Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

For a stock broker, Merrill Lynch is remarkably bearish right now.
They're predicting an inverted yield curve (for the first time since
January 2000), leading to an economic slowdown, resulting in a U.S.
stock market correction of about 10%--after which they think bull market
conditions should resume.



Well, I'm going to keep my eye on this. As I've said on this NG before,
an inverted yield curve is one of my warning signs that it's time to
bail out of the U.S. stock market. It sure worked back in early 2000.


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

Steven L. wrote:
> For a stock broker, Merrill Lynch is remarkably bearish right now.
> They're predicting an inverted yield curve (for the first time since
> January 2000), leading to an economic slowdown, resulting in a U.S.
> stock market correction of about 10%--after which they think bull market
> conditions should resume.
>
>
>
> Well, I'm going to keep my eye on this. As I've said on this NG before,
> an inverted yield curve is one of my warning signs that it's time to
> bail out of the U.S. stock market. It sure worked back in early 2000.

Aside and shy of 50-percentile flatline tacking records, not so many
seem to mind that aspect of a rainyday parade. There's something of an
anxious expectancy in the air these days surrounding a new economic
regime, as Greenspan's conundrum is to rise afloat in tune with a
'resilent and flexible' economic overture composed for the occasion,
this time around, at an age marching forward in close proximity to
world prosperity. The global anomally will veritably sweep Japan and
Germany, large and close at even lower longterm interests, with
Brittany already inverted and in tow. What manners of galleons,
heftily esoteric and ladden from overseas will be all too apparent,
gathering as from the maelstrom's funnel in effecting broader G7
acquiescence, while none balk a stricture narrowly fused in order to
let pass for all opportunely set to see, each soverign economic entity
splendidly exemplified. I daresay, should be quite a capital spectacle.

"Any onset of increased investor caution elevates risk premiums and,
as a consequence, lowers asset values and promotes the liquidation of
the debt that supported higher asset prices, ... This is the reason
that history has not dealt kindly with the aftermath of protracted
periods of low risk premiums." -Greenspan

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

"Steven L." <> wrote:

>For a stock broker, Merrill Lynch is remarkably bearish right now.

Well, of course, a stock broker doesn't care so much whether stocks go
up or down...all they want is for you to buy or sell, and the more
often the better.

Commissions, you know.

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

"Steven L." <> wrote in message
news:QqZwf.5204$
> For a stock broker, Merrill Lynch is remarkably bearish right now. They're
> predicting an inverted yield curve (for the first time since January
> 2000), leading to an economic slowdown, resulting in a U.S. stock market
> correction of about 10%--after which they think bull market conditions
> should resume.
>
>
>
> Well, I'm going to keep my eye on this. As I've said on this NG before,
> an inverted yield curve is one of my warning signs that it's time to bail
> out of the U.S. stock market. It sure worked back in early 2000.
>
>
> --
> Steven D. Litvintchouk
> Email:

CNBC shows Treasury yields throughout the day...the 2-year yield has been
2-4 basis points above the 5-year yield for over 3 weeks now (4.39% on the
2-year, 4.35% on the 5-year as I write this), and another FOMC tightening
will likely widen this spread.

It's an indication of a recession as it indicates that investors are willing
to accept a lower return as they think it will not be possible to get that
return 2 years from now, e.g. if they put the money in a 2-year bill, they
will not be able to get a 4.35% return when they go to roll it over in 2008.

Personally, I think both returns are insanely low, as most investors can
find better returns via REIT's, utility stocks, preferred stocks, etc....
Of course, there is that whole safety mentality, plus I'm sure that much of
this money represents only a small portion of an institution's portfolio.

D

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

Dave Hannes wrote:

> CNBC shows Treasury yields throughout the day...the 2-year yield has been
> 2-4 basis points above the 5-year yield for over 3 weeks now (4.39% on the
> 2-year, 4.35% on the 5-year as I write this), and another FOMC tightening
> will likely widen this spread.
> 1. Trade deficit--new records in 3 of the past 11 months...an analyst on
> CNBC (from Citi or Chase?) indicated a 10% drop in the dollar vs. foreign
> currencies in 2006, meaning foreign investors will be skiddish.
> 4. Federal debt--the U.S. Treasury is going to issue $100 billion in
> treasury securities over the next month, one of the highest totals
> ever...that money has to come from somewhere...can you say "overbought U.S.
> stock market?"
> D

Yesterday they were saying the same thing about the pacific rim.

;_ylt=Ar4Atem5vISu19047VYn_LADW7oF;_ylu=X3oDMTBiMW04NW9mBHNl YwMlJVRPUCUl

> 3. Inverted yield curve--foretold a resession 8 of the last 9 times---
>D

Since WW2 with a 60% possibility, albeit with all the cards in the deck.

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

"Dave Hannes" <> wrote
> CNBC shows Treasury yields throughout the day...the 2-year
yield has been
> 2-4 basis points above the 5-year yield for over 3 weeks
now (4.39% on the
> 2-year, 4.35% on the 5-year as I write this), and another
FOMC tightening
> will likely widen this spread.
>
> It's an indication of a recession

Yes, it is, but the question to me is how serious a
recession.

Some of the several recessions that have followed yield
curve inversions have been very short and very mild.

> Personally, I think both returns are insanely low, as most
investors can
> find better returns via REIT's,

That's tricky, in my estimation. I have several individual
REITs, carefully screened for stability in the long run.
Such REITs tend to pay closer to 4 to 5%. As interest rates
rise, and since REITs have had a nice run and so are
somewhat pricey now, I think people will find them less
attractive. If one buys them now, buy for the long run.

Though I won't touch mortgage-based REITs right now.

> utility stocks,

Generally, around 5% yield for the riskier ones. As interest
rates rise, these too will tend to go down.

> preferred stocks, etc....

Hybrids (preferreds, etc.) are overrated in a rising
interest rate environment. I had several last year, all
investment grade rated. I anticipated what was coming and
sold all but one at small gains on the principal. (For once
I made a very good call.) All of what I owned are down now,
some way down. One locks in a dividend with hybrid stocks,
sometimes for 30-years. When interest rates are low, and so
hybrid yields are relatively low, hybrids are quite
speculative. I do not recommend them for anyone other than
maybe retired people with actuarials of less than 20 years.

> Of course, there is that whole safety mentality, plus I'm
sure that much of
> this money represents only a small portion of an
institution's portfolio.

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

Tess Millay wrote:
> > It's an indication of a recession
>
> Some of the several recessions that have followed yield
> curve inversions have been very short and very mild.

I think it may totally have to slip someone's mind [to call a
recession] in order for such "corrections" to occur.

-'I quit the band when I realized I wasn't going to be other than an
ordinary musician, and joined in on an economics course.' -Greenspan

Re: Merrill Lynch Predicts Inverted Yield Curve, 10% Market Decline

"Dave Hannes" <> wrote in message
news:Gq6xf.6552$%

[snip]

> Personally, I think both returns are insanely low, as most investors can
> find better returns via REIT's, utility stocks, preferred stocks, etc....
> Of course, there is that whole safety mentality, plus I'm sure that much
of
> this money represents only a small portion of an institution's portfolio.
>
> D

This is an important point IMVHO.

How many of those recessions happened when interest rates (long and short)
were under 4.5%? Is the yield curve inverted or are we just learning that
the Fed has the power to raise short-term rates but lacks the ability to
cause long-term rates to follow, determined as they are by supply and demand
in a capital market brimming over with cash?

I can't believe interest rates at current levels will choke the growth out
of the economy.

-herb