Source: Bloomberg, updated 8/14.
Reader Rick Stryker accuses me:
progressive economists are practicing a modern form of haruspicy, in which they compulsively examine the entrails of the economy that they are so willing to sacrifice to recession, desperately searching for some downturn prophesy that will be realized before 2020.
If I’m engaging in haruspicy, a lot of Wall Street economists are too. Bloomberg updated today:
Mounting signs of a global economic slowdown hammered stocks and drove demand for sovereign bonds to such an extent that shorter-term yields rose above long rates in the U.S. for the first time since 2007.
The S&P 500 sank 2% as the inverted gap in rates for two- and 10-year Treasuries flashed a warning that has normally preceded a recession. European shares plunged after Germany’s economy contracted in the second quarter, adding to angst fueled by weak Chinese retail and industrial numbers. Oil retreated, gold rallied and the dollar held steady.
Apparently, Trump’s trade war is as bad for the U.S. economy as no-deal Brexit is for the U.K. economy. Both countries are being run by fools while the legislatures of both democracies are impotent. How did this happen?
If we’re assuming it is indeed Brexit that is the base cause, and not British legislators’ inability to “sh*t or get off the pot” (not my personal position, but a rational arguing stance)—then we can get to the root cause of the problem in both countries—a poorly educated voting electorate.
Paul Mathis writes “How did this happen?”
It happened because the U.S. and U.K. are both democracies that have been attacked by an asymmetric warfare propaganda machine that has made it difficult for “ordinary folks” to sort fact from fiction, and reality from fantasy. A Brexit that doesn’t substantially hurt the U.K. was a fantasy from the get-go, and it was sold to the voters with lies. Now those voters are told to forget all the lies that led them to vote “leave”. Forget the fact that this is going to be disaster for the U.K. economy. We can’t have a second referendum because it would “thwart the will of the voters” or “undermine democratic principles”.
In the U.S. we were attacked with surgical precision to sway the votes of a small number of people in Michigan, Pennsylvania, Wisconsin, Florida, Arizona, and North Carolina. The Trump campaign sent voter level polling data directly to their Russian propaganda machine to target those low-information voters.
well stated dave. this is why trump does not want to allow discussion of russian interference in our election. it makes his win appear illegitimate. he is redirecting our election concern towards “illegal” voters, which does not appear to have occurred, so that we forget how the former soviet union used technology to sway our election to the soviet choice-trump. reagan must be rolling over in his grave to see how the republican party has embraced the soviet union as a means to win an election, unethically. rick stryker is quite proud of this deviant approach i am sure.
as for the british, the west needs to understand something important. russia implemented a propaganda war in great britain in order to destabilize the british and europe in general-and it worked. this was an attack on democracy, in essence a war with russia, and we still have not acknowledge the damage done. not only was the russian propaganda effective in coercing the vote, they were extremely effective in convincing the british that a democracy does not permit another vote on the issue. imagine that, a democracy which acts based on the outcome of votes, cannot consider another vote. especially after more information was collected regarding the russian interference and misinformation campaign the first time around. the russians won this first battle, and the west does not even know they were in a war. trumps blind spot with russians means they will continue their influence for another couple of years. it will be up to the europeans to defend democracy against russia.
“How did this happen?”
The “loyal” opposition since Nov 16 has pursued wild claims (if Fox news did it would be conspiracy theory) of treason against Trump, never mind their last president’s minions attempts to spy on his campaign.
That was easier than governing and debating real issues!
Trump’s trade war is why certain rust belt states went for him in Nov 2016. He is attempting to keep his plans, unlike getting out of Iraq never happening.
The “loyal” opposition ain’t so caring about the ship of state.
Pulling for bad results in the trade war is opening the loyal opposition to observations of siding with Xi.
How will that play in the rust belt?
“That was easier than governing and debating real issues!”
Come on – we know you are a Russian bot. But even a bot would know there are a host of important bills passed by the House. Speaker Pelosi is leading but Moscow Mitch has the Senate bottled up.
