U.S. economy ‘may be a lot sicker than people believe’

By | August 14, 2019

Politico reports:

Wall Street hoisted another hurricane warning on the economy on Wednesday as fear continues to rise that a recession could arrive by next year, potentially crashing into President Donald Trump’s attempt to win a second term.

This time, the warning came from the bond market where investors began to demand more interest on two-year Treasury debt than 10-year debt, an “inversion” of a measure known as the yield curve that last happened in 2007 before the financial crisis. The fresh scare helped drive the Dow Jones Industrial Average down 800 points, or three percent, and spurred Trump to cast blame on the U.S. Federal Reserve in a series of afternoon tweets.

It sounds like a wonky bit of financial arcana. But it’s a closely watched gauge. And it has investors freaked out.

An inversion in this corner of the bond market has occurred before every recession since the 1950s, raising the potential for the 2020 election to look more like 2008 when a cratering economy dominated the political debate. That could derail Trump’s plans to make 2020 more like 1984 when Ronald Reagan ran a “Morning in America” campaign based on faster growth.

“You have a little bit of panic going on here about the state of the economy and the bond market is reflecting that,” said Richard Bernstein, founder of investment firm RBAdvisors. “The bond market is telling you that growth is slowing and the economy may be a lot sicker than people believe.” [Continue reading…]

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