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Forget 1999, Party Like It's 2017

Rahul Salgia profile picture
Rahul Salgia


  • In 2000, the yield curve turned negative and so did the Nasdaq.
  • In 2017, the yield curve is still positive despite the weak economic data.
  • The yield curve has been a reliable recession indicator for the past seven downturns.

There is negative sentiment regarding the economy and the SPDR S&P 500 (SPY) and Nasdaq. Many are saying that we should party like its 1999. Despite the bearish sentiment, we are not there yet.

The average bear market lasts approximately five years. We are currently in the eighth year of the bull market, and more bears are coming out of hibernation. Many are calling for a crash or how a recession is on its way very shortly. This sentiment is appropriate as people remember the gloomy days of the 1987 crash, the Nasdaq bubble popping, and the recent real estate crash.

Many people refuse to look at the yield curve when stating that the economy will slow down. The yield curve accurately forecasted the previous seven recessions, and it should be scrutinized by the investing community. In my previous article, I described the yield curve. "In a growing economy, long-term rates are greater than short-term rates. When short-term rates are higher than longer dated interest rates, this means that there is stress in the economy. Banks usually invest in long-term illiquid assets, and they fund their operations by short-term liquidity. This system only functions when short-term rates are less than longer term rates. If short-term rates do go higher, then the banks lose money."

In April 2000, Alan Greenspan raised the fed funds rate to 6.00%, and the 10 year traded at 6% as well. The yield curve (fed funds rate minus the 10 year) turned negative after May, and the spread at the end of the year was -100 basis points. During this time, the Nasdaq topped out shortly before Greenspan raised the short end to 6.00%. The maestro popped the Nasdaq bubble to purge the financial system of excess speculation. Although the Nasdaq crashed, the economy still had strong job growth. Despite this strong growth, the yield curve foreshadowed

This article was written by

Rahul Salgia profile picture
I like to be a contrarian investor/trader. I use various technical/fundamental/contrarian analysis to make trades. I have a youtube channel where I discuss my thoughts about market direction.

Analyst’s Disclosure: I am/we are long QID. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have various positions that are long and short in the stock market and futures markets. This includes option trades as well.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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