Using an inversion table is said to decompress your spine, reduce back pain, lower your stress levels and improve flexibility. If that sounds like a lot of great results for just hanging upside down a little while every day, then you wouldn’t be the first skeptic out there. Indeed, there doesn’t appear to be much clinical data supporting well, any of these claims. The famed Mayo Clinic website warns that "your heartbeat slows, your blood pressure increases, and the pressure in your eyeballs jumps dramatically" when spending too much time upside down.
The inversion of the ‘yield curve’, a phenomenon that is occurring in bond markets as of the writing of this letter, seems to offer promises exclusively of the bad kind - economically, that is. When interest rates are priced upside down, or ‘inverted,’ the data says that a recession may well occur within the next eighteen months. In fact, just about all the prior recessions since the 1960s have been preceded by inverted yield curves but this relationship is not causative. And while forecasting recessions is generally not something that individual investors are interested in, talk about stock market declines and ears perk up.
From a portfolio view, what does a recession mean for the stock market’s performance? If a recession is coming, then we should sell stocks now, right? Intuitively, one would think if the economy goes into recession, then stocks will decline. Over time, this sentiment is generally correct for the period during the actual recession. The real problem is that no one knows when the recession will begin (or end) nor do we know how big the stock market’s reaction will be or when it will begin (or end). Some recessions last longer than others. Sometimes the market begins to recover before the recession is over. Sometimes, the market stays down and declines further after the recession officially ends. This may seem obvious but trying to predict stock market performance and correlations to recessions and inverted yield curves is about as reliable as the evidence that you can change your life just by hanging upside down every day.
Scott Lasky, CFP
PS. A Bank is a terrible place to hold money! While interest rates have risen in the real world, most banks are slow to share the wealth with their customers. Using no-load, high-quality, ultra-short-term bond funds, we are able to help clients increase their yields on cash dramatically without sacrificing liquidity. What about FDIC insurance you ask? It’s simply not necessary. FDIC insurance exists to protect depositors because the banks are highly leveraged and your deposit would not be safe without it. In bond funds, there is none to little leverage, which mitigates the need to insure your investment.
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