TL;DR

The supposedly reliable recession indicator, the yield curve, has un-inverted again after a record inversion. While seemingly positive, this could signal an even worse downturn similar to the 1980s crisis, marked by stagflation and high unemployment.

Story

The yield curve un-inverted. Again. Sounds like good news? Think again.

‣ Yield Curve: Imagine two loans—one short-term (3-month), one long-term (10-year). The “yield” is the interest earned. The yield curve shows how these interest rates compare.

Normally, long-term loans offer higher returns because they’re riskier. A healthy economy has an upward-sloping yield curve. But when people panic, they flock to safer long-term bonds, driving down their yields. If short-term yields rise above long-term ones—an inverted yield curve—it screams “Recession imminent!”.

This happened in 2022, screaming louder and longer than ever before—a whole 29 months! Now it’s un-inverted, but don’t break out the champagne. Like a calm before the storm, this could be worse than the initial inversion.

Remember the 1970s? Similar shenanigans led to stagflation—high inflation and unemployment. The parallels are chilling: a fiat currency (not backed by gold), reckless money printing, and global turmoil (oil then, tariffs now). Back then, a temporary un-inversion in 1978-1980 preceded a brutal economic crisis. Now, as debt piles up and inflation persists, it’s happening again.

‣ Fiat Currency: Money without intrinsic value, based solely on government decree—like an IOU from a gambler.

‣ Stagflation: A toxic mix of high inflation and unemployment, where your money buys less while you can’t find a job—like a double whammy to the gut.

The current un-inversion might not be the Fed’s doing but a symptom of market panic. If so, this is the market screaming for a life raft, and we may be seeing the ghost of Volcker in our future. If this pattern holds, the coming downturn might resemble the brutal 1980s crisis more than we would like. So, buckle up, because this roller coaster is far from over.

Advice

Don’t get complacent. Diversify your investments, considering assets that historically weather downturns well. This might be a good time to research what happened in the early 1980’s.

Source

https://www.reddit.com/r/wallstreetbets/comments/1jzm3dm/the_10year3month_yield_curve_spread_just/