Bloomberg News: Market Moves Suggest a Recession Is Unavoidable

December 06, 2018
Article by Jared Dillian in Bloomberg News

As a longtime market observer, what I find most interesting about the latest correction in equities has the feeling of inevitability that it will turn into something worse.

It wasn’t this way in late January, when everyone wanted to buy that dip. It certainly wasn’t this way in 2007, when the magnitude of the recession was grossly underestimated.

Just about everyone I talk to in the capital markets, including erstwhile bulls, acknowledges that things are slowing down.

Yes, the Institute for Supply Management’s monthly manufacturing index released earlier this week was strong, but jobless claims are ticking up and I am hearing anecdotal reports of a wide range of businesses slowing down. Even my own business is slowing. Anecdotes aside, oil has crashed, home builder stocks have been crushed, and the largest tech stocks in the world have taken a haircut. If we get a recession from this, it will be a very well-telegraphed recession. Everyone knows it is coming.

Big Swings

This latest downturn in U.S. stocks feels as if the worst is yet to come.

There are signs that capital has been incorrectly allocated. In just the span of a year, there have been three separate bubbles: one in bitcoin, one in cannabis and one in the FAANG group of stocks: Facebook, Apple, Amazon.com, Netflix and Google-parent Alphabet. This is uncommon. I begged the Fed to take the punch bowl away, and it eventually did, and now yields of around 2.5 percent on risk-free money are enough to get people rethinking their allocation to risk. 

Inversion Inevitable?

The flat yield curve shows the bond market expects the economy to slow considerably.

I suppose all recessions are a surprise to some extent. If you are a retail investor getting your news from popular websites or TV channels, you might not be getting the whole picture.

In the professional community, it is becoming harder to ignore the very obvious warning signs that a downturn is coming.

Ample opportunity is being given to cut exposure to risk, and it’s clear that few people are taking advantage of it. They never do.

To read this article in Bloomberg News in its entirety, click here.

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