There are several events going on around us that lead us to believe that something major is incoming in the market.
It could be a war, epidemic or something even worse.
While perusing through the world wide web, thanks to Kitco news we’ve found something quite interesting.
A financial crisis could be incoming in 2024 and we should be prepared for it.
So without further adieu, let’s analyze the complete details relating to this.
The Yield Curve:
The data recently released from the US displays the inversion of the yield curve has “incredible” predictive powers, and it’s predicting a global financial crisis in 2024.
But before that let’s understand what a yield curve is.
A yield curve is a line that plots yields or interest rates of bonds that have equal credit quality but different maturity dates. The slope of the curve could predict future interest rate changes and economic activities as a whole.
It is a benchmark for other debt in the market such as mortgage rates, and bank lending rates and for predicting changes in economic output and growth.
In any scenario, the most frequently reported yield curve compares 3-month, 2-year, 5-year, 10-year and 30-year US treasury debt.
In this situation, the host and guest discuss the inverted yield curve. Short-term interest rates are higher than long-term interest rates on an inverted yield curve, which slopes downward. Such a yield curve corresponds to periods of economic recession, where investors expect yields on longer-maturity bonds to trend lower in the future.
Longer-dated bonds tend to be more expensive and have lower yields during economic downturns because investors looking for safe investments prefer to buy them.
So with that cleared out of the way, let’s get down to business.
World economy – Will it witness a financial disaster in 2024?
In an interview between Kitco and Geroge Gammon, an investor, macroeconomics expert and the host of the Rebel Capitalist Show, they talk about the predictive capabilities of the inversion of the yield curve and how it telling investors that a global financial crisis 2.0 could hit the world economy in 2024.
So basically as we mentioned before a yield curve inversion occurs when a long-term bond has a lower yield than short-term bonds. It has been used as a reliable indicator that an economy could be heading for a recession soon.
History has shown us that certain patterns tend to recur. Gammon told Michelle Makori, the lead anchor and editor in chief of Kitco News, “If you go back to the 1950s, you could see that the inversion of the yield curve has incredible accuracy as far as its predictive powers are concerned.” He continues by saying that a recession has never occurred without an inversion of the curve and that no other economic indicator is anywhere close to being as accurate as the inversion of the curve.
According to Gammon, the yield curve inversion is a sign that a “black swan” event or a catastrophic one is incoming. He also mentioned financial insiders pulling the string from behind the economy. “He went on to quote ” These financial insiders that control billions if not trillions of dollars have insider information and it’s not entirely illegal insider information but they have exclusive access to details that we don’t possess”.
These financial insiders get tips from a global intel syndicate’ as he claims, and they buy the long end of the curve, mainly the 10-year treasuries and the 30-year treasuries.
The logic behind this is quite interesting as explained by Gammon. He explained that this creates more demand, therefore the price goes up and the yield goes down. Then, you combine this with the Federal Reserve raising interest rates at the front of the curve.
In the interviews, he had several connotations towards what could be the cause of this. Gammon explained. “Is China’s economy going to falter? Is World War 3 brewing around the corner or is the commercial real estate market going to blow up?
We don’t know but I can almost assure you that the Warren Buffet types do and as a result, they buy that long into the curve.”
Gammon’s Outlook:
The host of the Rebel Capitalist Show had clarified that there won’t be any serious economic fallout until the curve uninverts.
As per his recommendation he advises all viewers to watch the 2-year and the 10-year yield curve. As of now, the 2-year yield is trading above the 10-year level. Once it goes down to that 10-year level, and then drops below it, that is when you have to focus.
He also pointed out that there is a very high probability that the yield curve could univert when the Federal Reserve starts dropping the rates, however, the only way that could occur is if there is a black-sawn event in the form of a global financial crisis 2.0.
The macroeconomic export also reveals his portfolio allocation given the risks that are incoming. “I always have 10% in gold, whether it’s recession, economic boom, inverted yield curve, it doesn’t matter. And it goes back to having purchasing power outside the system as well” Gammon said.
So What’s the future going to be like?
Well, we’ll have to wait and see.
Until next time, Happy Trading!!
Commodity Samachar
Learn and Trade with Ease