Into the “Tractor Beam” of Zero Rates

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“We’re probably never going to go away from zero rates.”

So concludes hedge fund grandee Kyle Bass.

Mr. Bass believes the economy will plunge into recession next year. And the Federal Reserve will hound interest rates back down to zero.

There they will remain forever and ever… world without end.

The economy will fall within the inescapable “tractor beam” of zero rates:

As we have all learned, once an economy falls into the tractor beam of zero rates, it’s almost impossible to escape them… Growth numbers are going to come down and real growth might go to zero. We’re probably never going to go away from zero rates.

We fear Bass is correct.

Like a man hooked to a respirator, the economy cannot breathe on its own.

The financial crisis collapsed its lungs.

The Federal Reserve rushed over, plugged in the oxygen… and never took it out.

The economy’s natural breathing apparatus has atrophied from disuse.

Yank the oxygen now… and you will have a situation on your hands.

Dr. Powell attempted to wean the patient off support. But it gurgled, sputtered and flailed.

He will not try again. He is in fact preparing to pump in more oxygen.

But the economy might breathe freely today… if they had only let it recapture its own wind post-crisis.

The initial gasping might have been frightful.

But it would have coughed out the excesses of the previous boom… and gradually filled its lungs with the invigorating air of honest capitalism.

It would have come around on its own.

In went the breathing tube instead…

United States debt — public and private — has moonshot some $21 trillion this past decade.

It presently totals an impossible $73 trillion.

Meantime, GDP equals $20 trillion.

That is, each dollar of GDP holds up nearly $3.65 of debt.

The economy pants and sweats mightily under the burden.

And rising interest rates would increase the cost of that debt.

Any meaningful interest rate increase would pile on too much weight… and the economy would buckle under the strain.

Compare today’s debt-to-GDP with 1970’s — when the Federal Reserve was still jailed in by the gold standard:

Read more here.

No, the economy cannot withstand higher interest rates — or even historically normal interest rates.

The Federal Reserve is trapped.

But here is the problem:

The Federal Reserve cannot raise interest rates, as we have attempted to establish.

But like trying to breathe life into a corpse… or Hillary Clinton… lowering rates will not work the trick.

Today’s debt load is simply too behemoth.

Explains our former colleague David Stockman:

[We are at] a condition best described as Peak Debt, which reflects the fact that a large share of domestic household and business balance sheets are tapped out.

Accordingly, cutting interest rates has increasingly less potency on Main Street due to the crushing absolute level of debt. As of Q1 2019, in fact, total public and private debt weighed in at $73 trillion and is up by $21 trillion from the pre-crisis peak in Q4 2007…

There are now two turns of extra debt on the national income (3.47x versus 1.48x) compared to the long-standing leverage ratio which prevailed during the century between 1870 and 1970. In quantitative terms, those extra turns amount to $40 trillion of extra debt being lugged around by the U.S. economy.

Needless to say, it is becoming ever harder for the Fed to stimulate more borrowing and spending relative to the nation’s $21 trillion of nominal income. It’s simply a matter of diminishing returns to small reductions in what are already rock bottom rates coupled with the exhaustion of balance sheet capacity.

And so the Federal Reserve wields far less wallop than commonly supposed.

As we have argued before…

The Federal Reserve is a helpless giant, a man behind a curtain, a tissue-paper tiger.

That is why we expect it to flunk the inevitable recession.

And also why we expect a fiscal rescue attempt next time — not monetary.

Read on to see why central banks do not much matter these days. As you will see, there is no actual money in monetary policy.

But if central banks are largely irrelevant, then who… or what… is pulling the monetary strings?

Answer below…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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A “License to Buy Everything”

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Bloomberg captures the mood on Wall Street:

“Traders Take Fed Message as License to Buy Everything.”

Jerome Powell had his telegraph out yesterday… and wired a message of approaching rate cuts.

Federal funds futures give the odds of a July rate cut at 100%.

They further indicate three are likely by January.

And like sugar-mad 8-year olds amok in a candy store… traders are out for everything in sight.

Yesterday they drove the S&P past 3,000 for the first time. And today, freshly inspired, they sent the Dow Jones running to virgin heights.

The index crossed 27,000 this morning — timidly and briefly at first.

Comments by the president sent it temporarily slipping.

China is “letting us down,” Mr. Trump informed us.

Evidently China has not purchased satisfactory amounts of American agriculture — as it had agreed to at last month’s G20 summit.

And so the trade war menaces once again.

But the Dow Jones recalled Mr. Powell’s communique, rediscovered its gusto… and lit out for 27,000 once again.

It ended the day at 27,088.

Is Dow 30,000 Next?

We next await rabid and delirious shouts for Dow 28,000… 29,000… 30,000!

And who can say they will be wrong?

Dow 27,000 sounded plenty handsome not far back.

Yet here on July 11, Anno Domini 2019…  Dow 27,000 it is.

Don’t fight the Fed, runs an old market saw. It has proven capital advice…

The Fed does not box fairly.

It strikes beneath the belt. It bites in the clinches. It punches after the bell has rung.

Those unfortunates battling the Fed lo these many years have absorbed vast and hellful pummelings.

Justice may have been with them. But the judges were not.

“The Bears Have Been Damnably, Comedically, Infamously… Wrong”

With the displeasure of quoting ourself…

The frustrating thing about bears is that they make so much sense.

They heave forth every reason why stocks must collapse — all sound as a nut, all solid as oak.

Chapter, verse, letter, they’ll explain how the stock market is a classic bubble…

And how it has been inflated to preposterous dimensions by cheap credit.

P/E ratios haven’t been so high since the eve of the Crash of ’29, they’ll insist.

Market volatility has returned — and history shows trouble is ahead, they’ll warn.

Or that today’s sub-4% unemployment is a level historically attained only at peaks of business cycles.

And that recession invariably follows.

Et cetera, et cetera. Et cetera, et cetera.

But despite their watertight logic and all the angels and saints…

The bears have been damnably, comedically, infamously… wrong.

Since 2009, the Dow Jones has continually thumbed a mocking nose at them.

First at 10,000, then 15,000, at 20,000… then 25,000. 

Each point supposedly marked high tide — and each time the water rose.

It now rises to 27,000.

