Well, despite the bunch of half-finished posts that I should wrap up, I'm going to discuss something new. The coming recession...maybe. A couple of days ago the news reported that the yield curve on interest rates inverted. You don't have to know what that means, but you should know that it's a bad thing. Do you remember watching Star Trek as a kid and Scotty would tell Kirk that the anti-matter containment fields were failing? Even if you didn't have a clue what antimatter was (and let's face it, I still don't) you knew that it was bad if it wasn't contained. Well, yield curves are the same thing...sorta.
Before I explain what they are, I'll explain why they are important. Every recession ever, in the history of the universe (slight exaggeration) has come after we had an inverted yield curve. Now, sometimes you get an inverted yield curve without a recession, but you never have a recession without an inverted yield curve. Think of the inverted yield curve as the bread in your recessionary pizza. You can have bread that isn't made into a pizza, but you can't have pizza without bread. And if you are the kind of person who tops your pizza with pineapples, stop reading this post right now because you are obviously deranged and I can't talk sense to you.
So you might be reading this and thinking "that analogy is making me hungry, even though I can't eat pizza because of my lactose intolerance, can you explain some more?" Okay, here is what the yield curve should look like: A 3 month CD at your bank is supposed to pay a lower interest rate than a 10 year CD, right? Well, when the yield curve inverts, the short term stuff pays more than the long-term stuff. If that doesn't seem like it makes sense, you're right, it doesn't. It happens when somebody (Hi Dubya!) completely screws up the economy like a teenager learing to drive with a clutch, or a republican with his first Tranny hooker (Hi Porter Goss!).
Because this is such a grave development (which could lead me to win that bet I made a year ago with Johnny Vegas), I decided that in a future post, I'll give recession related financial advice on investing in the stock market. You can play along or invest beside me.
In the short term, if you are thinking of buying a house, this might not be a bad time because the markets are predicting a future rate cut. I'd be careful about buying a condo in a bubble market like Vegas, but investing in a house to live in should be a safe bet. Also, in general, I think Home Builder stocks might be underpriced right now. Even if bad things happen to housing market, these stocks have been getting killed in the market and the big boys (Toll Brothers, Pulte, D.R. Horton etc.) are trading at 6x earnings (most of the rest of the S&P is at like 15x earnings).
Oh, for next week I'll try to wrap up the florida trip, have a ninja news segment (maybe) and finish up telling you about the underpinning stuff.