00:00:00
one of the federal reserve's favorite
00:00:02
recession indicators was just triggered
00:00:07
but what does this actually mean are we
00:00:10
going to have an economic contraction is
00:00:11
the stock market going to go down what
00:00:15
the f is going on right
00:00:18
now I'm going to do my very best to
00:00:20
answer those questions for you in three
00:00:22
simple fast step step number one let's
00:00:24
go over this crazy crazy yield curve and
00:00:28
how it just in
00:00:30
inverted again we look at a chart
00:00:33
today's date going all the way back to
00:00:36
October or so of
00:00:38
2024 on the left we start at zero way up
00:00:41
here and we go up to 50 basis points
00:00:44
that's
00:00:46
0.5% and then we go down to a negative
00:00:51
125 basis points should have put
00:00:53
negative there but you guys get it with
00:00:55
the red numbers so this is the 3mon
00:01:00
treasury yield versus the
00:01:05
10year treasury yield probably a better
00:01:07
way to say that is the 10-year treasury
00:01:10
yield minus the 3month treasury yield so
00:01:15
we go back to October of last year and
00:01:17
the curve was massively inverted that
00:01:20
means the 10-year treasury yield was
00:01:23
actually lower than the three-month
00:01:25
treasury yield something that really
00:01:28
shouldn't happen I mean you can just
00:01:29
just use some common sense and think
00:01:31
about lending your buddy $1,000 for 10
00:01:35
years versus 3
00:01:37
months which one are you going to charge
00:01:39
him a higher interest rate which one do
00:01:41
you have more risk for inflation or not
00:01:43
being paid back obviously for 10 years
00:01:47
so you're going to charge him a higher
00:01:49
interest rate the longer you lend him
00:01:52
the money this makes a lot of sense and
00:01:55
this is usually why in a healthy
00:01:57
environment you would see a steep yield
00:02:00
curve so yields would be lower at the
00:02:03
front end of the curve the shorter
00:02:05
maturities the less time that you're
00:02:07
lending the government money and as that
00:02:10
time increases the yield would get
00:02:13
higher so the bottom line is when you
00:02:15
see this inverted curve or on this chart
00:02:18
anything below zero that is bad but
00:02:23
what's interesting is when you get above
00:02:27
this dotted line after being below the
00:02:31
dotted line we go from bad to being very
00:02:36
bad and you're probably say yourself
00:02:38
George well what that that is if this is
00:02:40
bad then that's got to be good but if we
00:02:43
actually look at a chart going back
00:02:45
let's say to the 1970s and we look at
00:02:47
the 3month versus the 10-year we see
00:02:50
that usually the stuff hits the fan in
00:02:53
other words we have that economic
00:02:54
contraction not during the inversion but
00:02:58
after the Curve curve un inverts then we
00:03:03
fast forward to January 2025 or so the
00:03:05
curve steepens out the 10-year treasury
00:03:08
yield gets to a point where it's maybe
00:03:09
40 or 50 basis points above the thre
00:03:13
Monon which is more along the lines what
00:03:16
you would expect in a healthy growing
00:03:18
economy but actually historically
00:03:21
speaking the 10-year treasury yield is
00:03:23
usually about 1 to
00:03:27
1.5% 150 basis points above of the front
00:03:30
end of the curve so we are still nowhere
00:03:33
close when we're at 40 or 50 basis
00:03:35
points but then what we had is the
00:03:36
10year treasury from that point start to
00:03:38
drop down and more recently it's
00:03:40
absolutely plummeted to a point where
00:03:42
now the curve has reinert again so if
00:03:46
this is bad this is very bad but this is
00:03:49
flat out bizarre so now let's step back
00:03:53
for a moment and ask ourselves well what
00:03:56
on Earth is actually going on here
00:03:59
because this is just a visual
00:04:00
representation of prices and what the
00:04:03
buyers and the sellers and the treasury
00:04:05
market are actually doing but we've got
00:04:08
to think through why they're doing what
00:04:11
they're doing why are they buying so
00:04:13
many 10-year treasury yields that brings
00:04:16
the interest rate down remember there's
00:04:18
an inverse relationship between the
00:04:20
