Campbell Harvey…The Father Of The Inverted Yield Curve Is Saying People Are Forgetting About The Dot Com Bubble
Campbell R. Harvey is Professor of Finance at the Fuqua School of Business, Duke University and a Research Associate of the National Bureau of Economic Research in Cambridge, Massachusetts. He served as President of the American Finance Association in 2016.
Professor Harvey obtained his doctorate at the University of Chicago in business finance. He has served on the faculties of the Stockholm School of Economics, the Helsinki School of Economics, and the Booth School of Business at the University of Chicago. He has also been a visiting scholar at the Board of Governors of the Federal Reserve System. He was awarded an honorary doctorate from Svenska Handelshögskolan in Helsinki. He is a Fellow of the American Finance Association.
Harvey serves Partner and Senior Advisor at Research Affiliates, LLC who oversees over $200 billion in client funds as well as Investment Strategy Advisor to the Man Group plc, the world’s largest, publicly listed, global hedge fund provider. Harvey is also known has the father of the inverted yield curve.
“I am afraid the market is wearing rose-colored glasses right now,” said Campbell Harvey, a finance professor at Duke University who is particularly concerned about so-called growth stocks that include tech companies like Amazon and Microsoft. “Unfortunately, many young investors don’t remember what happened 20 years ago when the tech bubble burst.”
The economy has already been hit with structural damage, as many good small- and medium-sized business have disappeared. Underscoring the carnage, more than 20 million people are receiving US government assistance—up from about 1.5 million a year ago. Like most countries, the US is racking up a debt load unseen outside of wartime, which will either have to be paid back through higher taxes or whittled down with higher inflation, says Harvey, who pioneered a way to forecast recessions by observing the yield curve, which is the gap between short-term and long-term Treasury bond yields.
The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. The financial theme in 2019 has been the inverted yield curve. Why is it so important…it’s only predicted the 5 or 6 recessions, meaning it has given no false signals going back 50 years.
The technical definition of a recession is defined as two consecutive quarters of negative GDP growth. But when that happens, it will be too late. The stock market tops out and begins to decline before the economy rolls over. This is the reason why the inverted yield curve is so powerful, it’s a leading indicator and will give you forewarning to reposition your portfolio for tougher times. We seen an inverted yield curve in 2000 and 2007. The yield curve wet its feet in negative territory in Aug of 2019, but it was just for a hot second. As of now, there is no sign of a equity markets rolling over, so 2021 appears to be shaping up to be a better year than 2020.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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