But is there some hidden pipe that could suddenly rupture, some unappreciated vulnerability that could send the Dow Jones careening?

Perhaps there is. But what?

The Dow’s Problem Child

Put aside the general hazards of trade war for now.

And turn your attention to Boeing…

Boeing has made the news in recent months — as you possibly have heard.

But its battering may continue yet. Explains famous money man Bill Blain:

Boeing has just announced its H1 [first half] deliveries in 2019 are down 54%. It has only delivered 90 new aircraft this year. Yet it is producing 42 new B-737 MAX’s each month and is having to store them on airport parking lots! It isn’t getting paid for these aircraft, but it still has supply chain commitments to meet. Boeing is hemorrhaging cash to build an aircraft no one can fly…

Boeing is trying to rush deliveries of other aircraft types to buyers to make up for the B-737 MAX cash slack. But there have been problems with B-787 Dreamliners built at its state-of-the-art Charleston factory “shoddy production and weak oversight” said The New York Times. At least one airline is said to be refusing to accept aircraft built outside Seattle. The U.S. Air Force stopped deliveries of new KC-46 tankers for a while when they found engineers had left hammers and other tools in wing and control spaces — a clear indication of “safety standards gotten too lax” said Defense News… This has massive implications for Boeing.

It may have massive implications for the stock market as well.

The Dow Jones is a price-weighted index.

Its components are weighted according to their stock price — not market capitalization or other factors.

And Boeing is the largest individual component on the Dow Jones. It presently enjoys an 11.6% weighting.

When Boeing goes up, the index often goes with it. When Boeing goes down, the index often goes with it also.

“The Likely Trigger for a Market Shock Will Be a ‘No-see-em’”

The bullet that fetches you is the bullet you don’t detect… as legend puts it.

And according to Blain,“The likely trigger for a market shock will be a ‘no-see-em.’”

He believes Boeing could be the “no-see-em” that knocks market flat:

I am concerned the market is underestimating just how bad things could go for Boeing, and when it does, the whole equity market will knee-jerk aggressively, triggering pain across all stocks… The crunch might be coming.

But perhaps Mr. Blain is chasing a phantom menace, a false bugaboo.

Scarcely a day passes that a fresh crisis-in-waiting does not invade our awareness.

Yet they all blow on by… “harmless as the murmur of brook and wind.”

We cannot argue Boeing will be different.

Hell to Pay

Perhaps we should raise a cheer today for Dow 27,000.

Yet the Lord above did not bless us with a believing or trusting nature.

Instead, we take our leaf from Mencken:

When we smell flowers… we look around for a coffin.

And as we have argued previously:

All things good must end, including bull markets — especially bull markets.

One day, however distant, there will be hell to pay.

And it won’t be the bears doing the paying…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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Jerome Powell Caves

This post Jerome Powell Caves appeared first on Daily Reckoning.

Jerome Powell chummed the seawater this morning. And the voracious sharks rose to the bait… 

In written testimony to Congress, Mr. Powell informed us that:

Crosscurrents have reemerged. Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since [the Fed meeting in June], based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook… Growth indicators from around the world have disappointed on net, raising concerns that weakness in the global economy will continue to affect the U.S. economy.

What is more… he re-babbled his oath that the Federal Reserve would “act as appropriate to sustain the expansion.” 

Translated into good hard English: Expect a rate cut later this month.

Affirms Bloomberg Federal Reserve-ologist Steve Matthews: 

“Powell didn’t say so explicitly, but it’s hard to read this other than he thinks a cut in July would be appropriate.”

Powell’s dispatch, adds Peter Boockvar of Bleakley Advisory Group…

“…fully endorsed the July rate cut and did absolutely nothing to pull the markets back from that expectation.” 

The stock market was up and away on the news…

The S&P Tops 3,000 For The First Time In History 

For the first occasion in its 62 years… the S&P poked its head above the 3,000 mark this morning.

The Nasdaq registered a fresh record of its own. And the Dow Jones bounded nearly 200 points.

But the opening frenzy squandered much of the day’s energy… and the averages gradually lost their steam.

The Dow Jones ended the day up 75 points, at 26,859. 

After catching its first glimpse of 3,000, the S&P dipped back down to 2,992. The Nasdaq, meantime, closed the day with a 61- point gain. 

And so it goes…

100% Chance Of A July Rate Cut

Federal funds futures — incidentally — now give 100% odds of a rate cut later this month.

But what about the rest of the year… and next year? To what inky depths will the Federal Reserve lower rates?

Perhaps even lower than markets expect — if you take history as your teacher.

Markets presently expect Mr. Powell and his goons to cut rates 75 basis points by January.

Seventy-five basis points imply three rate cuts (a typical rate cut — or hike — is 25 basis points).

Three rate cuts by year’s end are plenty heady.

But according to Michael Lebowitz of Real Investment Advice, history argues even stronger drink is in prospect…

Markets Underestimate How Far Rates Could Sink

If the Federal Reserve undertakes a hike cycle, he maintains, it often elevates rates higher than markets project.

And when the Federal Reserve begins cutting rates… it hatchets them even lower than markets expect.

Lebowitz:

Looking at the 2004–06 rate hike cycle… the market consistently underestimated the pace of fed funds rate increases…

During the 2007–09 rate cut cycle, the market consistently thought fed funds rates would be higher than what truly prevailed…

The market has underestimated the Fed’s intent to raise and lower rates every single time they changed the course of monetary policy meaningfully.

Lebowitz says markets have underestimated rate cut intensity for the previous three cycles.

And Mr. Powell currently has his hatchet out.

In conclusion:

If the Fed initiates rate cuts and if the data… prove prescient, then current estimates for a fed funds rate of 1.50 –1.75% in the spring of 2020 may be well above what we ultimately see. 

And here Lebowitz seizes us by the shoulders… and gives us a good hard shaking:

Taking it a step further, it is not far-fetched to think that that fed funds rate could be back at the zero-bound or even negative at some point sooner than anyone can fathom today.

Who could? Fathom it, that is.

Just last year the monetary authorities gloated about “globally synchronized growth” and their march back to “normalcy.” 

Now they are preparing to about-face… and go scurrying back to zero? 

Who can take these gentlemen and ladies seriously?