price of the treasury and the actual
00:04:23
yield usually it's these financial
00:04:26
institutions the mega Banks the hedge
00:04:29
funds the p Pion funds in and outside of
00:04:32
the United States looking at their
00:04:34
balance sheet and saying okay well what
00:04:37
are we going to do we could go out there
00:04:39
and lend into the real economy or we
00:04:42
could just buy treasuries so at the end
00:04:45
of the day it's really about risk versus
00:04:49
reward I mean if you ran a bank you'd be
00:04:51
doing the exact same thing you'd be
00:04:53
asking yourself okay I can go ahead and
00:04:56
increase the size of my balance sheet by
00:04:59
giving a loan to a global Corporation
00:05:03
and I might be able to get 6% interest
00:05:06
or what I can do is take that same
00:05:08
balance sheet capacity and I can buy a
00:05:11
10-year treasury yield up here let's say
00:05:14
at
00:05:17
4.8% well I like the 6% but boy oh boy
00:05:21
that's way too risky because I look out
00:05:24
into the Horizon and I see storm clouds
00:05:27
economic storm clouds I see a potential
00:05:31
contraction I don't like what's going on
00:05:34
so in that case I would much rather have
00:05:37
the 4.8% on the treasury because the
00:05:41
risk is a lot
00:05:44
lower you see what's happening here as
00:05:47
the perceived risk in the global economy
00:05:52
increases then there is a greater desire
00:05:55
to have safe and liquid assets on your
00:05:59
balance sheet and therefore you're going
00:06:01
to buy things like the 10-year treasury
00:06:04
yield which brings the interest rate
00:06:07
down so the next question becomes is the
00:06:10
yield curve always right and the answer
00:06:14
is no it's got a very high hit rate but
00:06:18
it's not always right let's say 90% of
00:06:20
the time and it's very difficult to
00:06:23
actually use the yield curve to predict
00:06:27
when the recession is going to hit other
00:06:31
than this basic analysis of looking at
00:06:34
when the yield curve goes from being
00:06:36
inverted to uninverted and I'll be the
00:06:40
first person to admit that I've been
00:06:41
talking about this for a long time in my
00:06:44
base case is that we would have already
00:06:47
had a recession because usually that
00:06:51
economic contraction hits within that
00:06:54
2-year period but another thing that
00:06:57
I'll say is this
00:07:00
meaning the treasury market is not just
00:07:03
the bond market for the United States
00:07:05
it's really the bond market for the
00:07:07
global economy and if you look at what
00:07:10
has happened over the past two years
00:07:13
outside of the United States it's a much
00:07:15
much different story which would make
00:07:18
more sense when you're looking at this
00:07:21
inversion but I know right about now
00:07:24
this guy is going to step into the
00:07:25
picture especially in the comments and
00:07:27
it is your friend and family member Fred
00:07:31
the guy that's always nagging at you
00:07:33
telling you that George gamon doesn't
00:07:35
know what he's talking about he's just
00:07:37
fear mongering and what you should do is
00:07:39
just buy the SNP and listen to Jim
00:07:41
Kramer and just bury your head in the
00:07:44
sand like an ostrich and it's not about
00:07:47
timing the market it's all about time in
00:07:49
the market and it's not about buying
00:07:52
things when they're cheap or selling
00:07:54
them when they're expensive it's all
00:07:56
about just predicting well just knowing
00:07:59
for sure that the stock market always
00:08:01
goes up and therefore anyone that has a
00:08:04
contrarian view is just spewing
00:08:07
misinformation and disinformation you
00:08:09
should just ignore them he has a very
00:08:12
similar view to the mainstream media
00:08:14
oddly
00:08:15
enough but what this misses is what we
00:08:20
were just talking about it's not the
00:08:22
fact that the yield curve is predicting
00:08:24
a
00:08:25
recession I think that's missing the
00:08:27
point so said another way it's not about
00:08:30
the curve inverting it's about why
00:08:33
asking why there are so many financial
00:08:37
institutions that are taking their
00:08:39
balance sheet capacity and buying
00:08:42
10-year treasuries instead of going out
00:08:46
