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If you watch or read any of the financial media outlets, you’ve heard of the “Flattening/Inverted Yield Curve”. Greenspan has referred to it as a “Conundrum” since long-bond yields have fallen while he repeatedly increases the overnight Federal Funds rate. This phenomenon has caused our esteemed Federal Reserve Chairman great consternation.

An “inverted yield curve” is very significant because many economists and financial professionals interpret an inverted yield curve to be a conclusive leading indicator of a future recession. While I do believe that a recession in the next 18 months is a real possibility, I do not believe the Yield Curve will serve as a leading indicator. Here’s why it is different this time! (I use italics to denote sarcasm because any decent investment professional will tell you to always be leery when somebody tells you that “it is different this time”.) Read the rest of this entry »