Are we headed for a recession? Yes
Deutsche Bank released a study that lays it out in no uncertain terms: we have almost no chance of escaping a recession in the next 12 months.
a) 1986 was the only episode over the past 60 years in which U.S. corporate margins declined (from 8.6 percent in the second quarter of 1984 to 6.7 percent in in the fourth quarter of 1986) without this leading to a recession
b) it was the only episode over the past 40 years during which capex growth turned negative (driven by falling energy investments) without this leading to a recession
c) it was the only episode over the past 30 years in which speculative default rates rose meaningfully above 5 percent without this leading to a recession.
Amazingly investors are betting on a repeat of 1986, despite the fact that a) the credit cycle was only four years old in 1986 (it's seven years old today), and b) the Fed cut rates by 550bps and the US dollar dropped by 40% after the Plaza Accord, boosting export growth. in 1986 (with rates near zero that can't happen today).
The Federal Reserve's Labor Market Condition Index (LMCI), which gives a broad view of the momentum of the jobs market, turned negative in August compared with the year earlier, and in five of the seven occasions that's happened over the past 40 years such a decline has coincided with the onset of a recession.