Random Thoughts on the Inverted Yield Curve and Debt

There was much discussion in 2018 on a temporary inversion of the two and ten year treasury yields, and it almost certainly contributed to some panic as investors widely view inversions in the yield curve as leading indicators of recession. Surprisingly for those who take the position that market timing isn’t possible (it probably is to some extent, but it would likely be difficult and unprofitable to act upon), investors have good reason to believe yield inversions are meaningful, as they have preceded all nine U.S. recessions in the past 60 years with recessions on average occurring 18 months later, with a high level of predictive power according to the San Francisco Fed.

Stock Prices are Even Less Efficient Than You Think

Within financial academia, there are three main groups of thinking regarding public equity pricing, all of which stem from the efficient-market hypothesis and depend on it to varying degrees. The strong form of market efficiency thinkers believe stock prices reflect all information that can be known about any business, including insider information, and that stock prices are wholly unexploitable for above-average risk-adjusted returns.