Displaying items by tag: recession

(New York)

One of the world’s most respected financial columnists—John Authers—has just put out an article arguing that we may be at the bond market’s Dotcom moment. Authers cites the gigantic hoard of negative yielding debt, as well as many charts of soaring 100-year bond prices (check out Austria’s and Mexico’s), to show that the bond melt up may be set to reverse. He argues that at some point soon (it could have already started with the reversal in ten-years yesterday) that investors will revolt against super-low yields, sending prices lower and yields higher. Authers thinks the spark may be unexpectedly higher inflation, which would undermine the whole premise of recent gains. Tariffs are inflationary by definition, so it is not far-fetched to think this could occur.

FINSUM: We think it would take a significant catalyst to cause a big bond pullback (like a much higher than expected inflation report, a suddenly hawkish Fed etc). That is not out of the question, but it does not seem likely.

(New York)

Markets have indigestion this week, but is a recession any more of a threat than it was a couple weeks ago? The answer is yes. So far the manufacturing side of the economy has been the weaker one, with the consumer side staying strong. However, all the tariffs that have been imposed on China will now hit the side of the US economy that is strongest—the consumer—by raising prices at the register. Therefore, the trade war will directly weaken the best part of the economy, which could seriously curtail growth.

FINSUM: To protect against this, investors may want think about shifting into defensive shares like consumer staples, healthcare, utilities, and real estate, all of which tend to outperform cyclicals in a down economy/market.

(New York)

The big market ruction of the last few days has sent the yield curve inversion to very worrying levels. The spread between three-month bills and ten-year Treasuries has widened to minus 32 basis points. A yield curve inversion has preceded every recession for the last 50 years. “The US has been an island of prosperity in a sea of weakness, but that looks to be ending as the impact on the consumer side from the new tariffs is likely to be bigger than the previous ones”, said a senior portfolio manager at PGIM fixed income.

FINSUM: The last time the yield curve was this inverted was April 2007. That fact alone is major warning sign.

(New York)

While headline economic numbers for the US economy have been good, there are some signs on the margins that things may not all be well. For instance, new data out of the shipping and trucking industry looks poor. The whole US trucking industry is in bad shape because of excess inventory and soft demand. “We’re three months into a freight recession”, says a transport analyst. Relative to last year at this time, there is less demand for capacity and that, coupled with an oversupply of trucks, means there’s little to no spot freight and all truckload prices have come down dramatically”, says the CEO of a freight broker. “Freight as we measure it is growing at less than 1% in 2019”, says the owner of an industry data provider.

FINSUM: So part of this is excess inventory, but another important factor is waning demand for freight, which is a leading indicator of an economic slowdown.

(New York)

The market seems like it is hurdling towards the same conclusion it experienced last year—a big fourth quarter reversal. This time though, it won’t come because of worries over rate hikes, but fears for the economy itself. Stocks have been on an extraordinary run this year with the S&P 500 up over 20% and the Nasdaq up over 25%, but it all looks likely to reverse. P/E ratios have jumped from an average of 13x to over 17x, all at the same time as the global and US economy is looking more vulnerable.

FINSUM: We think a market reversal will likely come in step with economic signals. If a rate cut actually works to stimulate the economy, then it seems much less likely there will be a correction/bear market like last year.