Inversion

Schlindwein AssociatesInvesting, Market Observations

Weather inversions occur quite frequently. Air temperature normally is warmer closer to the ground. During an inversion, air temperature is cooler closer to the ground and the result is poorer visibility due to haze and discomfort due to air pollution. Financial inversion occurs less frequently. Interest rates normally are lower for shorter maturities. During a financial inversion, interest rates are lower for longer maturities, and financial visibility is poorer due to the relative higher cost of short-term borrowing. Discomfort rises from the potential for an economic recession and a stock market correction. A review of prior periods can bring perspective for economic activity and investing as an inversion is underway.

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