I'm simply amazed that few people on Stockhouse talk about this. They are ignoring one of the most powerful tools in forecasting a recession and it has a perfect track record.
Ok let's suppose for a sec that this time is different. The only way I see US/Canada avoid a recession if it hasn't started already is if the long end of the bond curve yield pushes above the front end. This would steepen the yield curve and normalize things so to speak. There are 4 cases to consider and I'll talk about each one.
Case 1: long term expected inflation moves in the 4-5% range and the Fed/BoC reject the 2% inflation idea. If they decide they are content with core inflation at current levels then the yield curve would steepen and would no longer be inverted. The problem with this thesis is that they are adamant about getting inflation back to the 2% range. This is not consistent with the targets laid out by both Tiff Macklem and Jerome Powell.
case 2: long term real output/productivity increases substantially over the coming years/decade and 10 year treasuries sell off and yields rise above the Fed funds. I suppose this is possible but I'm not buying this argument. Btw, the 10 year treasury would have to settle in the 6-7% range to be consistent with a "normal" yield curve.I don't think that's happening.
case 3: inflation collapses in the short term and 2 year treasuries rally which takes the yield below the 10 year treasuries. Or,
case 4: real output/gdp collapses and 2 year treasuries rally which takes the 2 year note below the 10 year note. It is worth noting that both case 3 and 4 is consistent with a recession whereas case 1 and 2 is not.
It is my opinion that either a combination of case 3/4 will play out which is consistent with an impending recession on the horizon. I'm certainly not buying the AI argument to save the day and I believe the recession fate is all but sealed.
That's it for now.