into the real economy and using that
00:08:49
balance sheet capacity to get a higher
00:08:52
interest rate this is really the key and
00:08:56
it's why we have to include the yield
00:08:59
curve in our analysis even if it's not
00:09:03
always correct or it doesn't give us
00:09:06
much information as far as the timing of
00:09:10
an economic
00:09:12
contraction step number two now let's
00:09:14
dive into the charts to see if this
00:09:16
bizarre move we have just seen in the
00:09:18
treasury curve is actually
00:09:21
unprecedented and then at the end of
00:09:23
this video I'm going to give you my
00:09:25
opinion as to what is happening in the
00:09:28
real economy
00:09:30
that is motivating let's say these huge
00:09:33
financial institutions to take a risk
00:09:36
off approach or a much more riskof
00:09:40
approach than they were just a month ago
00:09:44
so let's start by looking at a chart of
00:09:47
the FED funds and the 10year treasury as
00:09:50
opposed to the three-month Treasury and
00:09:53
the 10year treasury so the absolute
00:09:55
front end of the curve and we go back to
00:10:01
1965 on this
00:10:04
one you can't blame me for just looking
00:10:07
at recent data that is for
00:10:09
sure go back to the sures of sickness
00:10:13
and it's I wish I could kind of zoom in
00:10:16
here but
00:10:18
unfortunately yeah it's a little tough
00:10:20
to do but it seems like we had a
00:10:25
reinversion but that might have been
00:10:27
during the actual recession of the
00:10:29
surveys the sickness we go back to the
00:10:31
GFC and we had a little bit of an
00:10:33
unversioned down but nowhere near what
00:10:36
we had as far as the 50 basis points we
00:10:39
were talking about in Step number one
00:10:41
and then uh definitely didn't have it
00:10:43
during the.com bust and you go back to
00:10:48
1990 we really didn't have it then it
00:10:50
reined but that was when we were right
00:10:52
in the middle of a recession and going
00:10:55
back to the 1980s and 1970s it was tough
00:10:57
because back then the FED really didn't
00:11:00
set the overnight rate uh they were just
00:11:03
managing Bank Reserves and trying to
00:11:05
manage M2 money supply so it's not
00:11:07
really an Apples to Apples comparison if
00:11:09
you want that you've got to look at more
00:11:11
so like the 2-year Treasury and the
00:11:13
10-year treasury which we're going to do
00:11:14
here in just a moment so based on this
00:11:19
chart I would say that the 10e treasury
00:11:23
trading underfed funds which is what
00:11:25
it's doing right now in addition to
00:11:27
being under the 3mon
00:11:29
isn't unprecedented but it's definitely
00:11:31
rare now let's go over to the 2-year
00:11:36
Treasury and the tenure and we are not
00:11:41
yet rein verted I mean stay tuned right
00:11:45
who knows what's going to happen over
00:11:47
the next couple weeks definitely
00:11:49
volatile times we are living in for sure
00:11:52
and going back in history on this chart
00:11:55
you see we got an inversion just prior
00:11:57
to the seresa sickness but then it just
00:12:00
kind of went straight up as far as it
00:12:02
steepening out
00:12:04
GFC we had a slight slight oh no look at
00:12:09
this so we had an inversion in the curve
00:12:11
in 2006 that's really interesting and
00:12:14
then we had the unversioned dip down
00:12:18
again and then the last Harrah there
00:12:21
just prior to the stuff hitting the fan
00:12:24
and that's when it really steepened out
00:12:26
as a result of the FED dropping rates
00:12:29
dramatically in 2000 at the end of 2007
00:12:32
and into
00:12:34
2008 the com bust it was pretty much a
00:12:38
straight line now if you look at the
00:12:40
recession that we had in the early 1990s
00:12:43
when the curve was inverted there it was
00:12:45
once again kind of all over the place so
00:12:48
with this curve in particular I would
00:12:50
say that going back prior to the doc com
00:12:53
bust it was actually pretty common for
00:12:56
it to reinert but after
00:12:59
in the Modern Age let's say it has been
00:13:03
more Uncommon if you look at the last
00:13:05
three recessions now let's go back to
00:13:08
the specific curve we are looking at in
00:13:12
Step number one and oh by the way I
00:13:14
forgot to mention although this is one