The Fed Can Never Normalize Interest Rates

Here is our guess: Once they turn around, they will never come back. 

The Federal Reserve cannot return to normal. 

Returning to normal would knock the economy flat. And the stock market would come down in a thundering heap.

Only low interest rates keep it all vertical.

But as we have noted repeatedly… watch out for the next rate cut.

The past three recessions each commenced within three months of the first rate cut that ended a hiking cycle.

We find no reason to believe “this time will be different.”

The next rate cut — likely this month — starts the clock ticking.

We could be wrong of course. 

The inscrutable gods keep their own schedule. Who knows how long the show might run?

Out of Ammunition

But come the inevitable recession…

The Federal Reserve will have very little ammunition to hurl against it.

And the closer it gets to zero, the less ammunition it will hold.

History says it requires interest rates of at least 4% to wage a successful battle.

Rates are presently between 2.25% and 2.50%.

They are about to sink lower. Perhaps drastically lower. 

That is, the Federal Reserve is badly outgunned as it presently stands.

If the economy somehow pegs along until rates are zero — or near zero — the Federal Reserve would be on its knees… defenseless.

It will have another desperate go at quantitative easing. But multiple rounds did little (nothing) to raise the economy last time.

Why would it work next time?

The Next Crackpot Cure

That is why we expect the next anti-recession cure — disaster, that is — will not be monetary.

It will be fiscal.

The cries will go out…

“QE for Wall Street did nothing for the economy. The time for QE for Main Street has come.” 

The authorities will take to their helicopters, hover over Main… and begin shoveling money out the side.

The throngs below will haul it all in. They will proceed to go spreeing through the stores. The resulting delirium will give the economy a wild jolt.

That is the theory… as far as it runs.

It in part explains the loudening shouts for Modern Monetary Theory (MMT).  

Its drummers claim it can invigorate the wilting American economy.

They further claim it can fund ambitious social programs — all without raids upon the taxpayer.

And if interest rates are shackled down, without blasting the deficit.

The printing press will supply the money.

But as we have argued prior, MMT is the eternal quest for the free lunch… water into wine… something for nothing.

And that world has no existence.

MMT would likely yield a gorgeous inflation. But the economic growth it promises… would be a promise broken.

It will join the broken promise of monetary policy…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Jerome Powell Caves appeared first on Daily Reckoning.

“You Are a Traitor!”

This post “You Are a Traitor!” appeared first on Daily Reckoning.

“You are a traitor, go back to Great Britain!”

This weekend’s reckoning, “Was the American Revolution a Mistake?” argued that the American colonies in 1775 were perhaps the freest society on Earth.

The subsequent revolution raised the curtain on a ruinous inflation, the article continued. And that the American tax burden tripled after 1783.

Never again did the American people regain their prerevolutionary economic freedoms.

The issue drew a heavy mail — and an impassioned mail.

We opened with the comments of reader Charles H… who fingers us for treason.

He further banishes us to the crowned and sceptered isle, in the footsteps of Benedict Arnold.

Reader Emrich S. even offers us a royal title:

How about I sell you the title Duke of BS. You and Rupert Murdoch think it was a bad idea and he and you have been undermining our ideals ever since. Why?

For no other reason — perhaps — that we are traitorous, seditious, malicious, villainous… and treacherous.

Of course, we cannot address the motivations of Mr. Murdoch.

And above the name Lenny M. we are dealt with as follows:

Revisionist-history socialism and rules for radicals… You make Saul Alinsky proud.

Just so. But the article banged a drum for those dreamy days when Americans paid out perhaps 1–2.5% in taxes.

Would a socialist sob over higher taxes?

Sample excerpt:

What would libertarians — even conservatives — give today in order to return to an era in which the central government extracted 1% of the nation’s wealth? Where there was no income tax?

Meantime, reader Stephen K. suggests we are merely working an angle… to catch a penny:

The colonists left England and the continent to obtain freedom that they did not have before. Don’t whitewash history to sell your books.

But not all readers would pack us off to the gallows…

Joining us in treason, for example, is reader Ken H.:

Brilliant and accurate analysis… Thank you! I discovered the same in my advanced-placement American history class quite some time ago!

Randy M. adds: “This is an interesting angle on U.S. history I’ve never heard.”

Finally, reader Eric P. says: “Thank you very much for this piece of history.”

Was the American Revolution a mistake?

Upon deep and sober reflection this weekend, we have come around to the belief it was not.

That is because we are heart and soul for freedom.

Imagine that America remained an English colony to this day.

Further imagine the tyrannical crown spent us into oblivion… and buried these colonies under a crushing $22.4 trillion debt.

Can you conceive of such a despotism?

But as independent Americans…

We can be proud that we accomplished it all by ourselves… freely.

Regards,

Brian Maher
for The Daily Reckoning

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GDP: The New “Slow” Normal

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“Is Slow Still the New Normal for GDP Growth?”

The Federal Reserve Bank of San Francisco raises the question… and proceeds to answer it:

Estimates suggest the new normal pace for U.S. GDP growth remains between 1.5% and 1.75%, noticeably slower than the typical pace since World War II…

A larger challenge is productivity. Achieving GDP growth consistently above 1.75% will require much faster productivity growth than the United States has typically experienced since the 1970s.

Productivity — as we have argued prior — is the spring of enduring prosperity.

Productivity growth transformed these United States from a bucktoothed backwater into a global behemoth… a modern Colossus bestride the world.

Productivity growth averaged 4–6% for the 30 years post-WWII. But after 1980?

Average productivity has languished between 0–2%.

Meantime, labor productivity averaged 3.2% annual growth from World War II to the end of the 20th century.

But since 2011… a mere 0.7%.

What might account for America’s declining productivity growth?

We have previously implicated Richard Nixon and his 1971 murdering of the gold standard.

The gold standard, though a sad caricature in its dying days, nonetheless enforced an honesty.

A wastrel nation that consumed more than it produced would eventually run through its gold stocks.

The fiat dollar, the unbacked dollar, lifted the penalty.

A liberated Federal Reserve finally broke loose from its golden shackles… spread its nets… and ensnared the nation in debt.

