Are We on the Brink of a Recession?

The chorus of financial news powerhouses, economists and finance professionals is reaching a veritable crescendo, with many sounding recession alarms as they watch U.S. and global markets. Quibbl asks: Should we be worried? 

By Andrew Prescott Kingsbury with Ben Purcell
recession
Rest assured, your fake Quibbl money is recession proof

Remember…

Consider…

  • The Shiller P/E (Price to Earnings) ratio, a highly-respected metric created by Yale Professor and Nobel Laureate Robert Shiller, is throwing up a red flag. The Shiller P/E ratio lets investors know when stocks are overvalued relative to historical averages; the indicator’s highest point right before the 2008 market crash was just above 27. During the second week of July 2017, the metric broke 30.
  • The country’s housing markets may be peaking or cooling as more buyers grow wary of significant, rapid price increases for homes. Home prices have increased so much that the real estate market is in danger of overheating. On July 24th, the Wall Street Journal reported that “U.S. existing-home sales fell in June,” pointing to a slowdown in the real estate market during summer, the busiest season of the year.
  • The yield curve for bonds is also considered a predictor of whether the economy is headed up or down. The yield curve is currently inverted–a cautionary sign for investors. An inverted yield curve means that short-term U.S. treasury bonds yield higher returns than their long-term counterparts (e.g., 10-year treasury bonds), which essentially suggests low confidence in the long-term potential of the U.S. economy.
  • Warren Buffett’s indicator, which measures the total value of the stock market (also known as “market capitalization”) in relation to U.S. GDP, is also sending bad vibes. Ideally, the two values are somewhat balanced, but Buffett’s metric currently shows a runaway stock market 35% higher than its counterpart. Just prior to the 2008 financial crisis, the market outpaced GDP by only 10%; right before the dot-com crash, the market was ahead by a whopping 48%.
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Along with the Shiller P/E ratio and the bond yield curve, another major economic indicator is the Freeze-Dried Strawberry Scale (F-DSS),  which estimates the weight of food stored in preppers’ underground bunkers

Listen…

  • Arguments over the possibility of an impending recession aren’t as much about the left wing vs. the right wing as they are about alarmists vs. non-alarmists.
  • Alarmists (or, alarmists!) look at the economy and can’t help but see what Greg Ip at The Wall Street Journal sees: “If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm. In other words, it would look a lot like the present…”
  • Specifically, Ip’s WSJ colleague Steven Russolilo points out the fact that “major indexes haven’t gone a calendar year without a pullback of at least 5% in at least 30 years.” Thus far in 2017, the U.S. stock market has yet to have a market correction of 5%.
  • Unfortunately for their counter-arguments (and for our very way of life), non-alarmists are in the minority. CNBC’s Michael Santoli tries to look on the bright side: “The good news: While there are some parallels between July 2007 and 2017 — elevated equity valuations, a mature economic expansion, high corporate debt levels and broad expectations of improving earnings in the year to come — the crucial factors that presaged the ’07 market peak are not present.”

Bets

Quibbl wants to know the answers to these questions about the economy. Click the links to learn more and to predict what’s going to happen. So…now that you’re smart about money…start gambling! 

Will the U.S. economy enter a recession? Quibbl here

What record heights will the stock market reach by the end of the week? Quibbl here

How many weekly jobless claims will be reported on July 28th, 2017? Quibbl here

When will the next market correction occur? Quibbl here

How high will the stock market’s price to earnings ratio go? Quibbl here

Will Fed Chair Janet Yellen be reappointed by Pres. Trump? Quibbl here

Will Amazon beat earnings expectations? Quibbl here

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