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On a mid-August morning, the yield curve inverted—that is, yields on two-year Treasury bonds were higher than those on the 10-year bonds, for a short period of time. As brief as the inversion was, the stock market shook and rolled as economists warned that recessions typically follow 18 to 24 months after this type of yield curve inversion.

Of course, the yield curve has been steadily declining since January 2014 and other portions of it have inverted in recent months, such as the 10-year/three-month yield curve. However, these developments did not set off widespread alarm bells like the inversion of the psychologically significant 10-year/two-month piece. In truth, this event was just one more reminder that we are at the end of both a real estate and larger economic cycle. And after that? A recession will likely follow.

We even know what that recession will probably look like: mild and short-lived, based on current projections.

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Erika Morphy



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