Back on March 23, 2019, I wrote a post titled, “Special Alert: Recession Indicator Triggered”.  The yield on the 10-year bond fell below the yield for the 3-month note.  This held for about a week and then went back to “normal”.

The two key benchmarks briefly inverted again last week during intra-day trading, but the 3-month yield was lower again when trading closed for the day.  Now the yields have inverted again at close, which just adds confirmation of trouble ahead.

The official closing on May 13, 2019, according to the Treasury’s website, put the 10-year yield at 2.40% and the 3-month yield at 2.41%.  They are rounded off to the nearest one-hundredth of a percent. They are essentially the same, but still another official inversion.

This happened after Trump’s trade war with China blew up.  Trump stupidly hiked tariffs on Chinese products, so the Chinese government retaliated with their own stupid hike in tariffs.  It’s like if I shoot myself in the foot, and you retaliate by shooting yourself in the foot.

That analogy is not exactly correct though because the people hiking the tariffs aren’t the ones feeling it the most.  It is the consumers who live under the politicians’ rule.

Then again, although American consumers are suffering for Trump’s stupid tariffs, Trump is hurting himself too.  As I just wrote in a post last week, Trump is triggering a fall in the stock market, which might just coincide with a coming recession. I don’t think tariffs, while harmful, will actually cause a recession, but it doesn’t mean that others won’t see them as causing a recession.

So just as the Democratic presidential race is getting underway, Trump is hiking tariffs while we face a high likelihood of recession.  That doesn’t make it promising for Trump in 2020, and it is his own stupid fault.  He’ll be lucky enough if Pompeo and Bolton don’t start a war overseas, but he is still in trouble even if he can somehow contain them.  Trump doesn’t understand economics, and it may be his downfall.

Trump thinks of himself as this great negotiator.  And maybe he was when it came to real estate deals.  But working in government is a different ballgame. Negotiation in politics usually means pointing a gun at someone, and it doesn’t typically work out the way it is planned.

Trump thinks he can just bully the Chinese government to do what he wants.  He wants his “trade deal”.  If he really wanted a good trade deal, he would have just eliminated all tariffs on Chinese imports.  It would have been a great boost for the American consumer.  Instead, he makes it more of a struggle for middle class America.

The Next Recession

The latest yield curve inversion is confirmation for me.  I can’t guarantee a recession before November 2020 (the presidential election), but I give it a much greater than 50% chance of happening now. Even if Trump does get some kind of trade deal with China, I don’t think it’s going to matter.

The damage was already done before he took office.  He was foolish to brag about the great booming economy on his watch.  Now he will have to share in the blame.

I don’t think the establishment wants a recession, but you can sure bet they will be quick to blame Trump the minute it becomes evident.

Some people think the 2008 financial crisis was some kind of conspiracy amongst the powers-that-be. I have never thought this to be the case.  It is giving too much credit to the establishment.  They can orchestrate particular events such as coups.  They can make up stories about Trump conspiring with Russia, although they didn’t even do that very well.  But they can’t control an entire economy of 300 million people.

The Fed can change the money supply and manipulate interest rates, but there are limits.  The Austrian Business Cycle Theory is real. We can argue over little nuances with it, but the general theory is correct.  An artificial boom can’t last forever.  It doesn’t matter what the establishment conspires to do. They can’t change the laws of economics.

The media will not heavily criticize the economy until a recession is obvious.  Most of them know nothing of the yield curve. You may hear it on CNBC, but they are mostly cheerleaders for the economy.  You can bet that once the recession is evident that the media will be piling on to Trump hard.  They will pretend to be promoters of free trade and blame Trump’s tariffs if they have to.

If someone like Bernie Sanders gets elected, I’m not exactly sure what to expect.  He isn’t going to be some kind of radical socialist.  He is going to conform to the establishment for the most part.  Most of the spending from Congress is already spoken for, and the deficits are already huge.  But I think we will be most vulnerable at the beginning of a Sanders presidency, especially if we are in recession.  He may be able to push more of his welfare state agenda at that time.  It would be the same for someone like Biden, but probably to a lesser extent.

One thing I am certain about is that the Fed will start digitally printing money again. The only question is how much. There are going to be some bargains when things are down across the board, except for U.S. government bonds. It might finally be the time for a boom in commodities, including in the precious metals.

This is why it is good to have some cash on the sidelines.  You don’t want to be in stocks right now anyway, or at least not heavily.

All I know is that bond investors right now are accepting a lower interest rate to lock their money in for 10 years as they will take for 3 months or less.  This is a sign of fear.  The bond investors know better than the stock investors if history is any guide.