This was my Tip of the Week for February 11, 2006. To subscribe to this free service, the subscription box is here: www.garynorth.com.
You had better pay attention to the yield curve in the
next few weeks. It is getting very close to inverting.
Why should you care? Because this is by far the most
accurate predictor of a recession. I used it in 1989 and
again in 2000 to predict a recession the following year. I
was correct in both cases.
I have set up a free page where you can monitor this
The yield curve is normally positive: short-term (90-
day) T-bill rates are lower than long-term T-bond (30-year)
rates. Why? Because there is an inflation premium tacked
onto long-term rates by creditors: a hedge against currency
When short-term rates are higher, this means that
businessmen are scrambling to borrow short-term money to
finish projects. It also means that long-term creditors
are trying to lock in higher rates today, in preparation
for a recession, when all rates fall.
If you are in the stock market, your wealth is at risk
the day the yield curve inverts. Monitor this curve.
To see all of my Tip of the Week columns, click here:http://www.garynorth.com/public/department54.cfm