So the boogeyman is here the yield curve. Inverted. Oh, are we headed to recession, not necessarily i'm going to give you a few reasons why, despite the yield curve inverting, we might not be heading to a recession, but first i'm going to explain what the yield curve inverting means. How does it impact our economy, and mainly my prediction going forward as far as every session check this out? This is about to get interesting inverted for the first time since 2019, the two-year bond was at 2.337, while the 10-year bond was at 2.331, which is opposite of where there should be because the longer the bond, the higher the yield, that's how it works.

You have more risk on higher bonds, and when this happens, economists say that this is a massive warning of an impending recession. Now, in this video i'll explain to you what does this inversion means and how likely it is that we are heading to a recession, including six reasons, sorry, six reasons why we may not be heading to recession, despite the yield curve inverting on thursday. First of all, i got ta explain what the yield curve actually means. The yield curve is basically the opposite of the price.

In fact, if you're getting a car and you're getting a good deal on the car right, the quality of the deal that you got is basically the yield curve. If you bought a really good car for cheap, your yield is amazing, but if you bought a clunker for a lot of money, your yield is basically trash. That's as simple as it can be, so the higher the demand for a bond. What happens to deal the yield goes down the less the demand for the bond.

The yield goes up so price and yield actually are opposite. Price goes up, yield goes down, price goes down, yield goes up, you understand what i'm saying here: okay, so the issuer of these bonds is the us government to raise money and the demand for these bonds actually sets the yield. So if the two year yield actually goes higher than the 10-year yield, that means nobody wants the two-year why that is because people think that in the next two years, we're about to see a recession and the craziest thing is that the inversion of the yield curve, Not only serves as an indicator, it actually serves also as the cause, because look what happens here when the banks actually lend money and loan money they make net profit. So they need to borrow cheap and land out at more expensive rates to make money and when the spread between the different yields is higher, the bank has more profit.

So if the bank can borrow money for cheap, take it from you when you put it in the deposit account and they can lend it out at longer higher yields, the banks make more money, but when the short term is higher than the long term, the banks Are sitting on their money they're saying there makes no sense to us to take an expensive money and lend it out for cheaper. So you create a credit crunch, there's a tightening of the credit market. So it's hard to get capital and when companies have no access to capital, basically businesses stall and the economy goes into. This is exactly what is the scariest part about the tightening of the credit because of our inverted yield curve? That's kind of a very layman, simplistic explanation.

I know it's way more complicated, but just let's keep it simple now the question is: how accurate is this warning? So if you go back to 1955, it predicted every single recession within 6 to 24 months, so it means since 1955, every time the 2 and the 10 year bonds actually inverted. There was a recession from six months to two years. That means that since 1955, every time the yield curve inverted, we had a recession that actually happened between six to 24 months within the inversion. So once it happens, the clock starts ticking.

Now, if you go back to 1900 for the past 120 years, it's also a decent predictor 22 out of those 28 recessions in the past 120 years were also predicted, but in that case the time frame is six months to three years. So the recession that we're talking about isn't imminent and, of course, the mainstream media is going to be fear-mongering because you know they get clicks by saying oh recession, recession so relax. I want to be the voice of reason, and i want to offer you five reasons why a recession might not happen, despite the yield curve inverting on thursday. First of all, the last time we had that happened was in 2019.

The yield curve inverted and we had the covet crisis, but again it was a call with crisis. It's not like the yield curve caused it. We had a global pandemic. So if the global pandemic doesn't happen, that actually might be the first time that the yield curve actually missed now.

The second point is also very important. Despite what i just told you, the yield curve actually did invert on thursday, but it flattened out within a couple of hours, so the day finished on the flat yield curve, not an inverted one. So we had a brief inversion that fixed itself quite quickly. So a lot of economists, a lot of finance experts, will tell you it's not enough for a brief inversion.

You need a long-standing inversion to cause that and if you go back to my expedition, but the banks actually makes a lot of sense. So that might be another reason why a recession is not actually coming, and the third reason is basically that a lot of economists and experts are saying that the two year and the ten year is not the right curve to look at, and you should be looking At the three month versus the 10 year, which is basically how banks work think about three month versus tenure sounds a lot like the banking spread that they do care about now, those curves are not inverted. In fact, they're doing better than ever. The spread is really good, so if you want more indicators that the recession isn't coming, that's one also.

The other thing is the job market is super super hot there's, no unemployment people are in fact looking for employees. It's a super hot job market and the final expansion is a little bit technical. The fed has been buying a lot of the 10-year and the 30-year bonds a lot and what happens when the fed buys a lot of bonds in the market. A lot of 10-year and 30-year they push the price up, they push the price up, they push the yield down.

So a lot of experts are saying that the 10 year and the 30 year has a very artificially low yield because of the fed's aggressive buying and that yield basically is inverting with the two-year and that's artificial. And actually that argument does make a lot of sense. But if you want the flip side of it, look we still are facing with covet in china. That's coming back, we're still facing with inflation that is still here and not going anywhere.

There's geopolitical tensions, commodity crisis, food crisis, a lot of happening in the world right now that might push us on the brink of a recession, but the one thing you should pay attention to is what happens to the stock market when the recession comes now. Initially, this stock market might dip, but do me a favor after this video go back and stretch out the s p. 500. Since 1980.

All the way to today in the past 40 years see what happens with the s p 500 and, thank me later.