RE:Probability of a recession in the US Jay...I will comment on your past few posts with some thoughts
Your comment regarding fixed income is well taken. I have posted here on a couple of other Boards that in terms of asset allocation I am overweighted in fixed income assets in terms of preferred shares of big cap names such as ENB. As preferred shares these investments are low risk and I bought many of them with a yield of 8.5-9%. As the US 10 year interest rate has declined from 5% to around 4%, in addition to the yield, I am enjoying capital gains of 7-10% depending on when I bought them.
In terms of your analysis on the lags between inverted yield curves and a recession, which is excellent, I would add another consideration. When the Fed started raising rates and we saw an inverted yield curve in the US, the US was experiencing a huge inventory of unfilled job opening. almost twice the number of people actually looking for jobs. At that time I posted that while I saw a recession off in the distance, it would take quite a while before this excess in job opening over people looking for work diminished. This process is still under way.
A key difference between now and the historical experience your are referring to is the unprecedented stimulus (4-5 trillion) of "Biden Economics" and the continuing stimulus from running annual budgetary deficits in excess of 2 trillion. IMO it will take more time than has been the historical experience for monetary policy to work this time around due to this fact since fiscal policy is running the exact opposite of monetary policy. So it doesn't surprise me how long the lag is taking and it may well create a new record.
In addition, as I have posted before, I do see in the US a shallow recession or very slow growth period coming and so the US market right now is breathing a sigh of relief as demonstrated by the overall stock market rise in the last month or so. As per my post yesterday (which was misinterpreted by some here), this sigh of relief as indicated by the P/E ratio of the S&P and the market sentiment indicator presents a short term opportunity to mimic the pros and sell into the rally and then reload when both get back to normal/neutral readings, not recession lows.
Canada has a different situation. Despite my negative of Trudeau and his doubling of the Canadian National Debt since getting into Office, we are not deficit financing in relative terms to the extent that Biden is in the US. But more importantly our housing market is very different with mortgage renewals here much shorter term than the US. So the combination of these two factors will hit the Canadian market much harder than I expect will the case in the US. The trap as I see it is that the Canadian market has been following the US relief rally and we are in a different situation. The only real caveat to this would be a big rally in oil/commodity prices.
Getting back to the first point about fixed income. Under essentially any scenario (recession or not) the most likely outcome is that interest rates have peaked and we will see a decline in interest rates some time time over the next year or two. In this environment, fixed income investment will enjoy increasing capital gains in addition to income from the yield. On a risk adjusted basis, in terms of my investment objectives this is a good place to be invested.