00:13:18
of the fed's favorite recession signals
00:13:21
it's not their absolute
00:13:23
favorite we're going to look at that in
00:13:26
just one moment but before we do let's
00:13:28
get back to to this 3month 10e which
00:13:32
again just rein verted but what's
00:13:35
interesting here is you can see prior to
00:13:38
the seresa sickness it did something
00:13:41
similar prior to the GFC it definitely
00:13:44
did something similar prior to the do
00:13:48
bust it almost almost
00:13:52
reinert and it definitely reined prior
00:13:55
to the 1990s recession so this is kind
00:13:59
of the opposite of the 2-year where it's
00:14:03
not uncommon at all in fact I would say
00:14:07
it's kind of standard operating
00:14:09
procedure for this thing to
00:14:12
uninverted
00:14:21
absolute favorite recession indicator
00:14:24
and I know that because they've said it
00:14:25
many many times on their website and we
00:14:28
can see why because this is extremely
00:14:31
accurate especially when you look at
00:14:34
this near-term forward spread 90day
00:14:38
moving average so what is the near-term
00:14:41
forward spread well right here it says
00:14:44
it's the difference between the expected
00:14:46
three-month interest rate 18 months from
00:14:48
now so I'm assuming they're getting that
00:14:50
maybe from the Futures Market or
00:14:51
something like that minus the current
00:14:55
thre Monon interest rate so if we go go
00:14:59
back to well the
00:15:02
1970s we can see that it actually gives
00:15:06
us a little bit better timing than the
00:15:09
other curves so it inverted just prior
00:15:12
to going into the recession of the early
00:15:14
1970s um it inverted a little bit prior
00:15:17
to the 1980s but let's fast forward to
00:15:20
more Modern Times And we can see that
00:15:24
looking at the do
00:15:27
bust once it uninverted
00:15:30
that's when the stuff really hit the fan
00:15:34
and it was the exact same thing with the
00:15:38
GFC and then same thing with the seresa
00:15:42
sickness and as I'm looking at it right
00:15:45
now you guys will notice that the 90day
00:15:48
moving average which historically is so
00:15:51
so accurate has not yet uninverted
00:15:57
so this is something that personally I'm
00:16:00
going to be paying a lot of attention to
00:16:03
and usually just FYI it uninverted as a
00:16:06
result of the FED dropping rates at the
00:16:09
front end it doesn't usually uninverted
00:16:13
of the curve in other words the 10-year
00:16:16
treasury yield going up and continuing
00:16:19
to go up so what this would lead me to
00:16:22
believe is the future for
00:16:25
2025 is probably again there are no
00:16:28
certain certainties only probabilities
00:16:31
but most likely for the rest of 2025 the
00:16:34
FED is going to be cutting rates and
00:16:37
probably cutting rates more than most
00:16:40
people expect so why would they do this
00:16:43
because they're responding to the
00:16:45
economic weakness that these big
00:16:48
financial institutions that we talked
00:16:50
about in Step number one are worried
00:16:52
about step number three so what is some
00:16:56
of the economic data that could be
00:16:59
spooking the marketplace driving down
00:17:02
the 10year treasury yield to the point
00:17:04
where the curve is now rein verted
00:17:08
before we get there let's start by
00:17:11
looking at what I would call maybe some
00:17:13
anecdotal evidence based on what I see
00:17:16
just with my own eyes talking to family
00:17:19
members I see in the comments of the
00:17:22
YouTube videos that I do and just using
00:17:25
some good oldfashioned common sense now
00:17:27
this isn't an actual it's just one that
00:17:30
I drew to give a visual representation
00:17:33
of what I think has happened since the
00:17:36
surveys sickness so on the left we go
00:17:39
from
00:17:40
$22,000 up to
00:17:43
$5,000 and we're going to get to these
00:17:45
numbers in just a moment but we start by
00:17:48
looking at this green line which
00:17:50
represents we'll use your friend and
00:17:53
family member Fred once
00:17:56
again this represents Fred 's income so
00:18:01
as we know since the seresa sickness
00:18:04
nominal incomes in the United States
00:18:06
have gone up dramatically so let's
