Stocks plunge

Updated,

8.17.19:

A bit of chart studying reveals that the longer-term trend lines are not disturbed.  A sell-off will have to get worse for this to happen.

Still hard for me to believe that there is an increased recession risk when interest rates are this low.

There could be another explanation for this phenomenon.  Consider the years of quantitative easing in the last administration, and it may explain what is going on.  Maybe.  The point is that all that money has to go somewhere.  Either the Fed allows the debt to roll over, or they retire it.  If it rolls over, then it means that they are buying the debt that they already held.  This has the effect of increasing demand for bonds, which reduces the bond yields.

It wouldn't surprise me if the Fed is doing this in order to alter perceptions.  In other words, none of this is particularly meaningful as in prior years.  No other recession has had quantitative easing to unwind.  This is new.


8.14.19:

As mentioned before on this blog, a good recession signal is an inverted yield curve.  However, not every inverted yield curve means a recession.  But all recessions have had an inverted yield curve.

Confused?  It shouldn't be confusing.  All it means is that the recession risk is now higher.  But nothing is written in stone.  Keep in mind that the interest rates are really low already.  Unless there is some sort of deflationary pressure that exists out there, a low interest rate should not be "high".

There is no evidence of deflation, according to the inflation figures out there.  Maybe there is elsewhere in the world, however.

Furthermore, the stock market plunge is not yet significant enough to become concerned about a bear market.

Even so, a bear market does not guarantee a recession either.  The huge drop in 1987 did not cause a recession.  The recession in 1990 was not caused by the stock market plunge of 1987.  By 1990, the stock market had largely recovered.

Just more hyped up stories masquerading as news.  There's no news until there's news.  This isn't news.