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Comment by elamje | Hacker News Reader

A very useful caveat from the insightful, and cautious, Howard Marks -

> In that regard, the Financial Times noted on June 1 that “the [yield curve] has ‘inverted’ before every US recession in 50 years.” (Note, however, that this is different from saying every inversion has been followed by a recession.)

https://www.oaktreecapital.com/docs/default-source/memos/thi...

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Akin to - "It always rains on my birthday. It's raining today - it must be my birthday."

if p, then q is not equivalent with if q, then p. However this follows: if ~q, then ~p. It's not raining, it must not be my birthday.

It's more like:

"It only rains on my birthday. It's raining today - it must be my birthday."

At least I'm not aware of any inversions of the 10-2 bond yield curve in the last 50 years that was not followed by a recession, however minor.

There have been inversions in the X - Y bond yield curve in the last 50 years that were sometimes followed, and sometimes not followed by recessions.

You didn't come to the number 10 - 2 independently. It was cherry-picked to fit the narrative.

The other ratios have inverted over the last 6 months, I think as early as the 5-1 ratio in January. The 10-2 is simply the more extreme indicator and the bigger signal that a recession will probably happen in the coming 12-24 months. I used 10-2 both as it is in the news this week and is the critical indicator that I studied in college. In January I was referencing the 5-1 as an early indicator that without correction would lead to the 10-2 inverting as well.

If this signal is watched more often now, it might be that it's predictive power is decreased. A metric you act on ceases to be a good metric.

On the other hand, is it possible it's a self-fulfilling prophecy?

Definitely, if people collectively start acting more cautiously and spend less the economy will contract.

Economic contraction isn't necessarily a bad thing so long as it is a cautious, thoughtful and controlled contraction that gets rid of the kind of spoilage that festers into a crash.

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