Recessions

Of course we are going into a recession. Just as we mentioned late last year that rate hikes were on the verge of occurring, we’ve been quite certain a recession was on the doorstep and have been pounding that drum here based on both YoY full CPI >5 % and YoY WTI Crude going > 80% (which it did in Q2 last year) and job quits > 3%.

All the warnings of recession (including very low unemployment) have been in place. There’s nothing magical about the yield curve. In fact, it is a bit misleading in terms of what it portends. As far as equities are concerned, a picture is again worth a thousand words:

Pictured above are the various treasury maturities. When the curve flattens, they all bunch up. This we saw coming into 2000, late 2005, and beginning in Q2 and Q3 of 2019. It’s not the flattening or inversion that is the kiss of death for equities, but rather, when the bunching stops, when the market starts selling hard and the various maturities diverge, that’s when all hell has broken loose for equities in the past.

We may be very close. Valuations, though rounding over, are still insane, we are still in an enormous bubble, one where things have never been as sensitive to interest rates as they are at this point in history. Longer term indications are very negative, short term ones, despite this wild, bear market melt up, are extremely negative here and I’m still loking for a very rapid drop down to about 3,400 S&P in the very near future, and a recession that we may already be in the grips of.