WARNING – inverted yield curve appearing in emerging markets.

The inverted yield curve has appeared in various emerging nations’ economies recently. Examples: Brazil, India, China.

Read this, although keep in mind this guy’s economic understanding is demonstrably poor.

The yield curve is the most reliable predictor of recession. It’s not perfect — nothing is — but you could have used the yield curve to predict our last two recessions quite easily.

(In depth economic analysis on this can be found here at the Mises Institute. And note also that you cannot just watch yield curves and predict every recession like magic, as there are some exceptions as explained in this report¬†— but you could have predicted each recession in the last 30 years. Not bad.)

Basically, when short-term rates are higher than long-term rates, it means businessmen see a slowdown in the rate of monetary growth — so they are desperate to borrow now at higher rates to complete ongoing capital projects.

Now is a good time to get out of emerging markets’ equities, if you have not already. I predicted last year that China would be entering recession this year. After the crash, buy foreign equities for cheap. But if you are smart, you don’t own any right now. Too risky.


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