Saturday, April 13, 2019

Recession Risk: 3 Signals Sounding The Alarm

It’s been more than 10 years since the last economic recession. Since the U.S. economy generally operates in cycles, it looks like the time is drawing near for another.
In fact, late last year the Dow Jones took a dive, but that was likely just an appetizer for the course to come…
A recent piece from Bloomberg reported the risk of a recession has “more than doubled this year as leading economic indicators deteriorate, the yield curve inverts and monetary policy tightens,” referencing a note by Guggenheim Partners

We’ve previously reported that U.S. National, corporate, and consumer debt are at all-time highs. This dangerous “debt trifecta” has even gotten the attention of several billionaires.
Rising national debt currently tops $22 trillion. Corporate debt topped $6 trillion at the end of 2018. And the “ATM” of consumer debt has hit $4 trillion. Americans are tapped out. Combined together, this signal alone should sound recession alarms.
But this is just one of multiple major warning signs…
The yield curve is dangerously close to inverting at only 16 basis points between 2- and 10-year treasuries. What’s even more troubling is yield curve inversion has preceded everymajor recession over the last 50 years.
The third big warning sign comes from the Federal Reserve. They used Quantitative Easing (QE) to help bring the economy out of the depths of the last recession. But right now that process is going in reverse. In other words, they are sucking hundreds of billions of dollars out of the banking system in a process called Quantitative Tightening.
The Fed said they would stop unwinding QE in September. But for now, Wolf Richter reports this unwinding process is still on “autopilot” at $535 billion and counting.
So let’s review our recession risk:
  • Historic levels of debt — check
  • Major recession signal proven reliable for 50 years — check
  • Massive amounts of money being sucked out of the financial system — check
It’s pretty clear why Guggenheim is so worried. In fact, would not surprise us if their warnings are confirmed in the very near future.

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