Or should we call you Moscow ILSM?
ISLM lies again “Pulling for bad results in the trade war”
No one is pulling for bad results in a trade war. We are merely pointing out that bad results are inevitable because the whole trade war is in fact NOT easy to win, and is entirely based on false premises and bad logic.
Stock valuations are declining. But in Rick’s world – when people buy more paper assets (bonds) and less real assets (stocks as a claim on capital goods), that somehow means economic activity has increased. Never mind we just described something that would represent a fall in investment demand. Of course people like Rick have no clue what we mean by investment.
Mortgage activity is up. Bill McBride sees that as a positive, and says he’s not on recession watch. I’m not so sure if it is a good sign. He also notes that the yield 2-10 yield curve went negative in 1998, about 2 – 1/2 years before a recession hit. So, it’s coming. It’s just timing we are trying to pin down. My fearlessly timid amateur prediction is early next year.
Mortgage activity may be up but note mortgage rates have declined:
https://fred.stlouisfed.org/series/MORTGAGE30US
The increase in mortgage activity is not necessarily an indicator of an increase in housing demand or even residential investment. A decline in the demand curve can both raise “activity” and lower the price of credit (mortgage rates). But let’s just hope that with low mortgage rates, we avoid a crash in residential investment.
Good point. And, McBride usually goes on recession watch as we are into a recession. I still respect his opinion.
https://www.housingwire.com/articles/49848-mba-refinances-skyrocket-as-mortgage-rates-plummet
This is more dated, it’s from early June:
https://www.housingwire.com/articles/49250-the-annual-rate-of-home-price-appreciation-falls-to-a-7-year-low
Willie My reading is that a lot of the increase in mortgage activity is simple refinancing as those with mortgages try and lock in lower interest rates. Since a lot of the mortgage interest deduction went bye-bye with the Trump tax cut for the rich, the interest rate threshold for refinancing mortgages is probably lower than it used to be. The NIPA data has continually shown anemic private residential construction investment.
https://fred.stlouisfed.org/series/MPCV00XXS
I’ve been on the fence about the likelihood of a 2020 recession, but the confluence of godawful economic data that we’ve been seeing over he last 6 weeks is nudging me off the fence. I still don’t know about an outright recession, but any hope of sustained 3.5% – 4.0% growth as Trump & Kudlow (and Rick Stryker!!!) promised is clearly off the table. We will be lucky to average 2% growth over the next 6 quarters.
It will feel like recession to the average person. Trump postponed tariffs in an attempt to salvage holiday sales. It might work. That also means the hangover in January will be worse because the bills will be due when tariffs kick in. Provided that Trump does not wimp out. He usually seems to and I sure hope he does this time. I do not want him reelected, but the welfare of others in this country is, and should always be more important than political gain.
“Trump postponed tariffs in an attempt to salvage holiday sales.”
now i was under the impression that we were winning the trade war, so this truce was not necessary. in addition, i have been told that china is the one paying these tariffs. it just seems to me rather strange, from what this administration has told me, that the trump administration would go out of its way to weaken its hand over the holidays when apparently we are doing just fine as is. almost seems like trump is negotiating with himself, if anybody at all.
Haruspicy
I have learned a new word and from a Yank.
wow.
Inverted yield curves which come about from bond yields falling and not short rates rising from Central Bank intervention do not have the same impact.
Don’t make us get tough with you mate. We will force-feed you barbecue kangaroo if it goes to extremes.
https://youtu.be/VhUReKNHn7w?t=35
Why didn’t I listen to Mike Pence in McAllen Texas when he warned us about these damnded furners??
Rick Stryker is a Yank? I thought he was a Russian (bot).
You have some recalcitrant trolls.
I prefer the more lengthy descriptor “socially and emotionally immature”. Please remember for future reference, my troll legacy is of the utmost importance to me.
Damn, there’s no professional courtesy anymore for the hardworking troll. What kind of barbaric society have we become since the golden days of yore??—or as the Greeks once called it “The Halcyon Days of the Troll Ethos”??