Is recession looming?

[vand]

From the official data it actually looks like the contraction started in Q4 2019, but perhaps this is due to the smoothing process the apply to the numbers in retrospect.

There was also a dip in Q1 2021 due to the lockdown, but it did not extend to a 2nd consecutive quarter.

Q     Output    Q on Q change
2018 Q2	553087	3007
2018 Q3	556581	3494
2018 Q4	558448	1867
2019 Q1	562033	3585
2019 Q2	562779	746
2019 Q3	565362	2583
2019 Q4	565109	-253
2020 Q1	550205	-14904
2020 Q2	443193	-107012
2020 Q3	521073	77880
2020 Q4	528902	7829
2021 Q1	522712	-6190
2021 Q2	552237	29525
2021 Q3	557698	5461
2021 Q4	563070	5372

[MDW1954]

There definitely wasn't 5 consecqutive quarters of negative growth, I believe the rather the chart shows annualized growth on a quarterly basis, so it was 5 quarters where total output was lower than the same quarter in the previous year (Q1 2020- Q1 2021).

The period of contraction was only Q1 and Q2 of 2020.

I think this page shows it more clearly
https://www.ons.gov.uk/economy/grossdom ... s/abmi/pn2

You're right. I emailed the ONS, and they confirmed it. For our purposes, I think the ordinary quarter-on-quarter time series is more useful.

MDW1954

[vand]

I've been thinking about this some more, and imo the Fed are going to contribute to push us into recession as they've left it too late and will be trying to tighten into a weakening economy.

If you are going to run a Keynesian programme to smooth out the ups and downs of the business cycle then the correct way is to do it counter-cyclically. You run tight monetary policy when the economy is booming and then loosen the policy when the economy begins to soften.

The Fed have got it completely wrong, they ran incredibly loose monetary policy even as the economy recovered from Covid lockdown and and then went into an epic melt-up (you've hear these stories of Walmart etc have to pay $30/hr), which stoked inflation.. now they are going to try tightening as forward indicators are all on an alarming downward trajectory:

https://www.newyorkfed.org/survey/empir ... y_overview
https://fred.stlouisfed.org/series/T10Y2Y
https://www.atlantafed.org/cqer/research/gdpnow

[vand]

https://home.treasury.gov/resource-cent ... nth=202203

03/24/2022 0.16 0.31 0.52 0.96 1.55 2.13 2.35 2.37 2.39 2.34 2.63 2.51

Points of Inversions all over the place now.

- 3yr,5yr & 7yr yields all higher than the 10yr
- 20yr yield higher than 30yr (and has been for a good while)

What's the chances that 6 months from now we're deep in recession, and looking back it was blatently telegraphed to us so obviously for anyone who was paying attention to the yield curve?

[NotSure]

[url][/url]
What's the chances that 6 months from now we're deep in recession, and looking back it was blatently telegraphed to us so obviously for anyone who was paying attention to the yield curve?

No expert myself, but not everyone is convinced by yield curve action (unlocked WSJ article):

Yield Curve Almost Flashes Recession, Maybe, but Who Knows When

Whisper it quietly, but maybe the yield curve isn’t quite as useful as many think as a recession alert

....There are issues with the correlation I’ll come back to shortly, but first think about the causation. Economic history has some pretty compelling explanations for many recessions, and it strains credulity to think the yield curve predicted at least two of them in advance.

The 1973-1974 recession was clearly caused by the Arab oil embargo that began in October 1973, after the U.S. gave aid to Israel to defend itself. The yield curve had inverted in March that year (data on two-year Treasurys doesn’t go back that far, but one-year yields rose above the 10-year), supposedly predicting a recession. Treasury traders hadn’t predicted the war or embargo, however, so how could they have predicted the recession?

The brief 2020 recession was equally clearly caused by the pandemic, and we all remember why. The yield curve had inverted in 2019, but even the most extreme Covid-19 conspiracy theorist would struggle to believe that bond traders had advance warning that Covid-19 was on the way....

https://www.wsj.com/articles/yield-curve-almost-flashes-recession-maybe-but-who-knows-when-11648118199?st=2jrz74c9dz42i4a&reflink=desktopwebshare_permalink

[vand]

[url][/url]
What's the chances that 6 months from now we're deep in recession, and looking back it was blatently telegraphed to us so obviously for anyone who was paying attention to the yield curve?

No expert myself, but not everyone is convinced by yield curve action (unlocked WSJ article):

Yield Curve Almost Flashes Recession, Maybe, but Who Knows When

Whisper it quietly, but maybe the yield curve isn’t quite as useful as many think as a recession alert

....There are issues with the correlation I’ll come back to shortly, but first think about the causation. Economic history has some pretty compelling explanations for many recessions, and it strains credulity to think the yield curve predicted at least two of them in advance.

