The Fed’s #1 Recession Indicator Was JUST Triggered (Uncut) 03-01-2025

The Fed’s #1 Recession Indicator Was JUST Triggered

one of the federal reserve’s favorite recession indicators was just triggered but what does this actually mean are we going to have an economic contraction is the stock market going to go down what the f is going on right now I’m going to do my very best to answer those questions for you in three simple fast step step number one let’s go over this crazy crazy yield curve and how it just in inverted again we look at a chart today’s date going all the way back to October or so of 2024 on the left we start at zero way up

here and we go up to 50 basis points that’s 0.5% and then we go down to a negative 125 basis points should have put negative there but you guys get it with the red numbers so this is the 3mon treasury yield versus the 10year treasury yield probably a better way to say that is the 10-year treasury yield minus the 3month treasury yield so we go back to October of last year and the curve was massively inverted that means the 10-year treasury yield was actually lower than the three-month treasury yield something that really

shouldn’t happen I mean you can just just use some common sense and think about lending your buddy $1,000 for 10 years versus 3 months which one are you going to charge him a higher interest rate which one do you have more risk for inflation or not being paid back obviously for 10 years so you’re going to charge him a higher interest rate the longer you lend him the money this makes a lot of sense and this is usually why in a healthy environment you would see a steep yield curve so yields would be lower at the

front end of the curve the shorter maturities the less time that you’re lending the government money and as that time increases the yield would get higher so the bottom line is when you see this inverted curve or on this chart anything below zero that is bad but what’s interesting is when you get above this dotted line after being below the dotted line we go from bad to being very bad and you’re probably say yourself George well what that that is if this is bad then that’s got to be good but if we

actually look at a chart going back let’s say to the 1970s and we look at the 3month versus the 10-year we see that usually the stuff hits the fan in other words we have that economic contraction not during the inversion but after the Curve curve un inverts then we fast forward to January 2025 or so the curve steepens out the 10-year treasury yield gets to a point where it’s maybe 40 or 50 basis points above the thre Monon which is more along the lines what you would expect in a healthy growing

economy but actually historically speaking the 10-year treasury yield is usually about 1 to 1.5% 150 basis points above of the front end of the curve so we are still nowhere close when we’re at 40 or 50 basis points but then what we had is the 10year treasury from that point start to drop down and more recently it’s absolutely plummeted to a point where now the curve has reinert again so if this is bad this is very bad but this is flat out bizarre so now let’s step back for a moment and ask ourselves well what

on Earth is actually going on here because this is just a visual representation of prices and what the buyers and the sellers and the treasury market are actually doing but we’ve got to think through why they’re doing what they’re doing why are they buying so many 10-year treasury yields that brings the interest rate down remember there’s an inverse relationship between the price of the treasury and the actual yield usually it’s these financial institutions the mega Banks the hedge funds the p Pion funds in and outside of

the United States looking at their balance sheet and saying okay well what are we going to do we could go out there and lend into the real economy or we could just buy treasuries so at the end of the day it’s really about risk versus reward I mean if you ran a bank you’d be doing the exact same thing you’d be asking yourself okay I can go ahead and increase the size of my balance sheet by giving a loan to a global Corporation and I might be able to get 6% interest or what I can do is take that same

balance sheet capacity and I can buy a 10-year treasury yield up here let’s say at 4.8% well I like the 6% but boy oh boy that’s way too risky because I look out into the Horizon and I see storm clouds economic storm clouds I see a potential contraction I don’t like what’s going on so in that case I would much rather have the 4.8% on the treasury because the risk is a lot lower you see what’s happening here as the perceived risk in the global economy increases then there is a greater desire to have safe and liquid assets on your

balance sheet and therefore you’re going to buy things like the 10-year treasury yield which brings the interest rate down so the next question becomes is the yield curve always right and the answer is no it’s got a very high hit rate but it’s not always right let’s say 90% of the time and it’s very difficult to actually use the yield curve to predict when the recession is going to hit other than this basic analysis of looking at when the yield curve goes from being inverted to uninverted and I’ll be the

first person to admit that I’ve been talking about this for a long time in my base case is that we would have already had a recession because usually that economic contraction hits within that 2-year period but another thing that I’ll say is this meaning the treasury market is not just the bond market for the United States it’s really the bond market for the global economy and if you look at what has happened over the past two years outside of the United States it’s a much much different story which would make

more sense when you’re looking at this inversion but I know right about now this guy is going to step into the picture especially in the comments and it is your friend and family member Fred the guy that’s always nagging at you telling you that George gamon doesn’t know what he’s talking about he’s just fear mongering and what you should do is just buy the SNP and listen to Jim Kramer and just bury your head in the sand like an ostrich and it’s not about timing the market it’s all about time in

the market and it’s not about buying things when they’re cheap or selling them when they’re expensive it’s all about just predicting well just knowing for sure that the stock market always goes up and therefore anyone that has a contrarian view is just spewing misinformation and disinformation you should just ignore them he has a very similar view to the mainstream media oddly enough but what this misses is what we were just talking about it’s not the fact that the yield curve is predicting a recession I think that’s missing the

