Mr Duy’s post this morning was a bit longer than normal yet worth every character … his summary took me by surprise (see my bold below)
Bottom Line: I agree with the assessment that risks to the economy have grown in the past 6 months. Boiled down to the essentials, the economy is slowing to trend and the multiplying downside risks leave it vulnerable to slowing below trend. The yield curve is telling me that these shocks will not overwhelm the Fed. Powell & Co. can still sustain the expansion and are expected to do so. “Expected” is key of course; the slower the Fed moves, the more likely they are to miss the opportunity to avoid recession. A policy error is a very real potential outcome here. To enhance the odds of avoiding recession, I would advise the Fed to get a 50bp cut done at the next meeting. While I fully expect the Fed to ease at the September meeting, at the moment the Fed seems likely to stick with the less aggressive 25bp cut.
I’m watching these variables and the subsequent analysis as a guide to when / how much to gather more bonds / t-bills / utility stocks.
Update 8-15: Mr Duy updated his post yesterday given the bucket of economic data today fit into his paradigm perfectly – quote: “Bottom Line: It remains too early to see a recession in the data. It’s reasonable to worry about the pessimistic signal from the yield curve but even if it does foreshadow recession, a recession call now is likely still too early. “