Michael Lebowitz of Real Investment Advice:

The stagnation of productivity growth started in the early 1970s. To be precise it was the result, in part, of the removal of the gold standard and the resulting freedom the Fed was granted to foster more debt… Over the last 30 years the economy has relied more upon debt growth and less on productivity to generate economic activity.

“Unfortunately, productivity requires work, time and sacrifice,” he adds.

But the emerging American economy left behind the grimy toil of the factory floor and the workbench…. and headed for Wall Street.

It went chasing after the fast buck — the easy buck.

The financialization of the American economy was underway.

Ten percent of GDP in 1970, the finance industry grew to 20% of GDP by 2010… like weeds in an abandoned factory.

And like spreading weeds, finance choked the path of labor…

The bottom 90% of American earners advanced steadily from the early 1940s through the early 1970s.

But they’ve been sliding back ever since — or held even at best.

In contrast we find the top 1% of earners…

From 1920 to the early 1970s they lost ground to the bottom 90%.

But beginning around 1980 they went leaping ahead… and began showing society their dust:

Read more here.

But perhaps we can declare the race a wash.

Labor’s loss is simply capital’s gain. And the economy as a whole comes out even. Perhaps the transaction even benefits it.

But has it? Has the United States economy benefited from financialization?

The facts may run precisely the other way…

Economists Gerald Epstein and Juan Antonio Montecino slaved over the numbers.

Since 1990, they conclude…

The financial sector has drained as much as $22 trillion from the United States economy:

What has this flawed financial system cost the U.S. economy?… We estimate these costs by analyzing three components: (1) rents, or excess profits; (2) misallocation costs, or the price of diverting resources away from nonfinancial activities and (3) crisis costs, meaning the cost of the 2008 financial crisis. Adding these together, we estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy.

Meantime, we sag and groan under majestic mountains of debt.

A financialized economy demands perpetually increasing credit — debt, that is — to keep the show going.

Servicing that debt absorbs increasing amounts of society’s income. That in turn leaves less to save… and to invest in productive assets.

It is a dreadful cycle.

Eventually it leaves the cupboards bare… and the future empty.

Average real annual economic growth since 2009 runs to 2.23%.

Compare the past decade’s 2.23% with the larger 3.22% trend since 1980.

One percentage point may seem a trifle. And one year to the next it is.

But Jim Rickards calculates the United States would be $4 trillion richer — had the 3.22% trend held this decade.

Run it 30, 50, 60 years… Jim concludes the nation would be twice as rich over a lifetime.

Here is Lebowitz with the sting in the tail:

“Given the finite ability to service debt outstanding… future economic growth, if we are to have it, will need to be based largely on gains in productivity.”

But from where?

Below, George Gilder shows you how real money could “work miracles of growth.” Read on.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post GDP: The New “Slow” Normal appeared first on Daily Reckoning.

The War of Stocks and Bonds

This post The War of Stocks and Bonds appeared first on Daily Reckoning.

Jerome Powell dangled the morsel yesterday — rate cuts are on the way.

And like Pavlov’s famously conditioned dogs, Wall Street heard the opening bell this morning… and began drooling.

The major indexes were instantly up and away.

They lost momentum after the president intimated he may take a swing at Iran for downing a U.S. drone.

“You’ll soon find out” was his response when asked if the U.S. would retaliate.

The bulls nonetheless won the day…

The Dow Jones was up 249 points at closing whistle. The S&P gained 28; the Nasdaq, 64 points.

Gold, meantime, went skyshooting $44.50 today — $44.50!

Combine the prospects of vastcentral bank easing with possible fireworks in the Persian Gulf… and you have your answer.

What about the bond market?

Stocks vs. Bonds

The bellwether 10-year Treasury slipped to 1.98% this morning… its lowest point since the 2016 election.

And so the infinitely expanding gulf between stock market and bond market widens further yet.

One vision is bright, cheery, trusting. The other is dark, dour… and morose.

One of these markets will be proven right. One will be proven wrong.

Our money is on the bond market.

We have furnished ample evidence that recession is likely on tap within three months of the next rate cut.

Here analyst Sven Henrich reinforces our deep faith in the calendar of misfortune:

Every single time the Fed cut rates when unemployment was below 4%, a recession immediately ensued & unemployment shot to 67%. Again: Every. single. time.

We remind you:

The United States unemployment rate presently stands at 3.6% — the lowest in 50 years.

“A Gorgeously Wrapped Gift Box Containing a Time Bomb”

An unemployment rate below 4% is a false prize, a sugar-coated poison… a gorgeously wrapped gift box containing a time bomb.

Unemployment previously slipped beneath 4% in April 2000 — at the peak of the dot-com delirium.

The economy was in recession by March 2001.

Prior to 2000, unemployment had previously fallen below 4% in December 1969.

The economy was sunk in recession shortly thereafter.

The pattern stretches to the 1950s.

The proof, clear as gin… and equally as stiff:

Chart

And unemployment often bottoms nine months before recession’s onset… according to the National Bureau of Economic Research.

Meantime, it is 10 years into the present economic “expansion.” Next month will establish a record.

A Very Strange Expansion

An expanding economy is generally a time of surplus.

It is a time to store in reserves, to squirrel away acorns, to save against the rainy day — the inevitable rainy day.

These savings will see you through.

But during this economic expansion, during this season of bounty… the United States has only sunk deeper into debt.

The cupboards are empty.

Trillion-dollar annual deficits are presently in sight.

The national debt rises to $22.3 trillion — some 105% of GDP.

And interest payments on the debt alone will likely eclipse defense spending by 2025.

Come the inevitable recession, Uncle Samuel will plunge even deeper into debt.

That is, he will reach even further into the future… to rob it for our benefit today.

Deficits may double — or more.

How is the business at all sustainable?

But it’s not only a doddering old uncle going under the water…

The Corporate Debt Bomb

Corporations have loaded themselves to the gunwales with cheap debt — cheap debt coming by way of the Federal Reserve.

First-quarter nonfinancial corporate debt increased to $9.93 trillion. That is a record.

And this we learn from the Treasury Department:

Today’s nonfinancial corporate debt-to-GDP ratio is the highest since 1947… when records began.

And here we spot a straw swaying menacingly in the wind…

Fitch informs us nearly $10 billion of high-yield corporate bonds have already defaulted in the second quarter — double the amount of first-quarter defaults.

