I am increasingly confident a recession has started or soon will. Yet despite weak data, Treasury yields rose. What’s happening?
I discuss Treasury yields below, but first let’s discuss the chart above and the weakening data.
Key Point on Real Final Sales
Nearly everyone focuses on the headline number of 1.7 percent.
But its Real Final Sales (RFS) that matters. The difference between the numbers is inventory adjustment, Change in Private Inventories (CIPI) which nets to zero over time.
RFS is the real bottom line estimate for the economy and the one the NBER will use to call a recession.
At 1.1 percent and falling fast, the number looks very recessionary.
What Happened?
July 1: Today, in response to ISM and the construction spending, the contribution for Gross Private Domestic investment fell from from 1.51 PP to 1.20 PP.
June 27: The GDPNow contribution for net exports fell from -0.56 to -0.95.
Another Terrible Trade Report, Plus a Spotlight On Not Winning Big
On June 28, I commented Another Terrible Trade Report, Plus a Spotlight On Not Winning Big
Dear tariff fans (both parties), let’s check in on how we are doing. …
When I saw that report, I made a mental note that the GDPNow forecast would take a big hit.
Yet Another Counterintuitive Sell-Off After Friendly Data
Matthew Graham on Mortgage News Daily commented Yet Another Counterintuitive Sell-Off After Friendly Data
Bonds are getting nervous about a GOP sweep because whether it’s red or blue, a one party sweep has bad implications for Treasury supply.
Bear Steepener
Not One Thing
Manufacturing ISM Contracts for the 19th Time in the Last 20 Months
This morning I noticed the change in yields and mentally commented ISM must be super strong. Wrong!
For discussion, please see Manufacturing ISM Contracts for the 19th Time in the Last 20 Months
ISM is “soft data”. But nearly all data continues to weaken. Once again, this looks recessionary.
In isolation, I suspect this will be net negative for GDPNow but it really depends on the model forecast.
My assumption is the forecast did not expect a big drop in production. I will cover this later today.
Trump’s Plan to Replace the Income Tax with Tariffs is Economic Nonsense
Trump and Biden are each their own worst enemy. This post is about Trump’s latest tariff gaffe. But he has made similar nonsensical claims before.
The Tax Foundation says “Recent studies on U.S. tariffs have found near 100 percent pass-through of the 2018-2019 trade war tariffs to U.S. importers. That means foreigners have not, directly or indirectly, paid U.S. tariffs—instead, the billions in import taxes raised by the U.S. government have been paid by U.S. businesses and consumers. The economic evidence leaves no dispute that even higher tariffs would further increase costs for American consumers and businesses.”
On June 21, I commented Trump’s Plan to Replace the Income Tax with Tariffs is Economic Nonsense
Mother of All Stagflations
“This is a prescription for the mother of all stagflations,” Summers said on Bloomberg Television’s Wall Street Week with David Westin in regard to replacing a major amount of income-tax revenue with tariffs. It would also create “worldwide economic warfare.”
I don’t often agree with Larry Summers, but that is my take as well.
Massive Trumpian Irony
So here we are with “Yet Another Counterintuitive Sell-Off After Friendly Data“
Yield on the 10-year note rose to 4.48 percent and Mortgage News Daily shows the 30-year mortgage rate rose to 7.14 percent which will hurt housing.
The irony is rising yields increases the odds of recession. And that increases the likelihood of a Trump win.
With the out-of-control and unsustainable debt problems, why would anyone buy Govt debt, especially when we are still in a public-to-private cycle? Any pullback in yields will be used to sell to the bag-holders.
For every seller, there has to be a buyer.
“For every seller, there has to be a buyer.”
And, in truly totalitarian, fully financialized regimes like ours; non-buyers will ultimately be forced to pick up the tab for buyers anyway.
Rendering the “decision” of whether to buy a bit moot; modulo complete failure of the totalitarian governing regime itself.
The latter which would be purely beneficial for virtually all those stuck under the terror regime’s jackboot. But fat chance the clueless, pliant indoctrinati figuring that one out for yet another few generations of mindless and braindead falling for the utter drivel that “the system” is; in any way whatsoever; worth “saving.” Ergo: Buying the worthless nonsensical paper; will remain individually profitable for quite some years going forward. No different from how buying a depreciating; falling apart; house can also be forced to appear “lucrative” by application of sufficient totalitarianism, theft and forced wealth transfers from those too useful to fall for the idiocy.
Blah, blah, blah. Useless drivel. Is that all you do all day?
Pontificate garbage?
What a waste of your life.
Predictions. So many predictions. And almost always for a recession, depression, or total collapse. And not just by Mish, but by many here and elsewhere. Guys like Grantham.
Where are the predictions for: modest growth, good growth, strong growth? Particularly since we get growth roughly 80% of the time.
During recessions the economy typically contracts around 2.5%. During expansions, the economy grows around 25%.
And how long and bad will this predicted recession be? A 1% contraction over 6 months, a 5% contraction over 12 months, or maybe a 20% contraction over 2 years?
And what is the investment strategy?
The future is hard to predict.
My bet is in continued slow growth. Though if a recession does happen, I will find ways to profit from it.
it’s called STAGFLATION, and the investment strategy is own TANGIBLES, and not in a 3rd-party account where the broker holds the paper. The recession will last 4 years and the big war will insure inflation gets worse.
