 Good day, fellow investors. It's Friday morning, 7th December before the market opened, before any news came out and we are here for the stock market news with a long-term fundamental twist. We're going to give an overview of what happened in the last five days. We are going to talk about the most important piece of information that came in last week which is the yield curve and I'm going to explain how the yield curve forecasts a recession, how it has done it in the past, why it is so important and why are people investors so scared about it. And then we are going to discuss to finish three key things to keep in mind when investing in the current environment and that should summarize the news and that should give you the most important things among the millions of pieces of information you get from the stock market everywhere. Let's immediately start with the market's overview. So everything was fine, there was trade truths announced after G20 but then all hell broke loose. First we had Trump saying how it's not that big of a trade truth and then we had the yield curve inverting. So last week in the news we spoke about how Powell turned from hawkish to dovish which signals that the economy isn't doing that good and consequently investors are expecting a recession. When that happens then the yield curve flattens or inverts because investors are expecting lower interest rates in the future and therefore they want to lock the long-term interest rates the higher rate now so that they earn when those go down and further short-term rates go up because investors demand higher returns on the short-term because they know that in the future they will get lower interest rates. When that happens is usually a signal for a recession. Let's explain the yield curve. So the yield curve can be a normal the orange line very steep the blue line can be flat the gray line and can be inverted the yellow line. The inverted yield curve means that the interest rate on a 20-year bond is lower than the interest rate on a 5 or on a 10 or on a one-year two-year bond. When the yield curve is flat it means that all maturities be it a five-year bond or a 20-year bond have the same yield. So today we are looking at an almost flat yield curve. This is the 30-year treasury constant maturity rate the interest rate on the U.S. government treasury you can see that that that's in the green then the red one is the five-year treasury and the two-year treasury is the blue one and you can see how all those interest rates are converging to around three which means that the yield curve is getting flatter and at some point it is inverting. Last time that happened it was between 2006 half 2006 till 2008 and we all know what happened next. So so if you expect a recession and you are a long-term investor then you see okay now the 30-year bond is giving me a yield of 3% I can buy that bond now and lock in the 3% because if there is a recession the Fed will lower interest rates and the 3% will be very good for me and perhaps I'll even make money if the 3% on the 30-year treasury becomes 2%. The investors that bought the 30-year bond in 2006-07 they locked in a 5% yield for the next 30 years 5% yield no risk from the US government so this is the principle this is the investment thesis of buying long-term fixed maturities now if you expect interest rates to go down then that is a great investment and that is why there is a lot of demand for such offerings therefore the yield is lower and people are avoiding investing in the short-term therefore the short-term yield goes higher and that's why the yield curve flattens or inverts this means that the market expects that there will be a recession soon that the Fed will lower interest rates and that they will gain from the 3% yield that they have locked for the long-term and that they will perhaps gain if that long-term yield goes lower however from an economical standpoint 9 out of the last 10 times when the yield curve inverted it means that the recession is coming in the next 6 to 24 months this is the 10-year treasury yield minus the 2-year yield and you can see that whenever it comes close to zero which is the case now sooner or later rather sooner than later we are in for a recession if we take a statistic from the Fed over the last 70 years as soon as the yield curve turned negative there has been a recession in the next two years with a recession starting within 6 and 24 months from the term spread turning negative you can see here the term spread turning negative and only in the 1960s 1967 there hasn't been an immediate recession so that was just an exception to the rule but then a recession came a little bit later I think it's 71 72 so this means that the risk of a recession is very very high and that's why people are chasing to lock in those long-term yields but let me let the Fed do the talking the term spread the difference between long-term and short-term interest rates it's a strikingly accurate predictor of future economic activity every US recession in the past 60 years was preceded by the negative term spread that is an inverted yield curve furthermore a negative term spread was always followed by an economic slowdown and except for one time by a recession 1960s that we mentioned while the current economic environment is somewhat special with low interest rates and risk premiums the power of the term spread to predict economic slowdowns appears intact consequently this is still from when they published this a few months back but the risk of an upcoming recession is very very high apart from the economy there is another little thing to worry about and that is valuations bull market strong economy for the past nine years low risk premiums low interest rates pull pushed valuations to historical highs the cyclically adjusted price earnings ratio is still higher than where it was in 1929 at its highest point and it was higher only in the 1990s with the dot-com bubble and subsequent crash so we have economic data showing there will be a recession and we have very very expensive stock market not a good combination to be in which leads us to the question of how to invest before we start to talk about the three key things one has to think about when investing let me just to show full disclosure tell you what i do i am a stock market researcher i run my own stock market research platform where i'm focused on researching stock market researching sectors and finding great businesses that will do well no matter what happens in the economy will there be a recession okay probably all stocks will go down but there will be an again an economic upturn and if you hold the good ones you will do very very well so my research focuses on such investments and i try to invest in them over time what allows me to sleep well overnight is the sheer amount of research that i put into my stock market platform so practically most of my days are spent researching stocks writing reports and if you click in the link below you can see