People that get too involved in the Mueller Report and the latest polls often forget that the most important political indicator is the economy.
And the economy is due for a recession.
With the bull market now the longest in US history and the US economic expansion set to become the longest in history in July 2019, many investors have been fearful that a recession and bear market are “overdue”.
While neither a bull market or expansion die of old age (according to a study by the San Fransisco Federal Reserve), the economic fundamentals have now deteriorated to the point that a recession does indeed look likely (75% to 90% probability) within the next nine to 16 months.
The yield on theU.S. 10-year Treasury noteon Friday dipped below the yield on the 3-month paper. It was the first time since mid-2007 that the yield curve — which plots bond yields from shortest maturity to highest and is considered a barometer of economic sentiment — inverted.
The U.S. Treasury yield curve has inverted before each recession in the past 50 years and has only offered a false signal just once in that time, according to data from Reuters.
Yields in Australia and New Zealand dropped to record lows after a closely-watched part of the U.S. curve inverted on Friday as investors wager that the Federal Reserve will need to cut rates. Trading volumes in Treasury futures were double the norm during Asian trading, while Japan’s 10-year yields fell to the lowest since 2016.
“Bond markets globally, along with dovish central banks, have been telling us a slowdown is on the way,” said Jeffrey Halley, senior market analyst at Oanda Corp. in Singapore. “Some parts of the world will be better equipped than others to handle this. The U.S. can at least cut rates and apply monetary tools, while things could be worse for Europe and Japan, where they cannot.”
The key here is the line "The U.S. can at least cut rates."
Europe and Japan, with already stalled economies, have nowhere to cut.
In the wake of an unexpectedly ultra-dovish shift by the Federal Reserve and weak European data, many investors are reassessing the outlook for growth. That’s sparking demand for safe-haven assets, which helped trigger an inversion of the U.S. yield curve on Friday -- a dynamic that itself is compounding market fears.
The bond rally sent a Bloomberg index tracking outstanding negative-yielding debt past $10 trillion on Friday. It edged up again on Monday, and is hovering at the highest level since September 2017.
Europe and Japan will have no monetary options to any downturn.
America isn't in a much better situation (with historically low rates).
Forget Russiagate. Forget the polls. Forget everything else.
When the economy turns south, and it will, all of the narrative and spin will go out the window.
The working class hasn't had a raise for the entire expansion. They are unlikely to tolerate the recession for long.
Because the working class didn't participate in the expansion, the most likely weak spot in the economy is in corporate bonds.