“Bears have predicted 25 of the last two recessions”………
If the markets were as simple as math, investing would be the easiest thing in the world. it is the same for economics, math fails to discover human behavior which at the end of the day, rules
This is why indicators like LEI and PMI are gradually becoming irrelevant
“Davidson” submits:
I subscribe to sites that reflect market psychology and use mathematics to predict economic outcomes and equity market trends. Mishtalk is one. The consensus perspective is always wrong and the belief that using mathematics to predict anything ultimately driven by human behavior has hundreds of years of failure. Lately historical signals from the Yield Curve have been skewed to benefit from the next recession such that I now see them as providing opposite to the historical signal.
The basics for recession require over-extended borrowers being unable to meet monthly requirements repaying debts i.e., delinquencies at levels indicating financial stress. It has never been the level of debt but the ability to finance it that is the real signal we have stress levels that can be triggered by a Black Swan event that startles lenders enough to withdraw credit extension. There is no mathematical formula can predict such an event. But, we can measure delinquencies and know when such an event will have sufficient impact to cause the first domino to fall. At 3.2% Credit Card delinquency rate we are nowhere near 4.7% that has been the financial stress level that proved susceptible to shocks that pushed the banking system into recession.
There are many mixed messages today as institutions strategize using past market patterns to position themselves for the worst. “Wolf” is being called every day by someone it seems when corporate reports of decent trends continuing for the next year abound. Math is used without the underlying understanding of what generates the data used and what it truly represents. The skewing of indicators by large pools of capital positioning for disaster using mathematics is why I rely heavily on the level of pessimism to judge how to position. The PMI is opposite to IndProd. The latter says to buy while the former and associated behaviors say sell. Very good time to be a buyer of discounted but well-managed equities.
The McKelvey Recession Indicator Triggered, But What Are the Odds?
September 10, 2024 https://mishtalk.com/economics/the-mckelvey-recession-indicator-triggered-but-what-are-the-odds/