(Kitco News, Fri. Sep. 8th, 2023) The inversion of the yield curve has “incredible” predictive powers, and it is now telling investors that a global financial crisis 2.0 could hit the world economy in 2024, said George Gammon, an investor, macroeconomics expert, and host of the Rebel Capitalist Show.
A yield curve inversion happens when long-term bonds have a lower yield than short-term bonds. It is viewed as a reliable indicator that an economy could be heading for recession.
“If you go back to the 1950s, you see that the inversion of the yield curve has incredible accuracy as far as its predictive power,” Gammon told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. “We have never had a recession without an inversion of the curve. So if you look at any other economic indicator, there’s none that are close to as accurate as the inversion of the curve.”
At the time of writing, the U.S. 10-year Treasury was yielding 4.2%, and the U.S. 2-year Treasury was yielding 4.9%. Yet, firms like Goldman Sachs have been lowering their forecasts for a recession in the U.S. In its latest economic update, Goldman has cut the chances of the U.S. falling into recession over the next 12 months to 15% — its third upgrade to its economic outlook in four months.
However, according to Gammon, this yield curve inversion is the key sign that a “black swan” event is coming because it points to what financial insiders are doing behind the scenes. “These financial insiders that control billions, if not trillions of dollars, have insider information, and it’s not illegal insider information, but they have access to details that we don’t have,” Gammon noted.
When those financial insiders, or as Gammon described it — “a global intel syndicate,” get a signal that something could be going off the rails, they buy the long end of the curve — the 10-year Treasuries and the 30-year Treasuries.
“This creates more demand. Therefore, the price goes up, and the yield goes down. Then, you combine this with the Federal Reserve raising rates at the front end of the curve. That’s why it inverts,” Gammon explained. “Is this because China is going to blow up? Is this because we’re going to have a World War III? Is this because the commercial real estate market is going to blow up the balance sheet of all these regional banks that will have this systemic risk with the euro-dollar system? We don’t know, but I can almost assure you that the Warren Buffett types do. And as a result, they buy that long into the curve.”
Gammon also gave a concrete example from 2019 when this happened, which was before COVID-19 hit. He explained the real reason why the curve inverted back then. Watch the video above for details.
The host of the Rebel Capitalist Show clarified that investors won’t see a serious economic fallout until the curve uninverts.
“What I would suggest all of your viewers do is very simple — just watch the 2-year and the 10-year. Right now, the 2-year yield is trading above the 10-year. Watch for that to slowly go down,” he said. “When it gets down to that 10-year level and then drops below it, that’s when you really have to be risk-off, and that’s when you really have to be paying attention.”
There is a very high probability that the yield curve could uninvert when the Federal Reserve starts dropping rates, Gammon pointed out. But the only way that could happen is if there is a black swan event in the form of a global financial crisis 2.0.
“What type of economic environment would we have to have in order for Jerome Powell to drop rates from 5.5% straight back down to 4%, 3%, 2%, maybe even back down to zero? That would require some sort of black swan … That would require some sort of, unfortunately, world war or a GFC 2.0 [global financial crisis]. And I think that’s what that yield curve is predicting right now.”
Gammon also revealed his “highest conviction” of what that black swan event could be going into 2024, discussing a potential China collapse, a WW3 scenario, and a real estate crisis. To find out the most likely outcome to lead the world into a global financial crisis 2.0, watch the video above.
The macro expert also broke down his portfolio allocation given these risks. “I always have 10% in gold. [Whether it’s] recession, economic boom, inverted yield curve, it doesn’t matter. I have that 10% gold for insurance. And it goes back to having purchasing power outside the system as well,” Gammon said.
To find out how Gammon is allocating the other 90% of his portfolio, including what percentage he is dedicating to silver, Bitcoin, miners, and other essential assets, watch the video above.
Pisted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com