Inverted Yield Curve | Phil Town | Summary and Q&A

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March 28, 2019
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Rule #1 Investing
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Inverted Yield Curve | Phil Town

TL;DR

An inverted yield curve may be signaling an upcoming recession, but instead of panicking, investors should use this time to research and prepare for potential investment opportunities.

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Questions & Answers

Q: What is an inverted yield curve and how does it relate to the possibility of a market crash?

An inverted yield curve occurs when the yield on long-term bonds is lower than that of short-term bonds. It is seen as a potential indicator of a market crash because it suggests that investors are more confident in short-term economic prospects than in long-term ones, which can lead to a slowdown in the economy.

Q: Why does an inverted yield curve happen?

The reasons for an inverted yield curve are complex and not fully understood. One possible explanation is that it occurs when the Federal Reserve tightens monetary policy, which leads to rising interest rates. This can restrict credit and slow down lending activity in the economy.

Q: How long does it usually take for a recession to occur after an inverted yield curve?

The usual time delay between an inverted yield curve and the onset of a recession is around 18 months. This means that it could be well into 2020 before a major economic impact is observed.

Q: How should investors approach a potential market crash and recession?

Investors should not panic but instead use this time to research and prepare for potential investment opportunities. By creating a watchlist of companies, conducting thorough research, and identifying their value and margin of safety prices, investors can be ready to take advantage of lower prices during a market correction.

Summary & Key Takeaways

  • The speaker predicts a market crash and recession in the near future, as the current bull run on the market is the longest in history.

  • The inverted yield curve, where the yield on long-term bonds is lower than that of short-term bonds, is seen as a potential indicator of a market crash.

  • The speaker advises investors to remain calm and patient, and to use this time to research and identify potential investment opportunities.

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