On Friday, US Treasury yields plunged at the mid to long end of the curve providing the most inversions since the start of the Great Recession. This is the biggest recession warning since 2007.
Yield Curve
Click on chart to expand.
Major portions of the yield curve are inverted for nearly 15 years.
Let’s take a look at what others are saying.
Core Capital Goods
Durable goods orders April 2019 “Shipments of core capital goods were unchanged last month after a downwardly revised 0.6% decline in the prior month. They were previously reported to have slipped 0.1% in March.” Look out below on Q2 GDP estimates. https://t.co/yJr9EFC1JJ
— Danielle DiMartino Booth (@DiMartinoBooth) May 24, 2019
That is something I pointed out as well in Dismal Durable Goods Report: Inventories Up, Shipments and New Orders Down.
Core capital goods are a measure of future business expansion. The March revision to the downside was massive, from +1.3% to +0.3%. April was -0.9%. Economists expected +0.1%. Oops.
Strong Economy Not
“There are still several economic data points that suggest the economy is strong…But we’ve seen enough in the way of negative layoff headlines and slowing manufacturing to indicate claims are the outlier…” @QuillIintel @YahooFinance — https://t.co/aFXtPyXb51
— Danielle DiMartino Booth (@DiMartinoBooth) May 24, 2019
Very dismal durable goods orders today. Capex about to join housing in recession. High-tech in the eye of the trade storm — order books down 0.4% in April and contracting in 4 of the past 5 months.
— David Rosenberg (@EconguyRosie) May 24, 2019
GDP Assessment From Markit
PMI “Consistent with GDP Growing at an Annualized rate of Just 1.2%”https://t.co/Fw1qLNH5qc pic.twitter.com/daRSMIefgF
— Mike “Mish” Shedlock (@MishGEA) May 23, 2019
1.2% and falling
What’s the ECB Gonna Do?
What’s left in the toolbox: how can #ECB combat econ downturn? In order to buy more bonds, ECB would need to raise the limit on how much sovereign debt it can hold from a single issuer, given it was already approaching the current 33% limit when QE ended. https://t.co/1LG3Vg5lmp pic.twitter.com/tHxPcj98qZ
— Holger Zschaepitz (@Schuldensuehner) May 23, 2019
Spotlight Trade War
“We saw a U.S. Chamber of Commerce report today that American companies that are based in China are being slowing down. They are creating red tape. Every step we take they take another step. This is a trade war.”@DiMartinoBooth @Quillintel — https://t.co/2zLjb0v1hE
— Danielle DiMartino Booth (@DiMartinoBooth) May 23, 2019
What About Systemic Risks?
Dear Mr. Powell- Can you please tell us why a series of downgrades of BBB companies does not pose the potential for systematic risks.
Read our latest on the corporate bond market- The Corporate Maginot Linehttps://t.co/TWPi67vGTJ pic.twitter.com/htgwnAN0QH
— Michael Lebowitz, CFA (@michaellebowitz) May 22, 2019
Japanese Exports
Japan exports fall 2.4% while imports rise 6.4%. pic.twitter.com/apIYMykgDG
— Daniel Lacalle (@dlacalle_IA) May 22, 2019
South Korea Exports
South Korean exports continue to weaken suggesting further slowdown in US GDP. pic.twitter.com/y80M39g50O
— Lance Roberts (@LanceRoberts) May 22, 2019
Major Appliance Shipments
Look at this chart of major appliance shipments – collapsing 17% YoY in April – and tell me we aren’t heading into a recession. pic.twitter.com/dwKzt7u8SX
— David Rosenberg (@EconguyRosie) May 23, 2019
Recession Already Started?!
US recession probably started in current quarter, Gary Shilling says, as Q1 real GDP growth, 3.2% at ann rates, was temporarily inflated by jump in inventories, which contributed 0.65ppts to growth. This was no doubt unintended & undesired as jumps in inventory-sales ratios show. pic.twitter.com/nUDC9WdBoE
— Holger Zschaepitz (@Schuldensuehner) May 22, 2019
Mike “Mish” Shedlock
Well this doesnt feel like a recession. I found a job after a year of being unemployed. To me this time feels more like 1% growth before the next crack hit.
Mish, I have a good investment idea that is guaranteed to generate better profits than gold. Do you want to know what it is?
Is your wealth going up or down? That is the real issue.
It really looked like the party was over in 2019Q1 too but somehow GDP came in at 3.2%.
“What is a recession?”
The NBER is the official arbiter. 2 consecutive quarters of negative GDP is not a requirement. It is a “sufficient but unnecessary” condition.
The great recession started in December of 2007 with no quarters of negative GDP.
It was announced in March before the first quarter of negative GDP officially hit the books.
So yes, we could be in one and it would not surprise me. But we may not find out for six months.
Agreed and well put Mish.
The FED could always hire this guy:
The recession really started in 2007 and it has never ended. Record low interest rates and infusing trillions of dollars into the economy papered over the problem but the problem never went away. It is still here and all we have to show for it is more debt. Record defaults are not far behind. Sad.
“Shilling Thinks It Started!”
I wouldn’t be surprised. Next month it will be 10 years since the last recession ended.
Things are very unsettling, globally.
With Trade war the U.S. Treasury is pocketing $100 billions paid by China! How can there be a recession?
….at one point even Central banks’ desperate meddling with economic cycles will become insufficient….and then what? THAT is the question , the 200 trillion dollar one !
Not recession,collapse happens in stages,first the complete collapse of retail,now the stunningly fast collapse of the auto sector,next freight haulers and even Walmart and dollar stores are staring down the barrel of thousand of store closures!
Retail hasn’t. Collapsed, it just shifted to online
There is no market for Treasuries. The Federal Reserve buys and sells to set the price. There is no market signal, US Treasury cannot pay high interest rates therefore the rates are set below what a market would dictate. The free market rate for Treasuries would be near 6%.
So who buys Treasuries? You get a gurandamnteed return of debased principle. That’s good for insurance companies and retirement funds. Regulated banks are obliged to buy Treasuries or they get regulated out of business. Same goes for Goldman Sachs, et.al. These entities have an unlimited supply of free dollars to buy Treasures. They buy or the free money dries up.
That’s the game.
If there was no demand for US treasury 10y bond, why is it’s yield going DOWN to below 2.3% today!?
B/c US $ is the least dirty shirt! Where else you want to par k your money after sale? It is the safety heaven for all the financial/geopolitical unrest! Read mkt history!
menaquinone’s explanation of the current situation looked very plausible to me, did it not ?
This inversion is a great opportunity for the Federal Reserve to unload its balance sheet. China would be wise to do the same thing.
What is a recession ? Certainly there haven’t been two consecutive quarters of negative GDP.
Im pretty sure the nasty “r” word was removed from Webster. Now im getting paranoid the ass hats are going to go after Iran to fix everything.
“What is a recession ? Certainly there haven’t been two consecutive quarters of negative GDP.”
A recession is what you find out it is after the fact. The 2001 recession lasted from March to October. By the time it was recognized, it was over.
The stock market is supposed to be a leading indicator by 6 to 9 months according to the mantra. In 2001, the market fell for another year after the recession ended. In 2007, the stock market barely beat the recession by 2 months.