Hey there, great to hear you found it useful!
After getting the charter, i spent the past 15 years as CIO running about $4b in discretionary accounts, everything from retail to family offices. Now retired (again) on a few ICs.
BTW - the FINS yield curve clock still works like clockwork. But the pace and magnitude is different every cycle - eg very quick in 2020.
ps. stay away from treasuries for about the next 20 years!
null
Not sure if it would matter to you at all, but I used your technique during the actual exam and passed it, so a part of the credit goes to you! I’ll raise my glass on the weekend and drink to your health!
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15 years in and this still stands. Thank you so much!
First of all, thank you so much for this, Null.
How would you relate these different quadrants to the different stages of the business cycle? This is something I’m struggling with in the CME readings.
My immediate thoughts are:
- Initial Recovery has a steep yield curve since both monetary and fiscal stimulus measures from the recession are still in place.
- Early Expansion has a normal yield curve since stimulus measures are slowly being phased out
- Late Expansion is when the yield curve begins to flatten, as the economy is hot and the central bank starts to implement a restrictive monetary policy.
- Slowdown is when the yield curve starts to invert, because investors are now becoming weary of the future of the economy, so they make a flight to safety by increasing duration which decreases longer yields, meanwhile the central bank continues to restrict monetary policy which increases the short end of the yield curve.
- Recession puts us back to a steep yield curve due to the tightening of both monetary and fiscal policy, and investors now shorten their duration to reduce price and interest rate risk, which puts even higher upwards pressure on long bond yields.
Do you think these are accurate classifications?
Thank you in advance!
Great question!
(I got your question from the future so here is my answer from the past!)
Yes your summary is correct. But don’t forget timing differences. Timing is EVERYTHING.
In Economics textbooks the centre column is GDP or output and there are columns to the right for lagging indicators (like unemp, divs, capex, etc) and columns to the left for leading indicators (like share markets, yield curves).
My main interest is share markets so that is my central column, so GDP, output, and jobs (ie business cycles) are lagging indicators for me - therefore of no interest.
(Economists are lousy financial forecasters because they are training to focus on what are lagging indicators of markets – so they are always behind the game).
Get your column focus right and you will succeed - not fail like most economists!
Cheers
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Thank you so much for the pointers, Null.
Would you mind expanding on the “columns”? By columns, do you mean the business cycle stages?