The Second Sign

The second major sign of an impending recession comes from the bond market. It is called an "inverted yield curve." It is one of the oldest omens of a bond market recession. This is a longer-term recession signal.

The yield curve of US Government bonds inverted late last year and remained out of kilter well into the first half of 2007. Usually, long-term rates are higher than short-term rates. In this scenario, the opposite is true.

Every recession in the past 50 years has been preceded by an inverted yield curve. But remember -- not every inverted yield curve preceded a recession.

So, what other signs are there? Stay tuned...

The TED Spread

The bond market is now showing the first major sign of an impending recession. It is called the TED Spread. It is a short-term indicator.

TED Spread is the Treasury-EuroDollar Spread. It measures the difference between the 3-month yields on both the bills. It increases during economic or financial crises.

The TED Spread is currently above 210 basis points, which is particularly high and reflects reluctance among banks to lend money to each other. This could choke the economy and lead to recession.

Tomorrow... the second sign...

Warning! Your Economy is Receding!

It's time to take a break from technical analysis. The Market is getting hit really hard. So, let's talk about something that's not quite so bad--recession.

That's right. I said "recession."

Are we entering a recession? Maybe. Most of the time, the majority of economists and the government don't know we are in a recession until after they declare we are out of a recession or until they announce how we are pulling up out of a recession.

A recession is traditionally defined by two consecutive quarters of economic contraction.

There are two major warning signals flashing right now that show we may be headed for recession. Stay tuned to find out what they are...

Rates Down... Market... Where?

Well, the Federal Reserve lowered interest rates by 1/4 point this week. They also lowered the discount rate 1/4 point. But it doesn't take a technical analyst or a fundamental analyst or even a trained monkey to figure out the market didn't like it.

The Dow was down 300. The NASDAQ was down 70. Even the S&P dropped. Ouch!

But what caused it? There are many reasons. The country will now go into a recession. Bernake has no control over the Fed. Bernake has no idea how bad things are. Banks will go under. Consumers will spend less. Banks will horde cash.

So, what's the bottom line? Stay tuned to find out...