00:18:09
assume for a moment that in
00:18:12
2019 he was making around $2,000 a month
00:18:16
and obviously these aren't actual
00:18:18
numbers it's hypothetical just using
00:18:19
them for the sake of the example so his
00:18:22
income would have gone up and up and up
00:18:24
to the point where it is today let's say
00:18:27
right around
00:18:29
$4,200 so I know a lot of you right
00:18:31
about now are saying well this is great
00:18:32
news his income went from $2,000 to a
00:18:35
little over $4,000 so his purchasing
00:18:38
power must have increased
00:18:41
tremendously wrong because we have to
00:18:44
factor in the price of all the stuff
00:18:47
that he was buying with his income in
00:18:50
other words inflation so let's go back
00:18:53
to our chart and look at this red line
00:18:55
you guys know what happened the consumer
00:18:58
prices started to go up and up and up
00:19:00
here in 2020 and then in 2021 and into
00:19:02
2022 they absolutely skyrocketed
00:19:06
Unfortunately they were going up at a
00:19:07
much faster rate than Fred's income now
00:19:10
we did have some disinflation but that
00:19:13
doesn't mean that prices went down
00:19:15
absolutely not they just continued to go
00:19:18
up at a slower pace so right about here
00:19:22
we go from Fred having actual savings at
00:19:24
the end of the month to Fred not having
00:19:27
enough money to actually pay the bills
00:19:31
but he got bailed out by the government
00:19:34
remember all the stimy checks and it
00:19:36
wasn't just getting checks in the mail
00:19:38
every single month free money it was
00:19:40
also the fact that he didn't have to pay
00:19:42
his rent didn't have to pay the mortgage
00:19:45
didn't have to pay the student loan and
00:19:46
a lot of other programs all the PPP
00:19:49
grift can't forget about that so his
00:19:52
purchasing power actually increased
00:19:56
substantially when you add his income to
00:19:59
all of the free stuff that he was
00:20:02
getting so he was actually able to
00:20:04
handle the massive increase in
00:20:08
prices but you guys know how this story
00:20:11
ends we get to a point where the free
00:20:14
stuff starts to run
00:20:17
out and the only thing that Fred is left
00:20:20
with is this huge gaping spread between
00:20:25
his income and his expenses
00:20:29
to a point now where let's say his
00:20:31
income is 4,200 but his expenses are
00:20:34
probably close to
00:20:38
$5,000 so to put this in terms everyone
00:20:40
can understand right here prior to the
00:20:43
surveys of sickness let's say at the end
00:20:44
of the month he had $100 left over okay
00:20:48
and then during the stimy checks and all
00:20:50
of the inflation he had an extra
00:20:53
$400 at the end of every single month
00:20:56
but then we get this blue line going
00:20:59
down the free stuff started to run out
00:21:01
and it's time to pay the Fiddler he went
00:21:04
from having $400 at the end of the month
00:21:07
to negative $100 in other words he
00:21:10
needed an additional $100 that he didn't
00:21:13
have just to pay the bills so what did
00:21:16
he
00:21:17
do he started putting the charges on the
00:21:20
credit card well that only lasts to a
00:21:23
certain point and then once the credit
00:21:25
card is maxed out you start not paying
00:21:28
it back that's when we see the
00:21:30
delinquency rate shoot up editor go
00:21:32
ahead and throw a chart of that and then
00:21:34
we get to the point today where Fred is
00:21:36
completely tapped out but at the end of
00:21:39
every month he needs an additional
00:21:44
$800 above and beyond his income just to
00:21:47
put a roof over his head and food on the
00:21:51
table so what does Fred have to do he's
00:21:54
got to cut back his spending in other
00:21:57
words aggregate demand decreases and
00:22:00
when you have an economy that's 70%
00:22:02
consumption that likely will lead to an
00:22:06
economic recession but there is another
00:22:09
option for Fred he doesn't necessarily
00:22:12
have to cut back his spending he could
00:22:14
go out there and get a job and actually
00:22:17
make an additional
00:22:19
$800 that would take his income to a
00:22:22
point where he's actually able to pay
00:22:25
the bills comfortably all right well
00:22:28
