Turn on the TV or spend any time on Twitter and you will be comfortably, numbly, reassured that everything is awesome – stocks are up (well FANGs are up), confidence is up (as is credit card debt), and the economy is “SOARING” (as long as you don’t pay attention to the weakness in income growth). However, reality is that the so-called economic data that the mainstream relies upon is ‘soft’ survey-based perceptions skewed by ‘hope’ and ‘expectations’, and while that is rising once again, ‘hard’ real economic data continues to languish awkwardly unchanged from the start of President Trump’s reign..
And while facing reality, especially as cognitive dissonance is running so hot, Bloomberg’s Jacob Bourne has a timely warning that many will choose to ignore – Despite the momentum in the U.S. economy (solid jobs data, a robust earnings picture, fiscal stimulus), markets are trading like the next recession is drawing closer.
Bloomberg’s markets recession model, which translates how various asset classes are trading into recession probabilities, now flags the next recession to take place in 12-24 months. More importantly, the start of the recession is more likely to be in the next 12 months rather than in two years.
Of course, this will not be discussed among the ‘experts’ because – simply put – there is always a risk that this becomes a self-fulfilling prophesy; after all, if enough people worry about a recession and shun riskier assets, they end up raising funding costs for corporations, resulting in the recession they were so worried about — the perennial problem of the Keynesian beauty contest that characterizes the global economy.
With markets the ultimate judge of the contest, it all depends on how the world’s central banks react to the market signals… and if they do react, will that shatter the veil of ignorance so many traders rely on when they BTFTWD!!??