I don’t want to sound condescending, but by your comments you obviously don’t know what’s on the train coming down the track. I’ll just say, it’s not light at the end of the tunnel – even if Trump wins.
Being a realist means it can sound doom and gloom at times. The good news is if we survive to 2032 when the corrupt state implodes, there is the potential for a new age of enlightenment. The culmination of this cycle is when the most corrupt form of Govt – Republics (where politicians are for sale to the highest bidder) comes to an end. The big challenge we must face head on is these career politicians never go down without a fight.
Got it. I took a screenshot of your 4 year recession call so I can applaud you when your prediction comes true.
And I guess you are invested in gold and other “tangibles”?
Timing is right if the FED doesn’t loosen.
It is the other way around: no recession until the yield curve un-inverts. But once Fed does loosen look out below.
The document is called, “Who gets the house?” by Michael Peregrine of Santiago Capital who calls himself “Macro Alchemist.”
He talks about the divorce that the US and China are going through, and says that there is an interconnection among housing markets that will tend to pull other markets with the Chinese problems.
You have to sign up with your email to get the 50 page document.
https://macro-alchemist.mykajabi.com/
Now that’s an interesting thesis!!!!
SCOTUS promotes Liberty, blocks progressive behavior.
We’ve all heard of Disaster Capitalism: the Powers That Be either initiate or amplify a crisis as a means of granting themselves “emergency powers” which just so happen to further concentrate the nation’s wealth and power in the hands of the few at the expense of the many.
Naomi Klein described the concept and cited examples in her 2008 book The Shock Doctrine: The Rise of Disaster Capitalism, and summarized the core dynamic: “Disaster capitalism perpetuates cycles of poverty and exploitation.”
Move over, Disaster Capitalism–make room for Addiction Capitalism.
Addiction Capitalism is my term for the last-ditch / desperation method of guaranteeing sales and profits when everybody already has everything: reduce the quality so everything fails and must be replaced, and addict your customers to your product or service which–what a surprise–only you or your cartel provide.
And since you’ve bought up all the competition and moated your monopoly via regulatory thickets / regulatory capture, consumers must continue paying–or suffer the consequences. Addiction Capitalism is capital’s last best hope when the essentials of life and novelties are both over-supplied. So the only ways to juice demand and maintain profits are 1) lower the quality of goods so they must be constantly replaced (Cory Doctorow’s “ensh**tification”) and 2) addict consumers to services such as social media and products such as smartphones, or create dependencies which are equivalent to addiction, such as dependency on weight-loss medications.
Just as the addict is dependent on a drug, patients are dependent on medications that must be taken until the end of their lives.
https://charleshughsmith.substack.com/p/move-over-disaster-capitalism-make
Neither of those is actually capitalism. The Disaster flavor is government authoritarianism and the Addiction flavor is classic corporate-state-monopolistic fascism.
They’re not mutually exclusive, either.
I discuss capitalism here… it’s the driver of stupidity… it’s the worst thing that ever happened to our species… other than perhaps harnessing fire…
And it will result in our extinction https://fasteddynz.substack.com/p/the-dumbest-species-ever
The longer term trend in rising bond yields is stronger than I expected going into the 54 month lows due in September/October 2024. After that rates should break above the past 6 months of consolidation.
Gold is making a triangle consolidation. Moves after a triangle completes for commodities and PM’s are often explosive.
Mish, I really appreciate your work. I also marvel with the fact that you are in a TINY minority of Libertarian Writers. Esp one who actually has an audience.
I do not buy into the American UNIPARTY B.S. and I know you do not either.
THANKS!
Sucks to suck, GDPNOW
First it is EOQ/SOQ. Last and first day of successive quarters
It is unlikely that one sided government is the cause of the 20 bp spike in 10s. Even though Trump is a spender and apparently so is a GOP Congress, it would be NOTHING like having Mr $5 Trillion Build Back Better WEF shill back in office
The tariff idea might be a problem though.
The Japan/carry trade issue also plays a part. Preparing for a coordinated currency intervention requires raising dollars, so selling things like treasuries.
At the end of the day though, that problem is related to weak economies in asia, which when fully expressed here will tamp yields down. Just a matter of timing
Actually it is a race between recession and sovereign debt crisis. Presumably recession first then debt crisis
But wall street claims the economy is booming?
Most of the S&P 500 gains in 2024 are due to a few stocks.
The “Magnificent Seven” stocks accounted for more than half the S&P 500′s gain in 2023 according to a CNBC.
https://www.cnbc.com/2024/07/01/how-magnificent-7-affects-sp-500-stock-market-concentration.html
Check out the heat map at FinViz and run a query for S&P 500 year to date performance.
,
Do you realize that the stock market and the real economy are totally disconnected from reality and have been for at least 15 years
“ The irony is rising yields increases the odds of recession. And that increases the likelihood of a Trump win.”
And as you noted previously a GOP sweep or prospect thereof increases rates. It’s potentially a self reinforcing doom loop for Biden.
Deeply disturbing numbers
Also some selloff due to fears of currency intervention in Japan. Likely not the big driver (which seems to be as you say), but present at least.
Nope the sell off is because some smart investors know the “ big one” is coming soon
In that case, how do you explain the buyers?