In every era, there were expressions or sayings some of which became popular and then people could use them if they wished to. One of the sayings in the 1920’s was if the shoeshine boy was giving you stock tips, it is time to sell. In the 1920’s people wore shoes and they needed to be shined which meant a number of young people were involved. It is possible a young person could be studied the markets, but the likelihood was the number was going to be small, so the shoeshine boy was repeating something he heard or was popular. If everyone is thinking popular, the people who spend more time at the endeavor should move to the sidelines or sell.

In the bond markets, there is a the yield curve which has been getting great publicity because traditionally it was a good indicator. The yield curve is how short term interest rates compare to longer term. The longer term should be higher, however in recent months the curve was flat to the point of inverting meaning short term rates were lower than long term rates. Often times in the past when this has happened it has meant a recession is around the corner.

In an article written by Ian McGugan there is another tool to look at before you declare a recession is around the corner. The measure is called Excess Bond Premium (EBP) developed by Simon Gilchrist of Boston University and Egon Zaakrajsek of the US Federal Reserve Board in 2012. In their paper written in 2012, they examine credit spreads on bonds from US non financial corporations. The theory being to hold a corporate bond rather than a safe US Treasury should mean extra risk premium or higher rates. This excess bond premium can be seen as a measure of investors attitudes toward corporate risk. In other words how optimistic investors are. If they are happy, the risk is low; if they are worried, the risk should be higher.

Why pay attention to the EBP? The yield curve may be less reliable giving the bond buying from global banks, although this year they are trying to cut back on the buying. If you wish to follow the EBP, the Federal Reserve calculates the premium and publishes monthly updates.

Linking to dividend paying stocks, similar to every expression, they give you an indication but try to verify it with other information. There is an old saying a recession is when your neighbor loses his/her job, a depression is when you lose yours. There always is some opportunity, but being prepared and having an idea of when to sell is always key in the marketplace. Spend time on both when to buy and sell.

There are more questions than answers, till the next time – to raising questions.