Warns Troy Gayeski, co-chief investment officer at SkyBridge Capital:

“Whatever the cause [of the next recession] may be, the acute point of pain will be in corporate credit.”

Depends on it.

Finally we come to the fabulously and grotesquely indebted American consumer…

Consumers Drowning in Debt

Total U.S. consumer debt notched $14 trillion in the first quarter — exceeding the roughly $13 trillion before the financial crisis.

Twenty-three percent of Americans claim that life’s essentials — food, rent, utilities — constitute the bulk of their credit card purchases.

And 60% of Americans hold less than $1,000 in savings.

How will they keep up come the next recession? How will they meet their debts?

They already groan under the load — and the economy is still expanding.

Meantime, the cost of a middle-class lifestyle has surged 30% over the past two decades.

But Pew Research reports the average American worker wields no more purchasing power today… than he did 40 years ago.

That is, he has jogged in place 40 years.

Utter and Complete Failure

The past 10 years of central bank intervention on a grand and heroic scale have worked little benefit.

The coming recession will bring yet more intervention— on an even grander and more heroic scale.

But why should we expect it to yield any difference whatsoever?

For the overall view, we turn to Mr. Sven Henrich:

The grand central bank experiment of the last 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round… The new global rate-cutting cycle begins anew before the last one ever ended. Brace yourselves, as no one, absolutely no one, can know how this will turn out…

We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the last 10 years has been wrong… Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?…

All the distortions of 10 years of cheap money, debt, wealth inequality, zombie companies, negative debt… will all be further exacerbated by hapless and scared central bankers whose only solution to failure is to embark on the same cheap money train again. All under the banner to “extend the business cycle” at all costs. Never asking whether they should nor considering the consequences. But since they are not elected by the people and face zero consequences for failure, they don’t have to consider the collateral damage they inflict.

Unfortunately, the rest of us do…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post The War of Stocks and Bonds appeared first on Daily Reckoning.

REVEALED: How Far Stocks Will Fall

This post REVEALED: How Far Stocks Will Fall appeared first on Daily Reckoning.

How far might markets plunge next time around?

And will you be able to recover your losses rapidly?

Answers — possibilities, rather — shortly.

And is one of Wall Street’s oldest chestnuts of investment wisdom tragically wrong?

This question too we will tackle.

But first to that vicious den of sin and iniquity — the stock market.

The Dow Jones roared 353 points today. The S&P rallied 28 points and the Nasdaq… 109.

For reasons we turn to the president’s comments this morning:

Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.

That G-20 meeting transpires June 28-29.

We shall see.

But how much value can you expect the stock market to shed in the next bear market?

The United States economy has endured recession every five years since World War II — on average.

Yet the present economic expansion runs to 10 years. It will be crowned history’s longest next month.

How much longer will the gods of chance be put off, cried down, ridiculed and shooed away?

10-year Treasury yields have slipped beneath 3-month Treasury yields.

This yield curve inversion has preceded each and every recession 50 years running.

And last week the yield curve inverted to its steepest degree since April 2007.

Meantime, Morgan Stanley’s Business Conditions Index just endured its largest-ever monthly plummet.

It presently languishes at its lowest level since December 2008 — the teeth of the financial crisis.

In Morgan Stanley’s telling, the American economy may already be sunk in recession.

But today or 18 months from today… a bear market will likely come dragging in on recession’s coattails.

Thus we arrive at the inevitable question:

How much value might the stock market lose in the next bear market?

Financial journalist Mark Hulbert interrogated the history since 1900 (based on data from research firm Ned Davis).

Investors have withstood 36 bear markets in these 119 years.

Hulbert then zeroed in on stock market valuations.

In particular, to the cyclically adjusted P/E ratio (CAPE) hatched by Yale man (and Nobel winner) Robert Shiller.

At 30.2, CAPE is mountain-high — that is, stocks are vastly expensive by history’s standards.

Today’s valuations rise even above 1929’s — and put 2008’s in the shade.

Only during the dot-com delirium were stocks dearer than today.

Chart

Hulbert’s research reveals bear markets tend to greater severity when stock valuations are elevated.

And so given today’s wild valuations, how far might the Dow Jones drop next time?

The answer, says Hulbert… is 35.3%:

A simple econometric model whose inputs are past bear markets and CAPE values predicts that, if a bear market were to begin from current levels, the Dow would tumble 35.3%. Though that’s less severe than the 2007–09 bear market, it still would sink the Dow below 17,000. 

In fairness…

Hulbert concedes his findings do not rise to the 95% confidence level he seeks. But can you safely throw them aside?

Assume the Dow Jones does go tumbling 35.3% — beneath 17,000.

Worry not, says Wall Street.

Hold on for the long pull. Buy and hold is the way.

The stock market always comes back, the learned gentlemen assure us.

The magic of annually compounding returns will ultimately leave you in easy waters.

But have another guess, says analyst Lance Roberts of Real Investment Advice…

Perhaps you seek 10% compounding annual returns for five years.

Ten percent is handsome — but not extravagant.

Assume 10% is precisely what you receive the first three years. But you lose 10% the fourth.

What then happens to your gorgeous five-year 10% compounding?

You would need to haul in a ludicrous 30% return the fifth year… to catch up.

Chart

Roberts:

The “power of compounding” ONLY WORKS when you do not lose money. As shown, after three straight years of 10% returns, a drawdown of just 10% cuts the average annual compound growth rate by 50%. Furthermore, it then requires a 30% return to regain the average rate of return required.

If you are approaching retirement — or already in retirement — can you afford to stagger 10%?

Or 20%?

You must further consider today’s extreme valuations.

The higher the valuation… the lower returns you can expect over the next several years.

At today’s valuation extremes…

Would you be better off placing $3,000 into the stock market each year — or wedging it under your mattress?

Roberts has given the numbers a good, hard soaking. At 20x valuations, he finds…

Your stock market money would finally exceed your snoozing cash… in twenty-two years.

22 years!

“Historically, it has taken roughly 22 years to resolve a period of overvaluation,” affirms Roberts, adding:

Given the last major overvaluation period started in 1999, history suggests another major market downturn will mean revert valuations by 2021.

