This Time Is Different…
I have mentioned a looming business slowdown several times in my newsletters this year, because these things are normally very significant for the stock markets. Slowdowns– when they go far enough– become economic recessions. Signs are now everywhere that the economy is in fact… slowing down.
Among numerous negatives and indications of a looming recession, the yield curve (the relationship between long term interest rates and short term interest rates) remains inverted to a significant degree. This has always been one of the most reliable precursors to an actual recession, not just a slowdown. Inverted yield curves don’t mean that a recession is certain, but 7 of the last 9 times the yield curve inverted we did in fact have recession.
Wall Street says this time is different. Incidentally, do you know the 4 most expensive words in investing? They are, “this time is different”.
Economic growth was running at an annualized rate of 5.6% in the first quarter, slowed to 2.6% in the 2nd quarter, and 1.6% in the 3rd quarter, each decline much worse than Wall Street projected. It could already be close to zero growth in this quarter.
Will we have a recession, or just a mild slowdown? I don’t really know. The stock market continues to vote for a soft landing/slowdown over a recession. The track record of the Federal Reserve Board is not encouraging when it comes to engineering soft landings, but this time may indeed be different. (I can’t believe I just said that!)
The elephant in the room that no one wants to consider is the declining real estate market. Keep an eye on real estate to learn what will really happen to the economy this time around.
