There are times when the investor should ignore the unaccountable pundits on CNBC and elsewhere who’ll have you confused as a goat on astroturf. An investment thesis can be developed simply from a chart that shows the long term direction of an asset and that history typically repeats itself. As investment managers we ignore the pundits and look for the classical signs of economic expansion or contraction.
This morning we are happy beneficiaries of significant strength in Treasury bonds. What should also be noted is this morning marks a milestone as the yield curve is breaking the 2008 lows both in the 10y minus 2y and the 30y minus the 1y.
This is good news if you happen to have a bearish inclination to the U.S. economy and stocks as we have. Yield curve inversions represent an early warning of impending recession. While a classical inverted yield curve is impossible given that the short end yields are a fraction of 1%, inversions may be seen with the longer term short ends such as 30’s minus 1’s.
The move today reinforces our thesis of recession by 2017 and the primary asset class to own are Treasuries.
Long IEF,TLH,TLT,EDV