The 1973-1974 recession was clearly caused by the Arab oil embargo that began in October 1973, after the U.S. gave aid to Israel to defend itself. The yield curve had inverted in March that year (data on two-year Treasurys doesn’t go back that far, but one-year yields rose above the 10-year), supposedly predicting a recession. Treasury traders hadn’t predicted the war or embargo, however, so how could they have predicted the recession?

The brief 2020 recession was equally clearly caused by the pandemic, and we all remember why. The yield curve had inverted in 2019, but even the most extreme Covid-19 conspiracy theorist would struggle to believe that bond traders had advance warning that Covid-19 was on the way....

https://www.wsj.com/articles/yield-curve-almost-flashes-recession-maybe-but-who-knows-when-11648118199?st=2jrz74c9dz42i4a&reflink=desktopwebshare_permalink

Granted, there may be an element of survivalship bias about the reliablity of the YC as a recession indicator.

The again.. it makes sense. If investors think that the short term is going to be tricky they are going to demand higher return than usual for lending money over that time period.

There is also the idea that short term interest rates - which are supposed to represent a claim on the available pool of resources, after all - move higher at the natural end of a business cycle, as the supply of factors of production that enable further economic expansion become increasingly scarce.

[BT63]

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202203

03/24/2022 0.16 0.31 0.52 0.96 1.55 2.13 2.35 2.37 2.39 2.34 2.63 2.51

Points of Inversions all over the place now.

- 3yr,5yr & 7yr yields all higher than the 10yr
- 20yr yield higher than 30yr (and has been for a good while)

What's the chances that 6 months from now we're deep in recession, and looking back it was blatently telegraphed to us so obviously for anyone who was paying attention to the yield curve?

I agree.
I've said a few times on other topics that I think it's very likely we will enter recession later this year.

Wages aren't keeping up with the cost of living. Interest rates are rising. Central banks are slowing down the money printing. Asset markets are cooling off and the positive wealth effect is fading.
People will have to cut back.

A recession is long overdue. This one has been delayed by a few years. It is said that for every two years a recession is postponed by monetary stimulus, it doubles the ultimate severity of the recession. We never really ended the post-2008 recession stimulus and now the monetary system is hopelessly addicted to easy money.
So the coming recession should be expected to be a long and/or deep one. We might even see inflation come right back down to target within a year due to the possibility of such a sharp slowdown and deep recession.

But if it happens, expect even more aggressive monetary stimulus to slingshot us back up again into the next bubble which will probably be an inflationary one leading to a gold mania like the 1970s.

[88V8]

A recession is long overdue. This one has been delayed by a few years. It is said that for every two years a recession is postponed by monetary stimulus, it doubles the ultimate severity of the recession. We never really ended the post-2008 recession stimulus and now the monetary system is hopelessly addicted to easy money.
So the coming recession should be expected to be a long and/or deep one. We might even see inflation come right back down to target within a year due to the possibility of such a sharp slowdown and deep recession.

But if it happens, expect even more aggressive monetary stimulus to slingshot us back up again into the next bubble which will probably be an inflationary one leading to a gold mania like the 1970s.

The media certainly not helping anything by stoking up the 'poverty' angle and making people feel hard done by.
As if it's the govt's fault and the chancellor should ride to the rescue.
Perhaps a bit of teeth gritting and economising might be more appropriate.
So if your prognosis is right, and I don't say it isn't, how are you skewing your investments?

V8

[BT63]

So if your prognosis is right, and I don't say it isn't, how are you skewing your investments?
V8

Hold precious metals for inflation, cash to pick up bargains during weakness or the probable long/deep bear market, boring slow-growth but relatively predictable shares for stability, UK index funds because UK shares are less expensive than most other international markets and aren't expensive based on longer-term UK valuation trends.

Avoid US shares because they are the most over-stretched of any nation and because American funny money fiddling has been more extreme than most other nations.
Be wary of bonds because of the unknown as to whether inflation becomes chronic (bad for bonds) or whether the economic shock leading to recession brings inflation back down again (good for bonds).

My portfolio hasn't significantly changed* since I reported on it at the end of 2021 and there's a bit of discussion on it in the link below:

viewtopic.php?f=56&t=32684

*Minor changes:
As mentioned in the end of year summary, I put part of the cash into additional precious metals miners on weakness several weeks ago and took profits and put the cash back in the reserve a couple of weeks ago after they jumped by 20-odd percent in a fortnight.
The overall impact on portfolio of that 'trading' would amount to maybe +1%.

[vand]

Short term rates have been increasing this week while long term rates have softening slightly - the result is that the key 10/2yr spread is on the brink of going negative.

Currently
10y 2.4331
2y 2.3947

Difference 0.0384

But I mean it's basically a rounding error of 0.0 now.

