Thoughts from the Frontline

Ahead of the Yield Curve

By John Mauldin

February 3, 2006

Ahead of the Yield Curve
A Harbinger of Bear Markets
Earnings Inflection Points
Is the Yield Curve Inverting?
London and Then Home

Last week we started a series on a very important book by friend Joe Ellis called "Ahead of the Curve." We continue this week looking at specific indicators that Joe thinks give us a heads up when the economy is about to slow down and the stock market will being a bear market. I am then going to marry those thoughts with some work on the yield curve, especially looking at what the yield curve may be telling us today.

Cutting to the chase, I am going to make an argument that it is high time for you to start thinking about taking a defensive posture on your stock market investments. None of the indicators we will be looking at give us anything close to exact timing, but there are enough red flashing lights to give us cause for concern about the direction of the market in the coming quarters.

First, let's review one chart from last week. This is the primary chart from Ahead of the Curve where Joe outlines how the business cycle works. You can see all the updated charts and a lot more by going to www.aheadofthecurve-thebook.com and click on them. If you are serious about investing in the stock market this is a must-read book. Joe Ellis was a partner at Goldman Sachs and was ranked as Wall…

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