Inversion Good?

Published on Sep. 27, 2018

Inversion Good?

What’s in the News?

In an August 2nd interview, David Kelly, Chief Global Strategist of JP Morgan Asset Management, explained how an inverted yield curve could create income for consumers. Like many strategists David believes that the fed will pull off 4 more rate hikes by June 2019. After these hikes, he expects the yield curve to be flat. Even though an inverted yield curve has historically suggested looming problems for the US economy, he adds a spin to that.

In his interview David stated, “American households have got about three dollars in financial, interest-bearing assets for every one dollar they have in debt. And most of those interest-bearing assets are short-term, things like CDs, and most of that debt are long-term, things like mortgages, so if you got an inverted yield curve and short rates go up more than long rates, guess what, you’re giving more income to consumers, and you’re not pushing up their expenses. It actually stimulates the economy.” Recessions don’t always follow an inverted yield curve, and more often than not when a recession has followed inversion, the stock market may rally considerably before the recession occurs.

An inverted yield curve isn't trouble immediately

An inverted curve warns of recession. But some nice stock gains occur between inversion and recession. LPL FINANCIAL

What are we thinking?

The shape of the yield curve is definitely something to monitor since an inverted yield curve has often followed by recession. Could an inversion be different this time? If you are looking for income we can help do it with a risk-managed approach. Our Current Income Portfolio opportunistically manages corporate bonds and preferred securities and is designed to position investors to benefit in a rising rate or a low rate environment while generating high and reliable levels of income without taking on excessive risk.

What are your unique investment needs? If income is a need, our conservative approach to generating current income may be what you are looking for.

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