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Waiting for the spark that sets off the new recession
What the stock market knows that you don’t
Lately, the stock market has been on a wild ride. In October, the Dow dropped so far that all the gains of 2018 were erased. A brief recovery followed, but as of a few days ago, we are again in negative territory for the year. Indeed, when I checked earlier today, all three stock indices are down.
How could this be? To listen to Donald Trump, everything is great. But the stock market is not so convinced. In fact, they are very concerned about the economy’s near-term and longer-term future.
In the short term, economic indicators are all pointing toward recession. The recent jobs report was disappointing, and highlighting this trend was GM’s announcement that it was laying off 14,000 employees. The yield curve, which compares short-term with long-term interest rates, has become extremely flat, indicating that investors are concerned about the future. For most of this year, economist Robert Schiller of the famed Case-Schiller real estate index has warned that we are in another housing bubble. In fact, this is currently the third highest bubble since 1913, the first, of course, resulted in the 2008 Great Recession. And the only reason this housing bubble has not gone higher is that real wages have not risen enough for most people to…
