As I write this, stocks have done well in the month of January.  After a scary few months, they have somewhat recovered, although still far from making up the lost territory from late 2018.

Whether this is one last fake move up before the full bear market sets in, we don’t really know. Or maybe the long-term bull market since 2009 has a few more legs.

The yield curve flattened a lot in 2018. At the beginning of January, the 10-year yield stood at 2.66%.  The 3-month yield stood at 2.42 %.  This was a spread of just 24 basis points.

At the end of Monday, January 28, 2019, the 10-year yield had risen back up to 2.75%, while the 3-month yield didn’t budge and was again at 2.42%.  This is a spread of 33 basis points.  So the yield curve has slightly steepened in January.

But consider that the 10-year yield had shot past the 3% mark in 2018, and it looked to be going continually higher.  Some people were rushing to refinance their mortgages while they could still lock in a decent rate.  Then stocks tumbled and investors went back into longer-term bonds.

Although the yield curve has slightly steepened in January, it isn’t much considering that stocks have done so well in the same month.  It will only take a day or two of turmoil to send the spread between the 3-month and 10-year back to where it was at the start of the year.

There is something of a ratchet effect going on with the yield curve.  It tends to flatten more when stocks are down, and it tends to steepen more when stocks are up.  But the flattening has tended to be more than the steepening. Therefore, the overall trend still seems to suggest a flattening yield curve that will soon be inverted. It is already inverted if you compare the 2-year yield to the 5-year yield.

This has recession written all over it.  There are no guarantees of what will happen.  For all we know, the Federal Reserve may announce tomorrow that it will be ceasing its quantitative tightening (deflation) and starting up another round of quantitative easing (inflation).  While I don’t expect that to happen, anything is possible. That would certainly play a role in delaying any recession.

The key here is that we just don’t know.  I think there is a good chance we will see a recession before the election of 2020.  But really, I was surprised that Obama got through 8 years without any significant downturn.

As Keynes supposedly said, the markets can stay irrational longer than you can stay solvent. This is one of the few times Keynes was actually right.  But let that be other people who become insolvent, whether it is betting against stocks too soon, or betting in favor of stocks for too long and holding on for the ride to the bottom.  We don’t have to be a part of this roller coaster ride.

This is why I recommend investing in a permanent portfolio, as described by Harry Browne in his book titled Fail-Safe Investing.  The permanent portfolio can give you peace of mind. You don’t have to worry about stock market crashes or other economic events that may hit.  You can protect your portfolio from virtually any economic environment, while still making a decent return over the long run.

The permanent portfolio probably won’t make you rich by itself, but it will help protect the money that you have saved, and it will give you steady and more predictable returns.  There are fluctuations with the portfolio, but they are much smaller than if you were to invest in one asset class such as stocks.

I have written a short e-book on how to set up a permanent portfolio and possible ways to tweak it to fit your personal situation.  It is available on Amazon for just $7.99. If you take away one piece of advice from this book, it could save you thousands of dollars or more over the years.  Better yet, it can save you from a lot of anxiety about stock market crashes, or massive inflation, or other events.  That is why I sometimes refer to it as the “Sleep-at-night Portfolio”.

I just released this e-book late in 2018, but I have not promoted it up until now.  If you are reading this before January 31, 2019, I am running a discount where you can get this book for just $2.99.  Again, this is a miniscule price to pay for less anxiety and possibly saving your portfolio many thousands of dollars over the years.  It will probably save you a ton of time too, as setting up a permanent portfolio is not difficult.  You don’t have to deeply study the financial markets to implement the portfolio.

Pick up this e-book while this discount lasts.  You don’t have to continually worry about the whether the yield curve will invert or whether the Fed will start another round of massive monetary inflation.  You can sleep at night knowing that your financial assets are safe in any economic environment.