Displaying items by tag: recession

(New York)

We at FINSUM have been keeping a close eye on the economy, and in particular, looking for any signs of the end of the current business cycle. Today, we might have found one. One of the big worries of economists and investors of late has been the slowdown in consumer spending—a concern in its own right, but not conclusive. Today, we might be seeing why. Lenders all over the US have been tightening their businesses and lending out less cash. That has left less money available for purchases. From 2011 through the end of 2016, credit standards had loosened, but since then they have tightened, even as wages have grown and unemployment has fallen.

FINSUM: This decline in lending seems to show that many lenders think there is more risk than reward in the economy, which may in turn bring on the recession they sense is coming.

(New York)

Equity investors may be understandably frustrated and anxious at the moment. The rebound after February’s lows has not held up and stocks are right around their bottom for the year. Well, if history is any guide, the pain will likely last 200 days. That is the average length that a correction has lasted during this bull market, and this is the sixth of its kind since 2009. The longest was 417 days between 2015 to 2016. The market is already 60 days into the correction, so if the forecast holds, it would emerge in August.

FINSUM: This would only provide comfort if one thinks the current correction is merely that, and not a full blown bear market.

(New York)

The Dow has not been doing so well lately. Last week it dropped to its lowest level of the year, declining further than in its worst bout of volatility in February. The reasons why are becoming harder to explain with every day of losses. While isolated flare ups used to be explained away, the situation is growing more complicated for investors. A growing risk of tech regulation, a looming trade war, higher interest rates—all are weighing on stocks. That makes the markets much more complicated and hazardous for investors, and it has become commensurately harder to make good decisions.

FINSUM: The market seems to be in a very treacherous period. Its failure to regain momentum after the fall in February seems ominous to us, and we do not see a clear end in sight.

(Washington)

While all the current political anxiety seems to be centered around the midterm elections and what future that may hold for Republicans, the real trouble could be for Trump in 2020, says Bloomberg. According to economists, all signs are pointing to a recession in 2020. While the current tax cuts and fiscal stimulus will insulate the economy this year and next, “Fading fiscal stimulus, higher and rising interest rates, and cresting world demand could leave the economy vulnerable to a contraction -- just in time for the presidential campaign”, says Bloomberg.

FINSUM: A recession starting in the year of reelection would not be good for an incumbent president, and the timelines do seem to make sense.

(Washington)

Investors get ready, because it looks like the next recession is on the horizon and the Fed is set to start it. And we are not talking about a distant horizon. The Fed has now made its goal a task that has been nearly impossible historically. That is to boost the unemployment rate without causing a recession. The odds of failure are very high and the Fed has never successfully achieved it in its history. The reason the Fed wants to boost unemployment is that labor markets are very tight, which will produce unacceptably high inflation. Accordingly the Fed must intentionally walk up the unemployment rate to keep things in check. The tool it will use is gradual rate rises to slow down growth and boost unemployment.

FINSUM: We think the Fed is probably going to fail in this exercise, either by being too dovish and letting inflation get too high, or by being overly hawkish. Either way we do not see a good outcome. This cycle might have just crested.