point so said another way it’s not about the curve inverting it’s about why asking why there are so many financial institutions that are taking their balance sheet capacity and buying 10-year treasuries instead of going out into the real economy and using that balance sheet capacity to get a higher interest rate this is really the key and it’s why we have to include the yield curve in our analysis even if it’s not always correct or it doesn’t give us much information as far as the timing of an economic

contraction step number two now let’s dive into the charts to see if this bizarre move we have just seen in the treasury curve is actually unprecedented and then at the end of this video I’m going to give you my opinion as to what is happening in the real economy that is motivating let’s say these huge financial institutions to take a risk off approach or a much more riskof approach than they were just a month ago so let’s start by looking at a chart of the FED funds and the 10year treasury as opposed to the three-month Treasury and

the 10year treasury so the absolute front end of the curve and we go back to 1965 on this one you can’t blame me for just looking at recent data that is for sure go back to the sures of sickness and it’s I wish I could kind of zoom in here but unfortunately yeah it’s a little tough to do but it seems like we had a reinversion but that might have been during the actual recession of the surveys the sickness we go back to the GFC and we had a little bit of an unversioned down but nowhere near what

we had as far as the 50 basis points we were talking about in Step number one and then uh definitely didn’t have it during the.com bust and you go back to 1990 we really didn’t have it then it reined but that was when we were right in the middle of a recession and going back to the 1980s and 1970s it was tough because back then the FED really didn’t set the overnight rate uh they were just managing Bank Reserves and trying to manage M2 money supply so it’s not really an Apples to Apples comparison if

you want that you’ve got to look at more so like the 2-year Treasury and the 10-year treasury which we’re going to do here in just a moment so based on this chart I would say that the 10e treasury trading underfed funds which is what it’s doing right now in addition to being under the 3mon isn’t unprecedented but it’s definitely rare now let’s go over to the 2-year Treasury and the tenure and we are not yet rein verted I mean stay tuned right who knows what’s going to happen over the next couple weeks definitely

volatile times we are living in for sure and going back in history on this chart you see we got an inversion just prior to the seresa sickness but then it just kind of went straight up as far as it steepening out GFC we had a slight slight oh no look at this so we had an inversion in the curve in 2006 that’s really interesting and then we had the unversioned dip down again and then the last Harrah there just prior to the stuff hitting the fan and that’s when it really steepened out as a result of the FED dropping rates

dramatically in 2000 at the end of 2007 and into 2008 the com bust it was pretty much a straight line now if you look at the recession that we had in the early 1990s when the curve was inverted there it was once again kind of all over the place so with this curve in particular I would say that going back prior to the doc com bust it was actually pretty common for it to reinert but after in the Modern Age let’s say it has been more Uncommon if you look at the last three recessions now let’s go back to

the specific curve we are looking at in Step number one and oh by the way I forgot to mention although this is one of the fed’s favorite recession signals it’s not their absolute favorite we’re going to look at that in just one moment but before we do let’s get back to to this 3month 10e which again just rein verted but what’s interesting here is you can see prior to the seresa sickness it did something similar prior to the GFC it definitely did something similar prior to the do bust it almost almost

reinert and it definitely reined prior to the 1990s recession so this is kind of the opposite of the 2-year where it’s not uncommon at all in fact I would say it’s kind of standard operating procedure for this thing to uninverted absolute favorite recession indicator and I know that because they’ve said it many many times on their website and we can see why because this is extremely accurate especially when you look at this near-term forward spread 90day moving average so what is the near-term forward spread well right here it says

it’s the difference between the expected three-month interest rate 18 months from now so I’m assuming they’re getting that maybe from the Futures Market or something like that minus the current thre Monon interest rate so if we go go back to well the 1970s we can see that it actually gives us a little bit better timing than the other curves so it inverted just prior to going into the recession of the early 1970s um it inverted a little bit prior to the 1980s but let’s fast forward to more Modern Times And we can see that

looking at the do bust once it uninverted that’s when the stuff really hit the fan and it was the exact same thing with the GFC and then same thing with the seresa sickness and as I’m looking at it right now you guys will notice that the 90day moving average which historically is so so accurate has not yet uninverted so this is something that personally I’m going to be paying a lot of attention to and usually just FYI it uninverted as a result of the FED dropping rates at the front end it doesn’t usually uninverted

of the curve in other words the 10-year treasury yield going up and continuing to go up so what this would lead me to believe is the future for 2025 is probably again there are no certain certainties only probabilities but most likely for the rest of 2025 the FED is going to be cutting rates and probably cutting rates more than most people expect so why would they do this because they’re responding to the economic weakness that these big financial institutions that we talked about in Step number one are worried

about step number three so what is some of the economic data that could be spooking the marketplace driving down the 10year treasury yield to the point where the curve is now rein verted before we get there let’s start by looking at what I would call maybe some anecdotal evidence based on what I see just with my own eyes talking to family members I see in the comments of the YouTube videos that I do and just using some good oldfashioned common sense now this isn’t an actual it’s just one that I drew to give a visual representation

