Australia’s inverted yield curve makes America a fertile investing habitat

Today, Australia’s 10 year government bond yield fell below the Reserve Bank’s overnight cash rate for the 1st time since early 2009.

Historically, an inverted yield curve is correlated with moderating inflation, weakening economic activity and possibly suggesting signs of an economic downturn.

Could this precede the official call of a recession? I think the implications are still not fully accepted, meaning Australia remains in denial, for China will apparently save us.

Although I’m bullish on China and commodities, there are phenomenons called “cycles”. Prices do revert to their mean and the Australian Dollar can fall.

Global investors could do well to sell (high) their strong AUD, CHF, JPY or EUR and buy (low) the weaker, cheaper USD.

To enter the world of folly, this could be a turning point for the U.S. Dollar and its rise would have various implications on assets ranging from the Swiss Franc to commodity prices.

Forget the U.S. government’s woes. I prefer to treat the U.S. government and its bonds, if you will; similar to the equity or debt of any other U.S. company. I consider the equity and debt of McDonald’s Corporation is more creditworthy than that of the U.S. government.

Furthermore, investors with USD are searching for returns (as cash currently earns zero) and with a S&P 500 PE of 12 thus giving it an earnings yield of 8%, this is a nice “pick-up” of 5% over the U.S. government 10 year bond….

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