The Chart That Convinced Albert Edwards A Recession Is “Imminent”

Thursday, January 10, 2019
By Paul Martin

by Tyler Durden
Thu, 01/10/2019

Over the weekend, we pointed out a concerning statistic: it’s not the rate hikes that stifle economic growth and send stocks sliding that traditionally telegraph the start of a recession – it’s the first rate cut following a tightening cycle that is usually the trigger. Case in point: the last three recessions were all preceded with the Fed cutting, i.e., the Fed loosened policy within three months before the previous three recessions, cutting by 0.25% in 1991, 1.5% in 2001 and 0.5% in 2007.

This is also the key point made by SocGen’s Albert Edwards in his latest report which, perhaps not surprisingly, warns that the Fed is now too late to save the economy, to wit: “the Fed eases immediately prior to a recession”, which is also why the steepening yield curve we are experiencing now is a far more ominous reversal to the recent flattening trend than if the curve had merely continued to flatten.

Elaborating on this point, Edwards says that last Friday’s “abject capitulation from Fed Chair Powell” was surprising, and while the SocGen strategist agrees that there was a level of equity market weakness that was always going to generate a re-introduction of the fabled Fed put, Edwards says that he “thought it would take a lot more than a 20% decline in equity markets for Powell to re-embrace the Fed put like a long-lost friend”, especially after Powell’s post FOMC reiteration that QT was on
autopilot. As a result, the subsequent collapse of expectations of Fed tightening has resulted in a far steeper the yield curve.

And the punchline for why the SocGen permabear is convinced an “imminent recession” is coming: “this curve steepening, after a period of pronounced flattening, is a good indication of imminent recession despite continued strength in the labour market.”

The Rest…HERE

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