More “Fake” Economic News – Inverted Yield Curve?

Categories : Financial, News
December 11, 2018

Last week the stock market took a sizeable dive, only 1 week after experiencing a large up week. Two major problems were reported as being the catalysts for the recent drop; Chinese Trade Talks and the “Inverted Yield Curve.” Both were, to some degree at least, “Fake News.” Could this simply be a media attempt to blame the Administration, or are these genuine worries?

A U.S./China “handshake agreement” resulted from the recent Buenos Aires G20 meeting, creating the framework for a few immediate actions. It also provided another 3-month trade negotiating extension. Several of the immediately agreed-upon actions have been started already, but there was no positive market reaction to this news, so we conclude that the China issue was, at best, secondary.

That leaves the much-publicized “Inverted Yield Curve,” but that did not happen. Media reporters latched onto the inversion curve story en masse, but they were wrong. The Yield Curve (a graph illustrating the relationship between bond interest rates and corresponding maturities) never actually inverted. There was a “dip” in the curve in the 5-year maturity range, but an actual inversion would have shown 30-year rates to be less than short-term rates. Long-term interest rates are currently above 3%, and short-term rates are under 3%. That represents a Normal Yield Curve.

Investors and other market watchers should be very frustrated by poor media reporting. Mass hysteria can be provoked by false reporting. Remember the 1938 Orson Welles radio broadcast, War of the Worlds? I don’t, but some people alive today can remember the incident, which caused a significant panic by proclaiming a Martian landing on Earth. This is considered by many to be the original “Fake News.”

Herd Instinct (or, Herd Mentality) is a market phenomenon, described by as follows:

Herd instinct is a mentality that is distinguished by a lack of individual decision-making or introspection, causing people to think and behave in similar fashion to those around them. In finance, a herd instinct relates to instances in which investors gravitate toward the same or similar investments based almost solely on the fact that many others are buying the securities. The fear of missing out on a profitable investment idea is often the driving force behind herd instinct.

Far too often, market reactions represent Herd Mentality, and make little or no sense. Don’t become a victim of the “herd.”

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