of what I think has happened since the surveys sickness so on the left we go from $22,000 up to $5,000 and we’re going to get to these numbers in just a moment but we start by looking at this green line which represents we’ll use your friend and family member Fred once again this represents Fred ‘s income so as we know since the seresa sickness nominal incomes in the United States have gone up dramatically so let’s assume for a moment that in 2019 he was making around $2,000 a month and obviously these aren’t actual

numbers it’s hypothetical just using them for the sake of the example so his income would have gone up and up and up to the point where it is today let’s say right around $4,200 so I know a lot of you right about now are saying well this is great news his income went from $2,000 to a little over $4,000 so his purchasing power must have increased tremendously wrong because we have to factor in the price of all the stuff that he was buying with his income in other words inflation so let’s go back

to our chart and look at this red line you guys know what happened the consumer prices started to go up and up and up here in 2020 and then in 2021 and into 2022 they absolutely skyrocketed Unfortunately they were going up at a much faster rate than Fred’s income now we did have some disinflation but that doesn’t mean that prices went down absolutely not they just continued to go up at a slower pace so right about here we go from Fred having actual savings at the end of the month to Fred not having

enough money to actually pay the bills but he got bailed out by the government remember all the stimy checks and it wasn’t just getting checks in the mail every single month free money it was also the fact that he didn’t have to pay his rent didn’t have to pay the mortgage didn’t have to pay the student loan and a lot of other programs all the PPP grift can’t forget about that so his purchasing power actually increased substantially when you add his income to all of the free stuff that he was getting so he was actually able to

handle the massive increase in prices but you guys know how this story ends we get to a point where the free stuff starts to run out and the only thing that Fred is left with is this huge gaping spread between his income and his expenses to a point now where let’s say his income is 4,200 but his expenses are probably close to $5,000 so to put this in terms everyone can understand right here prior to the surveys of sickness let’s say at the end of the month he had $100 left over okay and then during the stimy checks and all

of the inflation he had an extra $400 at the end of every single month but then we get this blue line going down the free stuff started to run out and it’s time to pay the Fiddler he went from having $400 at the end of the month to negative $100 in other words he needed an additional $100 that he didn’t have just to pay the bills so what did he do he started putting the charges on the credit card well that only lasts to a certain point and then once the credit card is maxed out you start not paying

it back that’s when we see the delinquency rate shoot up editor go ahead and throw a chart of that and then we get to the point today where Fred is completely tapped out but at the end of every month he needs an additional $800 above and beyond his income just to put a roof over his head and food on the table so what does Fred have to do he’s got to cut back his spending in other words aggregate demand decreases and when you have an economy that’s 70% consumption that likely will lead to an economic recession but there is another

option for Fred he doesn’t necessarily have to cut back his spending he could go out there and get a job and actually make an additional $800 that would take his income to a point where he’s actually able to pay the bills comfortably all right well that would require the job market doing well and all of these corporations hiring more and more and more employees more demand for workers like Fred therefore these corporations will be willing to pay him more because their profits are increasing I mean we saw

this play out during this time frame when we had the Consumer Price inflation but unfortunately now we have to look at that underlying economic data and we are seeing a lot of corporate bankruptcies just the other day we talked about this on a video where Joan Etc is closing all 800 stores and it’s not just Joan Etc we see Starbucks laying off over a thousand workers we see warnings from companies like Walmart and McDonald’s that are a direct reflection of what is happening with the consumer so the bottom line is

it’s very unlikely for Fred to go out there and get a job that’s paying him a lot more than the one he currently has and that goes back to his decision-making process where the only option he has is to reduce spending but unfortunately this reduction of spending makes it even worse for the corporations that lay off even more workers which makes your friend and family member Fred even more pessimistic about the future and this is why we’re seeing consumer sentiment surveys such as the Michigan survey and the conference board survey

show readings where the confidence level of the average Joe and Jane is absolutely plummeting right now and there’s also more direct data to look at what is happening in the jobs market and just today we saw the jobless claims came out at 242,000 above expectations while the housing market which could be a savior because all of these people have so much Equity that they could use that as purchasing power to bridge this Gap but now we’re seeing housing transactions at alltime lows as an example pending home

sales just hit an alltime low going back to when they started tracking pending home sales which was in the early 2000s said another way pending home sales are at their lowest levels in about 25 years and think about it the population of the United States was a lot lower back then than it is today yet again those pending home sales are at an alltime low this is not what you would see if the housing market or the economy at large or the labor market the jobs Market was doing well you would see the

exact opposite so the main point of of this video isn’t to say that we’re headed for a recession or a stock market crash it’s simply to point out that hey we’ve got some good news over here but we also have a lot of bad news that we have to pay attention to and we’ve got to be cognizant of what these financial institutions with likely Insider information are doing with their balance sheet and that’s what the treasury curve tells us and I want to point out it’s not just the financial institutions it’s

also big players like Warren Buffett who as we said the other day is selling stocks to the point where he’s accumulated a bigger cash position than he ever has the bottom line here are these players in the financial markets with Insider information and a lot of experience are taking a much more risk off approach and it doesn’t necessarily mean that X Y or Z happens but it is something that you need to include in your analysis of what may happen throughout the rest of 2025 for more content that’ll help you

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