Wednesday, May 24, 2023

"Rarely Has the Gap Between The Bull & Bear Case Been So Wide: Who's Right? Can Both Be Wrong?"

 From Joe Carson's The Carson Report, May 21:

Rarely has the gap between the bull versus bear case on the economy been so wide. The bulls say the advance in the broad equity market, despite its narrow breadth, argues against a recession in the second half of this year. Yet, the bears say that the trusted inverted yield curve indicator, or the spread between 3-month Treasury bills and the 10-year Treasury note, shows the most inversion in almost 50 years, signaling a recession in the months immediately ahead. Who's right? Can both be wrong?

The bull/bear case rests on the housing sector. A sharp decline in housing construction, between 40% and 80% from cycle peak levels, preceded the start of every recession. That, in turn, triggered a sharp drop in jobs, income, and spending. Only once in the post-war period did the economy enter into recession without a sharp plunge in housing construction. That happened in 2000 when the tech-equity bubble burst, triggering a series of corporate bankruptcies and a two-year decline in capital spending.

None of that is happening nowadays....