[kc_row use_container=”yes” _id=”588216″][kc_column width=”12/12″ video_mute=”no” _id=”284570″][kc_column_text _id=”574929″]
Hey There Income Hunter,
The most talked about yield curve move in history finally happened this week …
Chart via Bloomberg.
Over the past 50 years, every time the US 2-year-to-10-year yield spread inverted (2-year yield above 10-year), the economy went into recession.
I have been saying and writing that I think we will go into recession in 2022 based on reading economic fundamentals and macro forces driving the global markets …
Today, I’ll review the recession risk signals and share trades I put on to position for a resumption of the bear market in Q2.
Yield Curve Inversion and Recession
I already mentioned the yield curve inversion, and as you can see below each time the 2yr/10yr spread inverted since 1980 the economy went into recession.
This occurs due to banks being unable to make loans because the economics are not there, i.e. their borrow rates are higher than their loan rates.
The lack of credit availability causes many consumers to become insolvent, leading to less spending and an economic decline.
Oil Price Spikes
Historically, as you can see in the graph below, a surge in crude-oil prices have ended US economic expansions and tipped the economy into recession.
Every time oil prices rose 50% above trend, a recession followed. Brent, the international gauge for prices, climbed well above $110 a barrel in March, crossing that threshold on worries about disruption to Russia’s exports when they invaded Ukraine.
Consumer Goods Inflation
Other than these two compelling reasons, we also have the overall inflation issue, which has made it more difficult for consumers to make ends meet each month.
This is the most damaging factor because it destroys demand for goods and services.
Take Advantage of the Recent Correction
As happens with all bear markets, corrections we have seen a vicious short covering rally over the past two weeks, which has produced historic numbers …
- Apple has rallied 11 days in a row, the longest streak in almost two decades
- Call option buying is once again surging
- Retail favorites like GME are up over 100% in just two weeks
However, the bottom line is investors believe what they hear from the media – and they follow a sugar coated script written by their corporate sponsors.
As always, no matter how hard companies cook the books in an economic downturn, earnings suffer and stock goes down, and this time will be no different.
Bring It Home
After Tuesday’s rally on a fake Russia/Ukraine ceasefire, I came in yesterday ready to set up a first leg of bearish trades.
With tech having rallied 17% from the lows after trading down into bear market territory I purchased bear strategies in the Invesco QQQ Trust (Ticker: QQQ).
I also wanted short exposure to European equities and purchased put spreads in iShares MSCI France Index ETF (Ticker: EWQ). France has one of the weakest balance sheets in the Eurozone so that is why I selected EWQ.
Finally, I purchased puts on iShares High Yield Corporate Bond ETF (Ticker: HYG). High yield corporate bonds will get crushed in a recession as bankruptcies rise and company’s are downgraded.
Now is the time to come on board because the next few months will be explosive. Call our Customer Care Team at 1-888-872-3301 until 5 p.m. today to get on board!
Until then ..
Live and Trade With Passion My Friend,
Griff
[/kc_column_text][/kc_column][/kc_row]