Jim Stack: Recession Dead Ahead

I don’t always agree with Jim Stack, but he’s certainly someone worth listening to. Here’s his bearish outlook in the latest Forbes:

Slowly and methodically, the forces have been moving us toward an imminent recession. These cyclical forces include commodity inflation, which on a long-term basis is at the highest level since the 1970s. But they also extend deeper– into the monetary forces and even consumer psychology behind the economic expansion.
The yield curve has changed dramatically in the past 24 months, and is as “flat” as we can ever remember seeing it. The danger is the 88% historical probability of a recession that this represents. And if pressures preclude the Fed from easing later this year, one might say the odds of recession are closer to 100%.
In the past 40 years, there have been eight instances where the yield curve (10-year T-bond minus 3-month T-bill) has flattened to this extent. In four of those instances, the yield curve temporarily widened, only to flatten again: 1973, 1989, 1998 and 2000. But in only one of those eight instances was the economy able to avoid a recession.

Posted by on June 7th, 2006 at 8:32 am


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