Skip to main content

The debate over the economy has really heated up over the past few weeks since the Fed raised the funds rate. Some believe we are likely headed for recession. Others dismiss the idea out of hand.

Many times, these latter folks point to the yield curve as evidence there is no recession on the horizon.

But it may not be that simple. Certainly, corporate earnings, even outside of the commodity sector are now in recession.

And the corporate credit markets are also suggesting we may be near an important turning point in the cycle.

Other signs of economic activity have also slowed significantly including rail traffic…

…and industrial production.

On an anecdotal level, companies have been saying for months now that we are in an ‘industrial recession’ driven mainly by waning demand.

What’s more, equity markets around the world and here at home are now tipping their hand.

Few understand this dynamic better than George Soros.

But don’t take his word for it. When we look at manufacturing through the lens of the markets it has a 100%-accurate track record in calling recessions.

And as for that whole yield curve thing, it may not be as accurate as the Pollyannas may have you believe.

Why should investors care about the economy? Well, if this is more than your typical “growth scare” it may not turn out to be the greatest of buying opportunities.

In fact, if we are entering recession, risk assets like equities and corporate bonds probably have much farther to fall.