So, are we going to go into a recession, or not?
No one really knows for certain, of course, but a lot of very smart people spend a lot of time and money trying to figure out ways to predict the answer to this key question. There are as many opinions as there are people offering them, but some really key voices are sounding pretty ominous now. We’ve talked before about the Sahm indicator, but now there’s more.
Here are Five Fast Facts about the likelihood of a recession coming soon:
- 🤯 The Landscape - Inflation is high, debt is high, unemployment is going up, growth is slow, and several key parts of the market, including housing and manufacturing, are already slowing. Despite all of this, the economy has still not fallen into recession. Not that we’re complaining, but…how is that possible? And, more importantly, is it still coming?
- 👀 Where Did It Go? - One veteran economist points to the money supply – how much money is floating around in the system – as the key. It’s currently $21 trillion, about 3% lower than its peak in 2022. This kind of drop has happened only four times in the past century, and each time it’s been followed by a recession or depression. The phrase “I hate being right” comes to mind.
- 🙃 Inverted What Now? - A professor at Duke University has identified a different key indicator. When short term bonds offer better returns than long term bonds, it’s called an inverted yield curve. That happened about a year and a half ago. The last eight times this has happened, a recession has followed a few months later, like a migraine setting in shortly after a political debate.
- 👕😨 It’s A Causal Thing - In fact, the inverted yield curve has been so good at predicting recessions that it’s now started changing behaviors of those smart financial people. When they see the conditions, they stop taking risks so they don’t lose their shirts. Though to be fair, their shirts are stained with anxious sweat…
- 💣 Doubling Down - A big hedge fund manager points out that the inverted yield curve warns that a recession is coming…but the real key is the fast-moving disinversion – the bond yields flipping back to “normal” – that actually signals the start of a recession. He says the slow inversion is what’s making many think we’ve got a “soft landing” rather than a recession, but instead we’re about to see the biggest economic bubble in history pop. And that ain’t gonna be good for anyone!
🔥Bottom line: Given everything that has happened, it’s pretty remarkable that we haven’t had a recession set in yet, but it seems increasingly likely that one is coming. When, and how bad will it be? Dunno. But let’s hope it’s a little bubble, and that when it goes it’s a mere pop rather than a detonation.
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