. What was the 'feel' back in 2007. There were issues. There were folks bailing out. But, how many projected a full blown crash?

Using my 'feelz' (as the kids say) I would guess the S&P 500 is UNDERVALUED by about:

• S&P 500 at 2019/12/31 = $3,230
• Given a 20% Bear Market in 2007/8 the S&P 500 should be at around $3,915.
• Thus, I 'feelz' the market as proxied by the S&P 500 is undervalued by about 20% - so lots of room to grow!!!

This is obviously weak sauce for making financial decisions on your retirement. However, you have to be in to win. Being out of the market completely (I'm only 64% in the market and left about 5% or 10% growth on the table last year) will result in you being able to buy a titanium camping spoon for your Alpo can on retirement. Let the market start to correct before you correct, eh...