I have predicted all along, that the media would not report the housing “doom and gloom” early enough to safe guard home owners. I was right. I now predict the media will NOT report the economic and housing recovery data as it occurs either. I am right again.

Economic Recovery and Housing Recovery Already Underway

As I reported last week, the new and existing home inventories were down severely…and not a beep out of the mainstream media.

This week let’s discuss the recession and how it’s NOT anything like the Great Depression or any of a list of the zillion over-the-top metaphors the media enjoys using.

I’ve got news for you…the recession will be over by the end of 2009…and I’ve got some numbers to prove it.

The New York Fed put it this way, “Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity.”

Steep Yield Curve Predicts End of Recession

The relationship between short and long duration interest rates creates the “slope of the yield curve”. The line slopes upward as the longer duration debt instruments pay more in rate. This is what we consider a “normal yield curve’…a gradual upward sloping line.

However a “steep sloping yield curve” suggests economic expansion and is defined as:

Steep yield curve
Historically, the 20-year Treasury bond yield has averaged approximately two percentage points above that of three-month Treasury bills. In situations when this gap increases (e.g. 20-year Treasury yield rises relatively higher than the three-month Treasury yield), the economy is expected to improve quickly in the future. This type of curve can be seen at the beginning of an economic expansion (or after the end of a recession). Here, economic stagnation will have depressed short-term interest rates; however, rates begin to rise once the demand for capital is re-established by growing economic activity.

The NY Fed’s model uses the difference between 10-year and 3-month Treasury rates to calculate the slope of the yield curve then distills a probability of a US recession in the coming twelve months. (see graph below).

The graph shows the recession was in full swing from October 2007 to April 2008 and has been declining ever since. The Treasury spread has been above 2% for the last 11 months, a pattern consistent with the economic recoveries. Based on these “steep yield curve” estimates, this Fed model produces only a 1 percent chance of recession through the next 12 months!

Did you get that?

The chance for a recession lasting through 2009 is around 1%….that means on the flip side…there is 99% chance of economic recovery.

So don’t buy all the “doom and gloom” mainstream media reports. Economic recovery is as certain as the the bubble bursting. This is happening now and will continue, and it has nothing to do with politicians spending taxpayer money as foolishly as possible. The only thing a politician can do is get in the way.

Good Luck!

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