The Yield Curve Indicator (with Josh, Michael, and Campbell Harvey)

The Compound and Friends

Josh Brown

Business News, News, Investing, Business

4.7 • 2.2K Ratings

🗓️ 7 October 2019

⏱️ 25 minutes

🔗️ Recording | iTunes | RSS

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Summary

Campbell Harvey is a Professor at Duke University and a partner as Research Affiliates. He sat down with Michael Batnick and Josh Brown of Ritholtz Wealth Management to discuss the meaning of the inverted yield curve indicator, which he discovered in 1986 while working on a dissertation. Campbell cites the fact that 7 out of the last 7 recessions had been presaged by a yield curve inversion - which is what happens when it longer term bond yields fall below shorter term bond yields in the Treasury market. He believes that this phenomenon occurs when the market participants begin to grow more pessimistic about the economic outlook. The behavior of executives, lenders, borrowers and investors can change enough during these times to actually become a self-fulfilling prophecy - producing a negative feedback loop that drives a weakening economy into a full-blown recession. Recessions are a normal part of the business cycle, although they can be painful to live and invest through. They can also vary greatly be degree. Campbell fields questions from Michael and Josh about all of the ways in which this time might be different. He acknowledges that it is always possible that the yield curve indicator might stop working as a recession signal, but he believes that because it hasn't yet, this might be a good time for people and corporations to rethink the risks they're taking. 1-click play or subscribe on your favorite podcast app Subscribe to the mini podcast on iTunes or Spotify Enable our Alexa skill here - "Alexa, play the Compound show!" Talk to us about your portfolio or financial plan here: http://ritholtzwealth.com/ Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Hey, I'm Josh Brown. I'm here with Michael Batnick and our special guest, Campbell Harvey,
0:05.7	Campbell Harvey is the godfather of the Yield Curve indicator. There's a lot of talk about the
0:11.0	yield curve. It's been inverted for a few weeks now.
0:14.4	People are concerned that recession is coming.
0:17.0	We literally are going to get it from the horse's mouth.
0:20.3	Everything you need to know about how the yield curve might affect the economy, the stock market,
0:26.0	your investments, your savings, your career, possibly even your life.
0:30.4	Stick around.
0:31.4	Okay, Campbell, was that like an over-the-top buildup or would you say
0:36.3	Would you say the yield curve is pretty important right now?
0:38.9	It is very important. I think way more important than in the past where people didn't notice. So it is inverted before
0:46.7	the last seven recessions and it hasn't rendered a false signal. So right now people are looking at it very seriously.
0:55.6	The track records impressive.
0:57.5	It's flashing Code Red since June the 30th.
1:01.6	So I want to back up because this is primarily going to be seen on
1:04.8	YouTube and there'll be a lot of people watching who have heard the term
1:08.4	yield curve but I think an explanation is in order just so that everyone understands exactly what we mean by yield curve before we get into
1:17.6	the ramifications of inversion. So how would you explain that to people? Sure, so the idea idea deal curve has to do with the difference
1:24.7	in interest rates at different maturities so you go into a bank and invest in a
1:30.1	certificate of deposit you notice that the rate for let's say five years is a lot
1:35.0	higher than the rate for 90 days so that's what we kind of called a positively
1:40.7	slope deal curve. So you're getting paid more interest for putting your money
	...

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