Thursday, October 16, 2008

Predict Cycles ....Easily...

SGdividends met a student today...yes a student...and we learnt a lot from her...Why? Cos she thinks simply and have not been brainwashed or blasted with loads of marketing research and all the jazz matazz of finance and investing. She told us isn't it obvious 1-2 years ago that something was going to be wrong.... Let's see why she said that...shall we?

Before we continue, just know that if the yield curve is increasing the probability of recession or anything go wrong with the economy is very minimal. If the yield curve becomes flat...higher probability....if it becomes inverted ..very probable....basic economics.

2002 yield curve(above)...its increasing....

2003 yield curve (Above) ....Still increasing

2004 yield curve(above ).. It is still increasing.
2005 Yield Curve...above ...getting flatter but still increasing!

2006 yield curve (Above) seems to show invertness in the near term. Something is going wrong!

2007 Yield Curve (Above)....Persistent invertness..WARNING!

So you see, my friends, at around early part of year 2007, the shape of the 2006 yield curve has already been publicly released ( in fact the yield data is publicly available month by month) and shouldn't we be forewarned already? Start overweighting in cash then and expect increasingly dangerous times ahead.....which we are now...simple? Think John Sloman Economics Text Book.
In 2002, if we had invested, we would have made money ! So where are we now? See the curve below...what do you think?

Think simply to invest profitably.

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