And recall — today’s CAPE is 30.2%. Perhaps stocks must wait even longer to break ahead.

But can you afford to wait?

Regards,

Brian Maher
for The Daily Reckoning

The post REVEALED: How Far Stocks Will Fall appeared first on Daily Reckoning.

A Tour of the Future

This post A Tour of the Future appeared first on Daily Reckoning.

Sharp, bracing winds have scattered the fog. The horizon is now visible… and the future drifts into focus.

Yes, we have the future in sight.

Today we report the way ahead.

We begin where we stand — upon creaking and groaning floorboards…

Recessionary Warnings in all Directions

Manufacturing surveys indicate global manufacturing contracted in May… for an unprecedented 13th-consecutive month.

The Manufacturing PMI (Purchasing Managers’ Index) surveys indicate manufacturing crawls at its slowest rate since September 2009.

United States factory orders expanded merely 1.0% in May — the lowest rate since President Trump took the throne.

The Cass Freight Index — a broad measure of domestic shipping activity and a plausible thermometer of economic health — has dropped 3.2% since last April.

Meantime, the bond market flashes warnings of a lean season ahead.

Ten-year Treasury yields have dropped to their lowest levels in two years, to 2.12%.

And the yield curve has inverted. An inverted yield curve nearly always precedes recession.

Thus we stand upon our precarious perch, wary of the shifting, sandy foundations beneath us.

But it is the future we have in mind today…

Morgan Stanley: 60% Chance of Recession Within One Year

The professional optimists of the Federal Reserve’s Atlanta branch office expect Q2 GDP to ring in at a slender 1.3%.

J.P. Morgan has lowered its own sights from 2.25% to 1%.

It also projects 10-year Treasury yields will sink to 1.75% by year’s end… and 1.65% by next March.

JP Morgan also — incidentally — places the odds of recession in the second half of this year at 40%.

It placed those same odds at 25% one month prior.

Morgan Stanley has also revised its Q2 GDP forecast from 1.0%… to a pale and sickly 0.6%.

It further gives a 60% likelihood of recession within the next year — its highest percentage since the financial crisis.

Of course, the Federal Reserve looms large in our vision…

Rate Cuts A2re Coming

The current rate hike cycle is ended. The Federal Reserve will next slash interest rates.

Its Federal Open Market Committee gathers in two weeks’ time.

As Craig Hemke of Sprott Money News notes, two options rise before the august ladies and gentlemen of the committee.

Neither is desirable:

1. Admit defeat and immediately cut the fed funds rate by up to 50 basis points.

2. Stall. And if they do this, bonds will rally even higher as the bond market will anticipate an even more dramatic global economic collapse.

The market votes heavily for Option 1.

Federal funds futures currently give nearly 70% odds of at least one rate cut by July.

By September these odds rise to over 90%, and by next January… to over 98%.

Some crystal gazers even hazard three rate cuts by this year’s end alone.

The Trigger for Recession

But as we have noted repeatedly… the next rate cut is a phony cure.

It is fool’s gold, a snare, a desert mirage.

The past three recessions ensued within 90 days of the first rate cut that ended a hiking cycle.

Affirms Zero Hedge:

While many analysts will caution that it is the Fed’s rate hikes that ultimately catalyze the next recession… it may come as a surprise to many that the last three recessions all took place [within] three months of the first rate cut after a hiking cycle!

We have every reason to expect the trend continues uninterrupted.

We further allow the possibility that the economy has already slipped into recession.

Recessions are often only identified several months after they commence — or longer.

Early next year, the bean counters may well point to Q2 2019.

Regardless, the recessionary straws are swaying in the stiffening breeze. Even Jerome Powell spots them.

“It’s Time to Rethink Long-run Strategies”

Mr. Powell realizes the standard rate cuts will fizzle woefully… like July Fourth sparklers that fail to spark.

So he will be on hand with more potent pyrotechnics.

From comments this week:

It’s time to rethink long-run strategies… Perhaps it is time to retire the term “unconventional” when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in the future… The next time policy rates hit the lower bound and there will be a next time it will not be a surprise.

Quantitative easing. Zero interest rates. Negative interest rates.

These and more tricks he doubtless has in mind.

And did you catch this bit?

“Perhaps it is time to retire the term “unconventional” when referring to tools that were used in the crisis.”

Just so.

Central banks have inflicted these “unconventional” tools upon the world’s citizens for 10 years — to varying degrees.

But if these gaudy and flashy devices met their advertising… why is the economy plunging into recession at all?

It is true, they have lit up the stock exchanges. But they fell as duds upon Main Street.

Why should they dazzle the crowd now?

They worked one primary effect:

To drill the world trillions of dollars deeper into debt.

Global debt has doubled post-financial crisis… as has the United States national debt.

Yet we return to the future…

Prepare for the Cannons of Fiscal “Stimulus”

We observe that the Federal Reserve’s punchless old fireworks have failed.

That is when the national authorities will haul out the cannons…

They will load them full of Modern Monetary Theory (MMT) — or “QE for the people.”

Rolling barrages of fiscal “stimulus” they will send raining down onto Main Street.

If a Democratic commander in chief is barking the orders at the time, he may load a Green New Deal into the breeches.

Free college tuition… universal Medicare… jobs for all… a $15 minimum wage.

All these and more it will promise — and save the world into the bargain.

The False Miracle of Debt

Like most crank ideas, these fevered schemes will fail in grand and spectacular style.

The false miracle of debt is their common delusion.

All debt-based consumption steals from the future to gratify the present. It is tomorrow’s consumption pulled forward.

It depletes the capital stock… and leaves the future empty.

It signs a perpetual check against an overdrawn future.

Mark Jeftovic of the Guerrilla Capitalism blog on MMT, which can extend to a Green New Deal:

Think of an MMT crisis as an economic black hole sucking all value from further and further future generations into a gravitational vortex of the present moment, where all value collapses in on itself and disappears forever.

Thus we conclude our tour of the horizon.

Mercifully, we can see no farther…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post A Tour of the Future appeared first on Daily Reckoning.

Beware the “Adjusted” Yield Curve

This post Beware the “Adjusted” Yield Curve appeared first on Daily Reckoning.

Yesterday we furrowed our brow against the latest inversion of the “yield curve.”

