Saturday, September 10, 2016

New Deal Demoncrat - the next US recession is now further away.


New Deal Demoncrat - the next US recession is now further away. Facts:

A few months ago, I wrote that a reasonably likely road map to the next recession looks like this:

1. Interest rates continue to fail to make new lows.

2. House prices and stock prices stop meaningfully appreciating.

3. Inflation picks up to 2% or more as energy prices begin to go up again.

4. Maybe - the Fed raises rates in response to increased CPI readings, perhaps enough to invert the yield curve.

5. Corporate lending stalls, housing turns down, and consumer spending begins to turn down, resulting in a recession.

Since that time, Brexit caused treasury and corporate bond yields to reach new lows -- but, tellingly, not mortgage rates:




House prices acceleration has weakened, but a surge in new home sales makes me think that appreciation will resume soon:



The stock market has also made new highs:



Energy prices may well have bottomed, as the YoY change in gas prices has abated to less than -5% (compared with -15% or -20% a year ago):



And commodity prices in general as measured by the PPI have increased, although the CPI is still nowhere near 2% or higher:



The Fed is again sounding hawkish, although a September rate hike seems to be off the table.

So you guys go ahead and keep selling the S&P. I'll buy it off you a few more points from now.


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