Recession on the horizon?

TL;DR US treasury bond yield curves on 2-year and 10-year debt inverted for the first time since the financial crisis. 10 year bonds are now priced more attractively than 2-year bonds. Historically an indicator that a recession is on the horizon.

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Martijn,

An excellent summary. There are a lot of indicators pointing in the same general direction. My view is a recession - a view which I expressed to Marie a little over a week ago in relation to President Trump’s recent economic actions pushing the envelope faster towards the inevitable recession, and further investment at this point.

I would hazard a guess that it will be well managed by the investment banks, and hopefully governments, and of relatively short duration. Well worth flagging up at this juncture. The reality for investors is that a recession will highlight the unique qualities and resilience of the MF Platform, compared to the competition out there.

I fully agree. Rather than a threat, I see it as an opportunity to “stress test” the platform and see if it can maintain low volatility in a highly volatile market, and perhaps even some alpha returns in a downward market.

Today has been a beautiful example: FTSE100 down with 1.42%, MF high growth portfolio up with 1.06%.

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They are stunning figures, with more than a touch of alchemy about them! I had been driving and was completely unaware of the High Growth performance - my reaction was incredulity, how on earth has MF managed this - I can’t wait to hear at the end of the week. Inversion of Bond prices followed by MF inverting the performance pf its competitors!

At least MF investors will hopefully avoid the white knuckle ride of previous recessions. A baptism of fire for MF - and as you say a great opportunity.

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I think the 1.06% relates to performance on the 13th August. The S&P is down nearly 3% today so will be interesting to see how MF has performed against that. Interesting as the 3mo/10yr spread went negative back in April I think, which was a big signal to me of a recession, and there was a significant dip in the S&P in May but I think it was more trade-war focus and then a big.recovery until end of July when everyone seemed to have forgotten about it.

I don’t think MF is immune to the vol - last week we saw the biggest swings to date since the inception of the accessible portfolios, e.g. down 2.6% just on Monday. But they did well to recover and the vol isn’t as high as that in the markets so that’s good.

It will also depend on how far in advance the platform signals look. If last week is anything to go by, the MF performance seems to get hit on the first down day of the market, but can then respond on the following days even if the market continues to fall. Just have to hope the first down day isn’t too damaging!

It will be interesting to see whether MF can produce positive returns given when everything in the market is heading down, the vol is deemed to high to write options and it is a long only strategy there will be very limited opportunities. I see the portfolios largely sitting in cash during the fall and then switching when the signals look good, hopefully somewhere near the bottom!

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It’s these testing times that’ll decide whether MarketsFlow will supplant established and traditional rivals or merely compete and co-exist alongside them. Early indications seem to suggest that the former could be the case.

I’ve been writing about an impending financial and economic crisis since 2014/2015 with specific reference to Eurozone sovereign debt, credit markets more broadly and OTC Interest Rate Derivatives. I see the factors crystalizing now (initial contraction in UK and Germany, Yield curve inversions, increasingly precarious stock markets etc.) as being the first signs of this.

If MarketsFlow can not only weather but beat this storm, a lot of clients will jump ship for our winner. I suspect there will be very high acquisition interest pending sustained performance.

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And today the yield on 30-year US bonds fell below 2% for the first time in recorded history in the latest sign that investors expect a near-global recessions

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Odds on going -ve by year end? Could be an interesting trade in and of itself.

I thought that was a good email from MF and @Marie earlier today. Addressing the volatility we have been discussing and essentially reassuring newbie investors (and some not so newbies).

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Interestingly enough, Nobel prize winning economist Robert Schiller said that the yield inversion is typically a strong indicator for a recession but that it needs to have staying power, and the yield inversions so far have been brief.

Ironically, what may tip is into a downturn is the public panic emanating from the brief yield inversions…!

“A lot of what happens with the markets is a “self-fulfilling prophecy,” Shiller adds. "I hear so much talk about a market correction, it might make it happen”

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