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We Just Flipped - Recession Warning



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Explaining a key indicator that points to a recession for investors
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THE INVERTED YIELD CURVE JUST FLIPPED:
In the past - the inverted curve has predicted 5 of the last 6 recessions that have happened since 1978. And when the rates flip - it takes anywhere between 6 to 18 months to have a recession which means we’re on track for a recession as early as October this year or as late October next year. That’s because on Monday this week, the spread between the 5 and 30 year treasury bond interest rates inverted for the first time since 2006. Then on Tuesday, the 2 and 10 year interest rates inverted for the first time since 2019 right before recession.

WHY ARE LOAN RATES GOING UP BUT MY SAVINGS ACCOUNT RATES ARE NOT?
The average yield on a savings account right now is .06% - that’s how much your bank is paying. For every $1,000 you have you in your bank, your bank is paying you 60 cents per year. Inflation is taking $70 per year. Now that rates are going up - the interest on savings accounts should also go up - but they haven’t and here is why:

Banks always follow bond yields. The yield on a 10 year treasury bond right now for example is 2.3%. On the high end - we should be making closer to $23 a year for every $1000 in our savings accounts. Not 60 cents per 1,000.

WHAT ABOUT 1 YEAR TREASURY BOND?
To be fair to the banks, it might be more accurate to use the yield on the “1 year treasury” because it’s safer for a bank to assume we’ll keep our money in the bank for at least a year without needing it, rather than 10 years - but even the 1 year bond interest rate is roughly 1.6% which is still way more than .06% that they’re paying us.

I STILL DON'T GET IT, WHY AREN'T BANKS PAYING MORE?
Right now banks are able to take our money, and by investing it into a safe 1 year treasury bond - IT guarantees them all the money back if they hold it for at least a year - and in exchange they can make a return of roughly 25 times on our deposits.

The reason banks can do this - is because they have so much money from all the QE (quantitative easing). At the beginning of 2019, commercial banks had roughly 13.2 trillion dollars on deposit. After the stimulus their deposits ballooned to over 18 trillion dollars today. That means they don’t need to incentivize new customers with a higher savings rate.

SO WHY IS THERE A RECESSION COMING?
Watch the video to find out!

*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

SOURCES:
https://bit.ly/3K8GaxC
https://on.wsj.com/3LBlL4A
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