On Tuesday, on our weekly webinar, we showed a number of indicators that historically have preceded recessions in the US.
(you can listen and view more on that here: http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html )
The probability of a recession is rising, the current cycle is coming to its inevitable conclusion and only a few indicators are yet to turn lower.
One of the final pieces to the puzzle will be the US Federal Reserve: as it has been in the past, they have raised interest rates forcing short-term bond yields to rise and flatten the yield curve and subsequently tip the economy into recession:
This may happen in June or perhaps in September, when they determine that, despite slowing economic growth and an uncertain consumer, the prospect of inflation and robust employment growth outweigh all the other signs (declining corporate profitability and business outlook) and leaves them little choice, because their dual mandate of full employment and price stability will be the final determinant.
The big problem is the fiscal austerity that has come with political deadlock and the polarization of the two parties away from the compromising middle.
So it will not, ultimately, be the central bank who bears the responsibility (as they will have little choice), but the failure of the US political system (or the politicians themselves, failing to find a way to work through their differences for the benefit of the economy).
We may have our issues in the Great White North (like cold winters, that give us snow and freezing temperatures in late April), but we have managed to at least free ourselves from political gridlock, where whether we like it or not, things are getting done at the federal level.
Unfortunately, our economic wherewithal is still somewhat closely tied to the largest economy in the world that lies to our South, so a recession there (although it likely won't be as long and as deep this time around), will be impactful on Canada.
We should prepare ourselves. It is likely only a matter of time.
We will prepare our client portfolios appropriately.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist