By John Mauldin
August 2, 2019
One reason the economy is so fascinating is the way things just… happen. Growth blossoms if everyone just follows their own incentives and nothing gets in the way. The courage, vision and passion of entrepreneurs and those who risk their money backing them is one of the most inspiring aspects of modern civilization. Adam Smith’s Invisible Hand of now tens of millions of businesses, small and large and giant, working to produce and deliver inventions, technologies and cures that help us all.
Think about ants. They’re marvelous creatures. No individual ant knows how to build a colony, or is even aware it is doing so, but it happens because they’re supremely efficient at simple things. Go to that smell, pick up the object, follow that other ant, repeat. The end result is greater than their tiny brains can comprehend.
But like ant colonies, economies sometimes fall apart. In human terms, we call those times “recession.” We can recover from them, but they set us back.
However… they don’t have to set all of us back. Unlike ants, we can see the big picture. And if we see it clearly, recessions can be opportunities. Today I’ll describe just one of the many I think are coming. Of course, before that opportunity develops, people who don’t get out of the way are going to lose a great deal of money.
The good news is an opportunity will follow, as surely as morning follows night.
I am sure Jay Powell and the rest of the Federal Open Market Committee didn’t expect Thursday’s bond market action. They cut rates hoping to mitigate or even remove the inverted yield curve, which is a pretty reliable recession precursor. The opposite happened.
Below is a yield curve snapshot from Bloomberg on Thursday after the markets closed. The 10-year bond yield dropped 14 basis points in just a few hours. It was a sporty 3.01% at this time in 2018. The three-month Treasury yield actually rose three basis points in the secondary market, making the yield curve even more steeply inverted than it already was.
IMPORTANT DISCLOSURE INFORMATION
Investing involves risk. Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc. or any of its related entities (collectively “CMG”) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
Certain portions of the content may contain a discussion of, and/or provide access to, opinions and/or recommendations of CMG (and those of other investment and non-investment professionals) as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions. Derivatives and options strategies are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from CMG or the professional advisors of your choosing. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. CMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.
This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods. See links provided citing limitations of hypothetical back-tested information. Past performance cannot predict or guarantee future performance. Not a recommendation to buy or sell. Please talk to your advisor.
Certain information herein has been obtained from third-party sources believed to be reliable, but we do not guarantee or warrant its completeness or accuracy. This document is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose.
In the event that there has been a change in an individual’s investment objective or financial situation, he/she is encouraged to consult with his/her investment professional.
Written Disclosure Statement. CMG is an SEC-registered investment adviser located in King of Prussia, Pennsylvania. John Mauldin serves as Chief Economist and Co-Portfolio Manager of the CMG Mauldin Smart Core Strategy. Please note: The above views are those of Mr. Mauldin, and do not necessarily reflect those of CMG, Stephen Blumenthal or any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG’s current written disclosure statement discussing advisory services and fees is available upon request or via CMG’s internet web site at www.cmgwealth.com/disclosures. CMG is committed to protecting your personal information. Click here to review CMG’s privacy policies.