I have already talked about inverted yield curves here, and how they are signaling troubles ahead for Brazil and India.  So here is another piece that corroborates with my view… first, it explains what it means:
“The inverted yield curve usually means a weak economy. When short-term rates rise, borrowing money becomes much more expensive and businesses don’t expand, or they might even cut back. That’s how tight monetary policies lead to recessions and bear markets.
Since the early 1950s, a yield-curve inversion has preceded all but one official recession, according to academic research cited by Vanguard. And since 1960, the Treasury yield curve has inverted 13 times, anticipating 10 bear markets.”
Then, the author confirms that India and Brazil are in danger territory:
“Measured in local currency values, Brazil and India “are very, very close” to yield curve inversion, Bernstein said. “India and Brazil are at the point where they’re fish on the deck flopping around.”
“Yet U.S. investors loathe U.S. equities with a passion while they are still true believers in emerging markets. Obviously, they buy the fallacious argument that faster GDP growth yields better stock market returns.”
“People are ga-ga over countries where the yield curves are inverting,” said Bernstein. “When the yield curve inverts, the rate of profit growth turns negative. It’s never failed.”


It’s never failed, so based on this indicator, it’s logic to conclude that Brazil and India will experience some sort of recession some time soon. Let’s hope we’re wrong.


Full article here.

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