The 10-year Treasury yield has slipped beneath the 3-month Treasury yield — to its deepest point since the financial crisis, in fact.

Inverted yield curves precede recessions nearly as reliably as days precede nights, horses precede carts… lies precede elections.

The 10-year Treasury yield has dropped beneath the 3-month Treasury yield on six occasions spanning 50 years.

Recession was the invariable consequence — a perfect 1,000% batter’s average.

But an inverted yield curve is no immediate menace.

It may invert one year or more before uncaging its furies.

But today we revise our initial projections — as we account for the “adjusted” yield curve.

The “adjusted” yield curve indicates recession may be far closer to hand than we suggested yesterday.

When then might you expect the blow to land?

Now… you realize we cannot spill the jar of jelly beans straight away. You must first suffer through today’s market update…

Markets plugged the leaking today.

The Dow Jones gained 43 points on the day. The S&P scratched out six. The Nasdaq, meantime, added 20 points.

Gold — safe haven gold — gained nearly $7 today.

But to return to the “adjusted” yield curve… and the onset of the next recession.

The Nominal vs. the Real

We must first recognize the contrast between the nominal and the real.

The world of appearance, that is — and the deeper reality within.

For example… nominal interest rates may differ substantially from real interest rates.

Nominal rates do not account for inflation.

Real interest rates (the nominal rate minus inflation) do.

That is why a nominal rate near zero may in fact exceed a nominal rate of 12.5%…

Nominal interest rates averaged 12.5% in 1979. Yet inflation ran to 13.3%.

To arrive at the real interest rate…

We take 1979’s average nominal interest rate (12.5%) and subtract the inflation rate (13.3%).

We then come to the arresting conclusion that the real interest rate was not 12.5%… but negative 0.8% (12.5 – 13.3 = -0.8).

Today’s nominal rate is between 2.25% and 2.50%. Meantime, (official) consumer price inflation goes at about 2%.

Thus we find that today’s real interest rate lies somewhere between 0.25% and 0.50%.

That is, despite today’s vastly lower nominal rate (12.5% versus 2.50%)… today’s real interest rate is actually higher than 1979’s negative 0.8%.

The Standard Yield Curve vs. The “Adjusted” Yield Curve

After this fashion, the standard yield curve may differ substantially from the “adjusted” yield curve.

Michael Wilson is chief investment officer for Morgan Stanley.

He has applied a similar treatment to distinguish the adjusted yield curve from the standard yield curve.

The standard yield curve — Wilson insists — does not take in enough territory.

It fails to account for the effects of quantitative easing (QE) and subsequent quantitative tightening (QT).

The adjusted yield curve does.

It reveals that QE loosened financial conditions far more than standard models indicated.

It further reveals that QT tightened conditions vastly more than officially recognized.

The adjusted curve takes aboard the Federal Reserve’s estimate that every $200 billion of QT equals an additional rate hike… for example.

The standard yield curve does not.

Thus the adjusted yield curve reveals a sharply more negative yield curve than the standard.

Here, in graphic detail, the adjusted yield curve plotted against the standard yield curve:

Image

The red line represents the standard 10-year/3-month yield curve.

The dark-blue line represents the adjusted yield curve — that is, adjusted for QE and QT.

The adjusted yield curve rose steepest in 2013, when QE was in full roar.

But then it began a flattening process…

QT Drastically Flattened the Adjusted Curve

The Federal Reserve announced the end of quantitative easing in late 2014.

And Ms. Yellen began jawboning rates higher with “forward guidance” — insinuating that higher rates were on the way in 2015.

Thus financial conditions began to bite… and the adjusted yield curve began to even out.

By the time QT was in full swing, the adjusted curve flattened drastically. The standard curve — which did not account for QT’s constraining effects — failed to match its intensity.

Explains Zero Hedge:

The adjusted curve shows record steepness in 2013 as the QE program peaked, which makes sense as it took record monetary support to get the economy going again after the great recession. The amount of flattening thereafter is commensurate with a significant amount of monetary tightening that is perhaps underappreciated by the average investor.

Now our tale acquires pace — and mercifully — its point.

The Adjusted Yield Curve Inverted Long Before the Standard

After years of flattening out, the standard yield curve finally inverted in March.

Prior to March, it last inverted since 2007 — when it presented an omen of crisis.

But since March, the standard curve bounced in and out of negative territory.

The recession warning it flashed was therefore dimmed and faint — until veering steeply negative this week.

But the adjusted yield curve did not invert in March…

It inverted last November — four months prior. And it has remained negative to this day.

Wilson:

Adjusting the yield curve for QE and QT shows an inversion began at the end of last year and persisted ever since.

Thus it gives no false or fleeting alarm — as the standard March inversion may have represented.

We refer you once again to the above chart.

Note how deeply the adjusted yield curve runs beneath the standard curve.

A “Far More Immediate Menace”

Meantime, evidence reveals recession ensues 311 days — on average — after the 3-month/10-year yield curve inverts.

But if the adjusted curve inverted last November… we are presented with a far more immediate menace.

Here Wilson sharpens the business to a painful point, sharp as any thorn:

Economic risk is greater than most investors may think… The adjusted yield curve inverted last November and has remained in negative territory ever since, surpassing the minimum time required for a valid meaningful economic slowdown signal. It also suggests the “shot clock” started six months ago, putting us “in the zone” for a recession watch.

If recession commences 311 days after the curve inverts — on average — some 180 days have already lapsed.

And so the countdown calendar must be rolled forward.

Perhaps four–five months remain… until the fearful threshold is crossed.

If the present expansion can peg along until July, it will become the longest expansion on record.

But if the adjusted yield curve tells an accurate tale, celebration will be brief…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Beware the “Adjusted” Yield Curve appeared first on Daily Reckoning.

Has Recession Already Started?

This post Has Recession Already Started? appeared first on Daily Reckoning.

“Sit down before fact like a little child,” Thomas Huxley instructed, and “follow humbly wherever and to whatever abyss Nature leads…”

Today we sit down before facts, childlike… and follow humbly wherever and to whatever abyss they lead.

But what if the facts lead straight to the abyss of recession?

Facts 1: April orders for core nondefense capital goods slipped 0.9%.

