How The Yield Curve Predicted Every Recession For The Past 50 Years

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Published 2019-12-01
The yield curve was once just a wonky graph for academics and policymakers. But in recent years it has become a way to forecast looming recessions. The curve has helped predict every recession over the past 50 years. That means the curve accurately predicted even largely unforeseen downturns like the dot-com bubble of 2001 and the Great Recession in 2007.

As a result, news of yield curve inversions can now send markets tumbling. Policymakers keep a close eye on even small changes in the curve’s composition.

So how did this simple graph showing U.S. Treasury bond interest rates grow into one of the most reliable recession indicators we have? And what does a yield curve inversion really mean?

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How The Yield Curve Predicted Every Recession For The Past 50 Years

All Comments (21)
  • @RusuSilva
    I used to believe that everyone loses during a recession, but some make millions. Similarly, I thought everyone went out of business in the Great Depression, but some started new ventures. In short, tough times bring losses for some and profits for others, all rooted in the right mindset. Now, I've saved $220k for the future, even though I'm a complete beginner.
  • @keishaofthe
    As an elder millennial, one of the few advantages is having lived through the Great Recession. My advice. Reduce unnecessary expenses, increase your savings by investing in financial markets and do not sell. One thing I know for sure is that diversifying your income can help insulate you from much of the craziness going on in the world.
  • Mr Sam Deymon is also very generous with his time. He is more than available. He will answer your questions about any chart, about the market or the course very quickly.
  • @johnlennon232
    Recessions are part of the economic cycle, all you can do is make sure you're prepared and plan accordingly. I graduated into a recession (2009). My 1st job after college was aerial acrobat on cruise ships. Today I'm a VP at a global company, own 3 rental properties, invest in stocks and biz, built my own business, and have my net worth increase by $500k in the last 4 years.
  • @carter3294
    In this perilous time of recession, protecting your capital is much more important than making money. Basically because if you lose your capital, making money is much harder. ''Missing the train'' vs. ''losing your money''. There are a lot of trains, but if your money is gone, it's over. This is for stock holders.
  • @bsetdays6784
    We all know that prices of almost everything aren’t coming down. Simply put, they're rising less. Costs are rising due to rising inflation. As we are evidently at the verge of hyperinflation, with the less haves bearing the brunt of the burden. I'm more concerned that the rising inflation may lead my entire $990k retirement funds to lose value. Where else could we put our cash?
  • @jessicamoore3093
    In light of the ongoing global economic crisis, it is crucial for everyone to prioritize investing in diverse sources of income that are not reliant on the government. This includes exploring opportunities in stocks, gold, silver, and digital currencies. Despite the challenging economic situation, it remains a favorable time to consider these investments.
  • @joesphcu8975
    I suggest you offset your real estate and get into stocks, A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying, cash isn’t king at all in this time!
  • @ConradGosling
    The financial system has been artificially pumped for over a decade to ensure big pockets were lined; and now those same hands will make a fortune in the largest transfer of wealth in human history by shorting it on the way down. Inflation does have a roll, but that's to keep everyone panicked, and focused on their bills and expenses, rather than focus on the capital crimes of politicians and corporations,I'm still at a crossroads deciding if to liquidate my $338k stock portfolio, what’s the best way to take advantage of this bear market?
  • @williamyejun8508
    Things are strange right now. The US dollar is becoming less valuable because of inflation, but it's getting stronger compared to other currencies and things like gold and property. People are turning to the dollar because they think it's safer. I'm worried about my retirement savings of about $420,000 losing value because of high inflation. Where else can we keep our money?
  • I'd be retiring or working less in 5 years and I'm only curious how people split their pay, how much of it goes into savings, spendings or investments?? I earn around $165K per year but nothing to show for it yet
  • @geraldt331
    Wall Street pitched so-called quality stocks with high profitability and low debt, as a kind of insurance against whatever the economy might throw at you. Quality stocks have underperformed the S&P500 this year, My $400k portfoIio is down by approximately 20 %, any recommendations to scale up my ROI before retirement will be highly appreciated.
  • @fallout560
    no offense, but the traffic analogy is the worst analogy i have ever heard
  • @ivankagel9949
    This, in my opinion, just serves to highlight the necessity for an edge among investors, as simply playing the market like everyone else is insufficient. What do you think? I've been a little hesitant about investing in the present market, but I also think it's the perfect moment to start.
  • With inflation currently %, my primary concern is how to grow my reserve of $240k which has been sitting duck since forever with zero to no gains, sure I'm all in on the long term game, but with my savings are lying waste to inflation and my portfolio losing gains everyday, I need a remedy asap.
  • @anish.d
    Heisenberg uncertainity principle is for subatomic particles.. You can't just.. Huh nvm
  • Market declines, soaring inflation, a significant increase in interest rates by the Fed, and rising Treasury yields all point to additional losses for portfolios this quarter. How can I profit from the present market turbulence? I'm still debating whether to sell my $125,000 ETF/Growth Stock portfolio.
  • @swayamarora5745
    I had a good understanding of the yield curve, then I watched this traffic analogy and now I am all confused about it.
  • Recession has been a norm for the past years now. Though ETF's are falling and bond yields are rising, but expositions still don’t seem convinced the Federal Reserve will pursue plans to keep increasing yield-rates until inflation and Recession is under control. I'm still at crossroads with deciding if to liquidate my $650k stock portfolio, what’s the best way to take advantage of this bear booth?