Morning Report: 70% chance of a recession in the next 6 months?

Posted on February 6, 2020 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 3347 13.25
Oil (WTI) 50.88 1.02
10 year government bond yield 1.65%
30 year fixed rate mortgage 3.68%

 

Stocks are up after China announced they will cut tariffs on about $75 billion in goods by mid-month. Bonds and MBS are flat.

 

Announced job cuts doubled in January, according to outplacement firm Challenger, Gray and Christmas. Note that this is generally a weak employment indicator, as it focuses only on announced job cuts in press releases, which may or may not happen. Separately, initial jobless claims fell to 202k.

 

Productivity rose 1.4% in the fourth quarter, while unit labor costs rose by the same amount. The Street was looking for a 1.5% increase in both. Manufacturing productivity fell by 1.2%, which probably was Boeing-related.

 

JP Morgan Chase is entertaining getting back into the FHA business. JP Morgan had scaled back their FHA lending because of “aggressive use” of the False Claims Act, which resulted in large fines, and basically made the business too risky. Talks are still at the initial stage, but appeared to have been driven by a Trump Administration policy that will not penalize lenders for immaterial errors. JPM CEO Jamie Dimon said that the Obama Administration’s use of the False Claims Act to extract massive penalties for underwriting mistakes wiped out a decade’s worth of profit for the business.

 

Punchy bet: There is a 70% chance of a recession in the next 6 months, according to a study by State Street and MIT. They fit a model based on industrial production, nonfarm payroll growth, the slope of the yield curve, and stock market returns. They looked at over 100 years of data and concluded that the current set of circumstances would see a recession within 6 months about 76% of the time. FWIW, this sounds more like a “gee-whiz, look at what our model predicts!” sort of scenario than a real forecast. For starters, the economy is much less sensitive to industrial production than it was a century ago. Second, the yield curve’s behavior is being manipulated by unprecedented action out of central banks. Financial repression (the name for the central bank’s mission to push rates lower) also is pushing money into the stock market. This sort of activity was unthinkable even 15 years ago, so historical comparisons should be treated with caution. In other words, take this survey with a boulder of salt.

Filed under: Economy, Morning Report |

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30 Responses

  2. jnc4p, on February 6, 2020 at 10:44 am said:

    I’m surprised that Bloomberg still remaining as CEO of Bloomberg News hasn’t gotten more coverage, especially since they have a stated policy of refusing to investigate him, his company or his foundation which they have now extended to his Democratic rivals in the primaries.

    Trump of course is still fair game.

    https://www.axios.com/bloomberg-news-coverage-campaign-fc5f99a5-457f-49ab-8e94-986a971f892d.html

    I can only imagine the PL hysteria if Trump was in this position.

    Liked by 1 person

    Reply
    • Kevin S. Willis, on February 6, 2020 at 2:45 pm said:

      Yeah. Still, I think we’d hear a little more about it if (a) he was the nominee or (b) he was doing better in the primaries. Someone would start bitching about him buying the election and using his ownership of Bloomberg news to get undeserved coverage.

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    • markinaustin, on February 7, 2020 at 12:21 pm said:

      Bloomberg could dwarf Trump’s conflicts issues. If Ds become enamored of him they will call upon him to have his LP divest the corporate entities and and make public offerings. At least the left will.

      So I don’t think Mike’s game plan is to become the nominee. I think it is to become the kingmaker, and to use his leverage on the floor of the D National Convention. Many local pols over the last decade have directly enjoyed his largesse; you could look it up. These people will be on the floor. Bloomberg will veto Sanders or Warren, if either is still in the mix.

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  3. jnc4p, on February 6, 2020 at 12:54 pm said:

    This should prove interesting:

    “Trump Suspends Global Entry Travel Program in New York in Retaliation for State’s Driver’s License Law

    By Elliot Hannon
    Feb 06, 2020”

    https://slate.com/news-and-politics/2020/02/trump-suspends-global-entry-travel-program-new-york-drivers-license-law.html

    Like

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  4. jnc4p, on February 6, 2020 at 2:12 pm said:

    NoVA, you do realize you were being trolled/gaslighted by another Cons sock puppet?

    Like

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  5. novahockey, on February 6, 2020 at 2:24 pm said:

    Do’h. which one. the green-leaf guy or the I can’t understand percentages guy?

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    • jnc4p, on February 6, 2020 at 2:29 pm said:

      Both. And I suspect that “Doug Clement” is another false flag sock puppet he created to debate with himself.

      The guy has issues.

      Intentional obtuseness is always his tell though.

      Liked by 1 person

      Reply
  6. Let the mutherfuker burn!, on February 6, 2020 at 3:23 pm said:

    Really good point.

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  7. Let the mutherfuker burn!, on February 6, 2020 at 4:20 pm said:

    Lol!

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  9. lmsinca, on February 6, 2020 at 7:16 pm said:

    You all might remember how hard I fought for Obama because I thought we might have a chance to achieve some kind of advance to health care for all, even if it cost us…………LOL I’m not a socialist.

    Guess what? I’m back again to fight for it and to keep Trump from winning. I’m just now late to the party and am looking for the best candidate to beat him……….

    Doing my research this weekend and I might have a pick by Monday………lol

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    • Kevin S. Willis, on February 6, 2020 at 8:44 pm said:

      Tulsi Gabbard!

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      • lmsinca, on February 6, 2020 at 9:12 pm said:

        Kevin, I’m being serious and you’re promoting someone who has no chance……………..

        Not sure where I’ll land but it won’t be there……

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        • ScottC, on February 6, 2020 at 11:06 pm said:

          lms:

          …and you’re promoting someone who has no chance…

          That’s what they said about Trump. (And to be fair, at this point it doesn’t seem like any of them have a chance.)

          My guess is the person with the best chance against Trump is Bloomberg. Trouble is whether he can win the Democratic primaries. He’s not a socialist, which doesn’t bode well on that front, but he is an authoritarian, so he has that going for him!

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        • Brent Nyitray, on February 7, 2020 at 10:00 am said:

          Bloomberg has some thoughtcrimes in his past. The LGBTQ lobby is going to have a tough time signing off on him

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        • jnc4p, on February 7, 2020 at 10:10 am said:

          I’d consider voting for him if he weren’t so anti gun rights.

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        • lmsinca, on February 7, 2020 at 10:25 am said:

          I agree re Bloomberg’s issues with LGBTQ rights but as you probably know I would support his changes to gun laws. Doubt they would ever pass though. Where is the perfect candidate for LMS?

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        • ScottC, on February 7, 2020 at 2:27 pm said:

          lms:

          I agree re Bloomberg’s issues with LGBTQ rights…

          What are those issues?

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  10. lmsinca, on February 7, 2020 at 8:55 am said:

    Actually Scott, Bloomberg is who I’m leaning toward but not because he is an authoritarian…………….aren’t most Presidents?

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