Paulsen Warns "This Happened Prior To 6 Of The Last 7 Recessions"

“This less-followed indicator has a good enough relationship with recession risk during the last 50 years that it should not be ignored,” warned Jim Paulsen, Leuthold’s chief investment strategist, in a note to clients this week.

Having warned last week that "it's been too quiet, for too long," Paulsen now sees the potential catalyst for the market's next move as low-rated investment-grade credit spreads blow out beyond an historically crucial level.

As Bloomberg reports, for the first time since just prior to the 2007-2009 recession, premiums on the lowest-rated tranche of investment-grade U.S. corporate bonds have risen to 2 percent after being below that level, according to data compiled by the Minneapolis-based research group.

The analysis looks at the gap in yields between corporate debt rated Baa by Moody’s Investors Service and those on 10-year Treasuries.

“We are not sure why a 2 percent credit spread has been so prescient in predicting recessions since 1970,” Jim Paulsen, Leuthold’s chief investment strategist, wrote in a note to clients Monday. That happened either during or prior to six of the past seven recessions, he said.

Given that the “subpar” economic recovery has relied on unconventional monetary policy and fiscal stimulus, “would it be shocking if it ended before traditional recession indicators provided warnings,” he wrote.

Of course, this trend fits with the recession-imminent warnings coming from the Treasury market...

But, according to CNBC, you can ignore that 'never-been-wrong' indicator because this time is different due to ECB/BoJ bond buying.

Comments

fightapathy Wed, 07/11/2018 - 15:07 Permalink

I only clicked on this article to complain about ZH headline writers. WTF are they reading like bad click-bait spam from Nigeria? Look, go back to 2010-ish when Loki was doing real work here. Learn from someone who knew how to write.

shining one spanish inquisition Thu, 07/12/2018 - 06:13 Permalink

The last "recession" never ended. Remember all the cuts on spending and tax rises all in the name of "austerity" that swept the west in 2010 ? That in my opinion was just another ruse to reset the base line for the next round of lies. Has anyone demanded that now the economies are doing better they undo those restrictive measures ? 

 

 The same thing happens with oil. The price of oil slowly goes up, or rapidly due to some "threat of war", so they increase the price of petrol and your gas and electric bills and shopping costs. When the oil price goes back down, do they put the prices back down ? Do they hell.

In reply to by spanish inquisition

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In reply to by shankster

lew1024 Wed, 07/11/2018 - 15:09 Permalink

The Great Depression began after the Smoot-Hawley tariffs were passed. World trade was at 5%, and did not recover to that level until the 1950s.

Debt was a fraction of 2018. Thus, World Wide Greater Depression is upon us.

This is a time when great fortunes are lost in the stock market, not made.  They are made buying at the nadir.

 

SH_Resurrected Wed, 07/11/2018 - 15:17 Permalink

Hey, Mr. Article Writer, were any of the previous 7 recessions preceded by unprecedented, market-distorting central bank intervention?  If not, then how would the introduction of the aforementioned intervention play into your doom implication?

taketheredpill Wed, 07/11/2018 - 15:36 Permalink

 

Expect the market "event" to be Credit related.  Investors can debate where the right level of the equity markets should be, especially with Fed at your back

 

But if a bond payment is due tomorrow...it is due tomorrow (whether ISDA decides it is/isn't a default is another debate).

helloimjohnnycat Fantasy Free E… Wed, 07/11/2018 - 16:09 Permalink

You know, if Hard Times did hit and the worthless, cheating, conniving fat fuckk used-to-be-Americans wanted to keep eating & survive, I'm of the opinion they'd have to get off their fatt-fuckking asses and do something other than expecting a fatter, more worthless, more connected cheating & conniving goddamned zio-kike-joo-peeg-bolshevik Wall Streeter to continue stealing and tossing a few Dorito$ downstream.

Don't expect any of the above to happen. Printing the fiat is too easy for the heebie shysters and the fatt-fuckks are glued to their nasty, moldy couches.

If God said to me : " John, I will grant you Eternal Life if you take out Michael Moore. ",  I'd have to ask,  " Now just how in the Devil will I recognize him ? Fatt fuckks are like your universal mistake.  You know, those Goddamned things called niggers.  To my 13 Stars on 2 Crossed Bars eyes, all niggers and all fatt fuckks, respectively, look the same.

The cat would definitely get God's tongue and he'd probably agree and add .... OK, smart ass, you're right. For playing along, I'm going to give you a few extra years. And because I know you don't want to harm any living thing, I'm throwing in a bonus package. That's right, don't worry about needing Obamacare. I must have been tired when the mulatto's shitola passed. I'll be taking care of the fraud in due time. Things around here are pretty hectic and the big wheels don't turn easily. Have a Nice Day.

In reply to by Fantasy Free E…

tunetopper Wed, 07/11/2018 - 16:24 Permalink

There are NO historical correlations that are appropriate to today.....

1) all money is debt money. 

2) Banks are only one source of capital. eg. Non Banks, Payment processors, Crowd Funding, Commercial REITs, hedge funds, P/E's

3) Gold as a store of national wealth is passe' and even Cryptos are considered by many as a store of value

4) Every asset class is, well, simply another place for currencies to flow- rather than a unique store of value class of assets.

5) A bond pays 2-4% Stocks grow and /or pay a dividend of 2-6% (or more).  Real estate grows and/or throws off positive cash flow of 4-6%... so no differentiation of risk/return 

6) The SEC is no longer required to police corporate citizens using paid whistleblowers, if the 10K's make any mention of related troubles. 

7) Corporations ARE citizens, but with unlimited influence in elections. 

Chief Joesph Wed, 07/11/2018 - 18:34 Permalink

These charts are totally meaningless.  Don't they know how to do trend analysis at Leuthold’s ?  Is there anyone on staff that is qualified in statistics at all?  These guys are really amateurs.  What's more, where are the assignment of confidence values?