A hell of a lot of bad news just got dumped on us, so lets take a look at what’s going on and whether the likelihood of recession has increased substantially or not.
First and perhaps most disastrous is the Philadelphia Federal Reserve reporting a dramatic and unexpected collapse in the mid-Atlantic manufacturing survey. Expectations were that it would remain relatively stable at a reading of 1.5 to 2.0. Instead, it fell to -30.7. Absolutely stunning. The last time it was this low was in March 2009 when the country was in recession.
The BLS reports we have substantially higher inflation both in the core and broader measurements, but especially in energy, clothing and food. Not that you need any of that! Granted, much of this is volatile and not directly linked to monetary policy, but this will work against the likelihood of another round of QE3. Don’t rule it out though. The rest of the news out today would indicate the market wants it bad.
Jobless claims are back up well above 400K again even as workforce participation is at a 25 year low. Granted, this is partially due to retiring baby boomers, but jobless claims should still be falling. Next to the falling participation rate, the stickiness of this figure indicates things are actually moving in the wrong direction.
For the last two or three days, we’ve been seeing economic projections for the next year or so being revised downward with Morgan Stanley out today saying there is a much higher chance of recession, but still predicting some growth (around 1.0 percent per quarter). With GDP revisions being what they are, its certainly possible we are already in a recession or just about to enter one.
Gold is at a new all time high, up about $15 so far today above the previous high. This is relevant because it indicates that even though the economy is in a deflationary spiral, the market expects the central banks of the world to print money and destroy the currencies. Certainly not an illogical position to take considering what they’ve done in the past.
At the same time, the 10-year Treasury Yield has hit a record low. To quote ZeroHedge, “The real market is thus now pricing in both hyperinflation and hyperdeflation at the same time.”
Market volatility over the last few weeks has caused a dead cat bounce in the market, whereby investors think stocks are “cheap” and buy in, only to find that the bottom hasn’t even come close yet.
We’ve argued here that the reason recession is likely, if not imminent, and is due to the fundamental structural problems with the economy, corruption, and an unwillingness to accept the pain that came with the last two recessions. It seems we’re being proven right.