Facts 2: April orders for durable goods — items expected to endure three years or more — sank 2.1%. Durable goods shipments overall dropped 1.6%… the most since December 2015.

Facts 3: April orders for transportation equipment plunged 5.9%.

Facts 4: April retail sales slipped 0.2%.

Facts 5: The “yield curve” has inverted good and hard — a nearly perfect omen of recession.

Has Recession Already Arrived?

Stack facts 1–5 one atop the other. What can we conclude?

“U.S. recession probably started in the current quarter.”

This is the considered judgment of A. Gary Shilling. Mr. Shilling is a noted economist and financial analyst.

And he gazes into a crystal ball less murky than most.

Wikipedia:

In the spring of 1969, he was one of only a few analysts who correctly envisioned the recession at year’s end and was almost a lone voice in 1973… the first significant recession since the Great Depression.

But is not the economy still expanding?

Q1 GDP rang in at a hale and hearty 3.2% — after all.

But peer behind the numbers…

Much Less than Meets the Eye

Much of the jauntiness was owing to transitory factors such as inventory accumulation.

Firms squirreled away acorns to jump out ahead of looming tariffs, giving Q1 GDP a good jolt.

But that jolt has come. And that jolt has gone.

Meantime, Q2 GDP figures will come rising from the bureaucratic depths tomorrow morning.

What can you expect from them?

A severe letting down, it appears…

Q2 GDP Estimates Revised Downward

Morgan Stanley has lowered its Q2 GDP forecast from 1.0%… to a sickly 0.6%.

J.P. Morgan has lowered its own sights from 2.25% to 1%.

Meantime, the professional optimists of the Federal Reserve’s Atlanta command ring in at a slender 1.4%.

Miles and miles — all of them — from the first quarter’s 3.2%.

Might these experts botch the actual figure?

They may at that… and it would not be the first instance.

But the weight of evidence here assembled loads the scales in the other direction.

Besides, recessions first appear in the rearview mirror. They are only identified several months to one year post factum… if not longer.

Perhaps the economy has already started going backward, as Mr. A. Gary Shilling suggests.

Or perhaps he has spotted a phantom menace, a shadow, a false bugaboo.

What does the “yield curve” have to say?

The Message of the Yield Curve

The yield curve is simply the difference between short- and long-term interest rates.

Long-term rates normally run higher than short-term rates. This happy condition reflects the structure of time in a healthy market.

The 10-year yield, for example, should run substantially higher than the 3-month yield.

The reason is close by…

The 10-year Treasury yield rises when markets anticipate higher growth — and higher inflation.

Inflation eats away at money tied up in bonds… as a moth eats away at a cardigan.

Bond investors therefore demand greater compensation to hold a 10-year Treasury over a 3-month Treasury.

And the further out in the future, the greater the uncertainty. Thus the greater compensation investors demand for taking the long view.

Compensated, that is, for laying off the sparrow at hand… in exchange for the promise of two in the distant bush.

Time Itself Inverts

But when the 3-month yield and the 10-year yield begin to converge, the yield curve flattens… and time compresses.

When the 10-year yield falls beneath the 3-month yield, the yield curve is said to invert. And in this sense time itself inverts.

The signs that point to the future lead to the past. And vice versa.

In the careening confusion, future and past run right past one another… and end up switching places.

Thus, an inverted yield curve wrecks the market structure of time.

It rewards pursuit of the bird at hand greater than two in the future.

That is, the short-term bondholder is compensated more than the long-term bondholder.

That is, the short-term bondholder is paid more to sacrifice less… and the long-term bondholder paid less to sacrifice more.

That is, something is dreadfully off.

“A Nearly Perfect Omen of Lean Days Ahead”

An inverted yield curve is a nearly perfect omen of lean days ahead. It suggests an economic winter is coming… when investors expect little growth.

Explains Campbell Harvey, partner and senior adviser at Research Affiliates:

When the yield curve inverts, it’s not the time to borrow money to take a vacation to Orlando. It is the time to save, to build a cushion.

An inverted yield curve has accurately forecast all nine U.S. recessions since 1955.

Only once did it yell wolf — in the mid-1960s.

It has also foretold every major stock market calamity for the past 40 years.

The yield curve last inverted in 2007. Prior to 2007, the yield curve last inverted in 1998.

Violent shakings followed each inversion.

History reveals the woeful effects of an inverted yield curve do not manifest for an average 18 months.

And now, in 2019… the doomy portent drifts once again into view.

The Bond Market’s Strongest Signal Since the Financial Crisis

The 3-month and 10-year yield curve inverted in March. It has since straddled the zero line, leaning with the daily headlines.

But this week the inversion has gone steeply negative.

We are informed — reliably — that the yield curve has presently inverted to its deepest point since the financial crisis.

Why is the 3-month versus the 10-year yield curve so all-fired important?

Because that is the section of the yield curve the Federal Reserve tracks closest. It believes this portion gives the truest reading of economic health.

Others give the 10-year versus the 2-year curve a heavier weighting.

But it is the Federal Reserve that sets policy… not others.

Federal fund futures presently offer 86% odds that Mr. Powell will lower interest rates by December… and 60% odds by September.

If recession is not currently underway, we are confident the Federal Reserve’s next rate cut will start the countdown watch.

Specifically:

Come the next rate cut, recession will be three months off — or less.

Why do we crawl so far out upon this tree limb?

President Trump Should Demand Jerome Powell Not Raise Interest Rates

The next rate cut will be the first after a hiking cycle (which commenced in December 2015).

And the past three recessions each followed within 90 days of the first rate cut that ended a hike cycle.

Assume for now the pattern holds.

Assume further the Federal Reserve lowers interest rates later this year.

Add 90 days.

Thus the economy may drop into recession by early next year.

Allow several months for the bean counters at Washington to formally identify and announce it.

You may have just lobbed recession onto the unwanting lap of President Donald John Trump… in time for the furious 2020 election season.

Could the timing be worse for the presidential incumbent?

Mr. Trump has previously attempted to blackjack Jerome Powell into lowering rates.

But if our analysis holds together…

The president should fall upon both knees… and beg Mr. Powell to keep rates right where they are…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Has Recession Already Started? appeared first on Daily Reckoning.