In Cognitive Dissonance, I noted that only one out of 60 leading economists expects a recession in the U.S. this year, despite the fact that three separate indicators have emitted strong warnings of an impending downturn.
Well, since that time things have changed and I have a correction to make.
Instead of three indicators, there are now at least four such measures signaling that a recession is likely headed our way (that is, if it hasn't started already). The latest addition? The dramatic meltdown in commodity prices.
According to Comstock Partners, writing in their weekly Market Commentary, “Declining Commodity Prices Signify Weakening Economy,” the 22 percent drop in the CRB commodity index since its May high is
only the 7th time this has happened since 1974. According to ISI, since [then] every decline in the index of 20% or more has been associated with either a recession, a significant slowdown or a financial crisis. Each of these periods has also occurred following a period of tight money and an inverted yield curve. In this regard it is also noteworthy that oil has not been the only commodity declining in price. Recent months have featured significant declines in a wide assortment of commodities such as copper, gold, sugar, hogs, wheat and corn. It is therefore likely that the oil price decline is itself a result of economic softening rather than an impetus to growth.
Once again, while there are no sure things when it comes to money and markets, the odds are not in favor of the optimists.
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