that would require the job market doing
00:22:30
well and all of these corporations
00:22:32
hiring more and more and more employees
00:22:35
more demand for workers like Fred
00:22:38
therefore these corporations will be
00:22:39
willing to pay him more because their
00:22:42
profits are increasing I mean we saw
00:22:45
this play out during this time frame
00:22:47
when we had the Consumer Price inflation
00:22:50
but unfortunately now we have to look at
00:22:53
that underlying economic data and we are
00:22:57
seeing a lot of corporate bankruptcies
00:22:59
just the other day we talked about this
00:23:01
on a video where Joan Etc is closing all
00:23:05
800 stores and it's not just Joan Etc we
00:23:09
see Starbucks laying off over a thousand
00:23:12
workers we see warnings from companies
00:23:15
like Walmart and McDonald's that are a
00:23:19
direct reflection of what is happening
00:23:22
with the consumer so the bottom line is
00:23:25
it's very unlikely for Fred to go out
00:23:28
there and get a job that's paying him a
00:23:30
lot more than the one he currently has
00:23:34
and that goes back to his
00:23:36
decision-making process where the only
00:23:38
option he has is to reduce spending but
00:23:42
unfortunately this reduction of spending
00:23:44
makes it even worse for the corporations
00:23:46
that lay off even more workers which
00:23:49
makes your friend and family member Fred
00:23:51
even more pessimistic about the future
00:23:54
and this is why we're seeing consumer
00:23:57
sentiment surveys such as the Michigan
00:23:59
survey and the conference board survey
00:24:02
show readings where the confidence level
00:24:06
of the average Joe and Jane is
00:24:08
absolutely plummeting right now and
00:24:11
there's also more direct data to look at
00:24:13
what is happening in the jobs market and
00:24:16
just today we saw the jobless claims
00:24:19
came out at
00:24:20
242,000 above expectations while the
00:24:24
housing market which could be a savior
00:24:27
because all of these people have so much
00:24:29
Equity that they could use that as
00:24:31
purchasing power to bridge this Gap but
00:24:34
now we're seeing housing transactions at
00:24:38
alltime lows as an example pending home
00:24:42
sales just hit an alltime low going back
00:24:47
to when they started tracking pending
00:24:49
home sales which was in the early 2000s
00:24:53
said another way pending home sales are
00:24:56
at their lowest levels in about
00:24:59
25 years and think about it the
00:25:02
population of the United States was a
00:25:05
lot lower back then than it is today yet
00:25:11
again those pending home sales are at an
00:25:14
alltime low this is not what you would
00:25:17
see if the housing market or the economy
00:25:20
at large or the labor market the jobs
00:25:22
Market was doing well you would see the
00:25:25
exact opposite so the main point of of
00:25:28
this video isn't to say that we're
00:25:29
headed for a recession or a stock market
00:25:31
crash it's simply to point out that hey
00:25:34
we've got some good news over here but
00:25:35
we also have a lot of bad news that we
00:25:39
have to pay attention to and we've got
00:25:42
to be cognizant of what these financial
00:25:45
institutions with likely Insider
00:25:46
information are doing with their balance
00:25:49
sheet and that's what the treasury curve
00:25:52
tells us and I want to point out it's
00:25:55
not just the financial institutions it's
00:25:57
also big players like Warren Buffett who
00:26:00
as we said the other day is selling
00:26:03
stocks to the point where he's
00:26:05
accumulated a bigger cash position than
00:26:08
he ever has the bottom line here are
00:26:12
these players in the financial markets
00:26:15
with Insider information and a lot of
00:26:18
experience are taking a much more risk
00:26:21
off approach and it doesn't necessarily
00:26:24
mean that X Y or Z happens but it is
00:26:28
something that you need to include in
00:26:31
your analysis of what may happen
00:26:35
throughout the rest of
00:26:37
2025 for more content that'll help you
00:26:40
build wealth and thrive in world of out
00:26:42
of control central banks and big
00:26:44
governments check out this playlist
00:26:46
right here and I will see you on the
00:26:48
next video
