Best Yield Curve Chart

Via Zerohedge:

Yield Curve Slope

As said I was intrigued by CrossingWallstreet comment that "Probably the most fascinating stat is that all of the stock market’s net capital gains have come when the 10-year yield is 65 or more basis points above the 90-day yield (that happens about 70% of the time). The yield curve hasn’t been that positive in 15 months. Anything less than 65 basis points, including a negative yield curve, works out to a net equity return of a Blutarsky. Zero Point Zero."

So I had a closer look at the data. First here is a look at monthly S&P500 performance according to yield curve slope deciles.

	Decile	Perf
<	0.01	-0.3%
<	0.38	0.4%
<	0.64	0.4%
<	1.00	0.1%
<	1.30	0.9%
<	1.59	2.1%
<	2.11	1.0%
<	2.56	0.4%
<	2.95	0.6%
<	4.42	0.6%

Since April 1953 whenever the yield curve is negatively sloping the average monthly S&P500 perf is negative as well. The best monthly performances occur when the yield curve is sloping between +1.3% and +2.11%.

Using CrossingWallstreet's idea I updated the following chart of cumulative S&P performance. Zero cumulative performance as long as the slope is smaller than 90bp. Will add this consideration in my timing decision going forward.

Yield Curve

CrossingWallstreet on the yield curve as the best forecaster out there. I will still check his statement that: "Probably the most fascinating stat is that all of the stock market’s net capital gains have come when the 10-year yield is 65 or more basis points above the 90-day yield (that happens about 70% of the time). The yield curve hasn’t been that positive in 15 months.

Anything less than 65 basis points, including a negative yield curve, works out to a net equity return of a Blutarsky. Zero Point Zero."

Krugman on the yield curve

Paul Krugman' "the return of depression economics and the crisis of 2008" is an excellent summary explanation of past crises: Mexico '94, Argentina '02, Asia '97, LTCM and Russia in '98, Japan in the 90's as well as the current mess.
Consequently on his blog he warns not to see too much in the currently positively sloping US yield curve.
His stance on the state of the current US real estate bubble, the correction may well continue for a bit. Great quotes as well in the post. Always form your own opinions!