There is a setup for a strong economic contraction, the cycle seems to be rolling over right now but it might take a bit of time yet.

by SpontaneousDisorder


The main indicators to look for will be a severe drop in the stock market and steepening of the yield curve.

The yield curve is quite flat, the 5yr/2yr is inverted but the rest is not. But a steepening of the curve would probably still be a strong indicator the economy is going to contract.

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Stock market valuations are historically high and a severe fall in stocks will indicate recession. (mainly because societies shared social mood influences peoples decisions in the economy/financial markets and this is reflected in stock valuations). This measure of valueations has a -.89 correlation with subsequent returns)

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Stock prices and recessions

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Much of GDP growth has come from a reduction in unemployment from very high to very low levels. Productivity is not improving greatly so a change in the unemployment situation will easily tip the economy into contraction. Scroll down to the section on growth….

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Unemployment is not increasing yet but its already extremely low.


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