[vand]

We got all the way to inversion, at least briefly:

https://www.youtube.com/watch?v=3jyPf5CPgRA

[dealtn]

Short term rates have been increasing this week while long term rates have softening slightly - the result is that the key 10/2yr spread is on the brink of going negative.

Currently
10y 2.4331
2y 2.3947

Difference 0.0384

But I mean it's basically a rounding error of 0.0 now.

Key to who?

The inversion, in itself, means nothing to me either as an investor or an economist. The path and shape of the forward interest rate yield curve, and associated discount rates, are relevant, but that is coincidental to inversion in the spot curve, not primary.

[vand]

Short term rates have been increasing this week while long term rates have softening slightly - the result is that the key 10/2yr spread is on the brink of going negative.

Currently
10y 2.4331
2y 2.3947

Difference 0.0384

But I mean it's basically a rounding error of 0.0 now.

Key to who?

The inversion, in itself, means nothing to me either as an investor or an economist. The path and shape of the forward interest rate yield curve, and associated discount rates, are relevant, but that is coincidental to inversion in the spot curve, not primary.

It doesn't really surprise me that you are essentially dismissing the principle of the time value of money as meaningless.. up is down and black is white in lala land

[dealtn]

Short term rates have been increasing this week while long term rates have softening slightly - the result is that the key 10/2yr spread is on the brink of going negative.

Currently
10y 2.4331
2y 2.3947

Difference 0.0384

But I mean it's basically a rounding error of 0.0 now.

Key to who?

The inversion, in itself, means nothing to me either as an investor or an economist. The path and shape of the forward interest rate yield curve, and associated discount rates, are relevant, but that is coincidental to inversion in the spot curve, not primary.

It doesn't really surprise me that you are essentially dismissing the principle of the time value of money as meaningless.. up is down and black is white in lala land

For someone accusing another of "dismissing the principle of time value of money as meaningless" who has specifically said "the path and shape of the forward interest rate yield curve, and associated discount rates, are relevant" just demonstrates it is they with a difficulty of understanding the principle of time value of money.

Again then I ask. what is the specific relevance of an inversion of the 2 and 10 year points on a spot yield curve, with regard to either investment or the economy?

[GoSeigen]

Short term rates have been increasing this week while long term rates have softening slightly - the result is that the key 10/2yr spread is on the brink of going negative.

Currently
10y 2.4331
2y 2.3947

Difference 0.0384

But I mean it's basically a rounding error of 0.0 now.

Key to who?

The inversion, in itself, means nothing to me either as an investor or an economist. The path and shape of the forward interest rate yield curve, and associated discount rates, are relevant, but that is coincidental to inversion in the spot curve, not primary.

It doesn't really surprise me that you are essentially dismissing the principle of the time value of money as meaningless.. up is down and black is white in lala land

For someone accusing another of "dismissing the principle of time value of money as meaningless" who has specifically said "the path and shape of the forward interest rate yield curve, and associated discount rates, are relevant" just demonstrates it is they with a difficulty of understanding the principle of time value of money.

Again then I ask. what is the specific relevance of an inversion of the 2 and 10 year points on a spot yield curve, with regard to either investment or the economy?

This basic primer on yield curves by Moorad Choudhry may be useful to readers who are wondering what dealtn is talking about:

http://www.yieldcurve.com/mktresearch/files/choudhry_introtoyieldcurve_jan2008.pdf


GS

[MDW1954]

This basic primer on yield curves by Moorad Choudhry may be useful to readers who are wondering what dealtn is talking about:

http://www.yieldcurve.com/mktresearch/files/choudhry_introtoyieldcurve_jan2008.pdf


GS

Up to a point, GS. The key issue that I'm sure dealtn was alluding to is that no causative link has ever been proved, nor is it easy to hypothesise what one might be.

I hold three economics degrees, but have never been a practicising economist, and was in any case rubbish at macroeconomics.

Correlation is one thing; causation is another.

MDW1954

[MrFoolish]

I hold three economics degrees

MDW1954

Do you offer five different opinions?

[MDW1954]

I hold three economics degrees

MDW1954

Do you offer five different opinions?

I can do, if you're willing to pay for them.

MDW1954

[vand]

UK monthly GDP growth was +0.05% in February
This followed a +0.81% figure for January

https://www.ons.gov.uk/economy/grossdom ... bruary2022

It is not unlikely imo that when the March figure comes in we will see a contraction that could take the whole Q1 negative, given what we know happened to energy prices in March. Either way, I expect it to be weak, and it will certainly cause Sunak's 3.8% annual projection to be slashed.

[AsleepInYorkshire]

Is recession the worst of our fears?

Is stagnation hovering?

AiY(D)