my curriculum and that is just the content the research that i have done in six months so over the next six months that is supposed to double as we know knowledge compounds likes the stock market like investments so this is the added value that i hope to give people so if you don't have the time to do the stock market research to invest and sleep well if you want to save time or if you just want to get great ideas from someone you can check my stock market research platform it costs still just 74 cents per day it will go up to one dollar per day from 2019 so you can lock in this low price per year forever plus there is a 30 day money back guarantee so if you want to see all what i do i talk a lot on my youtube videos but i think the best picture of what i do can be shown by just checking my stock market research platform there is a 40 day money back guarantee so i urge every viewer on my youtube channel just check it and ask your money back if it's not for you no hard feelings there will be always youtube videos and you can always comment and watch here so that's my message really check what i do it will give you a better perspective even on your portfolio so check that out and then you will better understand even the three points that i'm going to discuss now about how to invest in this environment the first point is it's personal investing is really a personal matter it goes about your finances your discussions with your spouse your plans your life your mortgage your job everything that's related to investing is personal so that's the first thing you have to sort out how is my stock market investing related to my personal financial life is it completely detached whatever happens doesn't matter that's a great way to invest if it is attached if you have here a student debt loan with a variable interest rate if you have a mortgage on the house that if the stock market crashes is the housing market crashes if you lose a job you're forced to sell your stocks at the bottom to cover for your mortgage payments then you are in trouble so that's the first connection you have to separate and or better to say you have to analyze okay what if all things go wrong what if the stock market crashes how does that affect my personal life what if i lose my job will i be forced to sell stocks at the bottom because the key is to buy more at the bottom so you have to be in a position to buy more when it's profitable to do so not to sell to some vulture like me that can't wait that stocks go down to buy more and then have high returns on the upside if you are so separated then you don't have to worry about anything you simply buy more when stocks are down and i'll let manga do the talking here top tick to bottom tick by 50 percent i think it's in the nature of long-term shareholding with the normal vicissitudes and and worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down and then by say 50 percent in fact you can argue that if you're not willing to react with equanimity to a market price decline of 50 percent two or three times a century you're not fit to be a common shareholder and you deserve the mediocre result you're going to get so plus the second thing that allows you to buy more when stocks go down and increase your long-term returns is to have cash if we look at berkshire's cash pile over the years you can see how every time the yield curve inverts they have more more cash on their balance sheet 1999 look how their cash balance went up 2008 their cash balance went up then they spent a lot of cash in 2009 they always have the 20 billion necessary for insurance protection for their insurance investments and then they will have been piling and piling cash over the years waiting for the next crash to do again what they do best and let's invest in the downturn november 3 2009 look what berkshire did they bought burlington northern santa fe the u.s railroad betting on the u.s economy great investment 2011 they invested five billion in bank of america preferred shares eight percent interest rate that they exchanged then for stocks recently so if you see bank of america in buffett's portfolio it's both like that and i think they tripled their money on that investment alone so have some cash to buy more when the opportunity comes because opportunities in the stock market always come beat some sectors beat in the whole market but you have to have the liquidity to take advantage of that and the recent stock market crash pullback is not a crash at all it's not an opportunity at all stocks are still up for the year so there is no crash everybody's panicking but that's just because the news is like that however a real crash is 40 40 50 down and then we are talking about a crash and i can't wait for that to happen now to become and to be happy when stocks crash because you can buy more at a lower price and increase your long-term returns you have to avoid buying wrong investments you have to avoid buying highly risky investments highly leveraged investments investments that are zombie companies that are not focused on shareholder returns for example general electrics emote to receive 112 million as he steps down this was a year ago a little bit more than a year ago we all know what happened afterwards so they did a lot of buybacks that did a lot of very bad capital allocation decisions but they were focused on how to push the stock price higher to get returns for them not for the shareholders and this is the consequence so this is just one example and but if you but if you buy companies like Berkshire that are focused on shareholder returns creating profits return on capital i'm sure we can bet that Berkshire's earnings per share in the next 10 20 years will be higher than they are now and therefore you don't you don't have to worry about that because they are focused on creating value for shareholders general electric and such companies that focus on creating value for employees for the ceo that he can fly even if you retire you can still use the company jet to fly around the world as a retired ceo so with such let's say interests you want to avoid those companies highly leveraged that are taking loans to make acquisitions i don't know baker huge etc etc that is highly risky because they will focus on their short-term management bonuses that come in every February you want to be invested in great businesses that focus on shareholder returns and there if you really look if you do the research you'll find those and i will talk about one perhaps tomorrow or on sunday so please subscribe to this channel click the notification so that you see which kind of video comes out almost every day so don't forget to check my stock market research platform in the link in the description below check it out you have nothing to lose subscribe we continue with our great businesses discussions we continue with the summary of margin of safety soon so thank you for watching and i'll see you in the 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