Recession - Two models - Must read

Dear Friends,

 

Thank you for all of your comments on 2s.10s and recession or not…!!!!

 

Let me stress:

 

1. 2s10s is WORST of yield curve predictor – please refer to my internal piece yday,,,,
2. What I am saying is:….. "when recession risk increase so does RISK OFF – and the average drop in recessions is 25%

 

I am not PREDICTING 25% collapse – actually if recession occurs I think it will go more.. What I am saying is.. that out of the potential paths from here more than 50% risk of US recession and more than 80% of Europe risk…. Hence if you want to be precise I am saying:  There is a weighted risk of 12.5% (50% x avg. loss) but.. and more important there is a weighted upside of 5% (50% x 10%)

 

My predictions have zero predictive value, but I believe Saxo Bank's Economic Model is 70% reliable in catching turns in economy and here our credit impulse has forewarned on recession with its usual nine month lead, which has been our main macro themes in Quarterly Outlook and my communication. When economic growth goes into recession RISK PARADIGM shifta because of increased velocity (speed) and psychology.

 

Main point though;

 

Inverted yield curves is 7/8 predicting recessions

Avg. drop during recession 25%

Probability right now (US) >50%

When yield curve dynamics – probability of reccession increases almost exponentially..:

 

Please spend 5 minutes understanding the dynamic from these two charts courtesy of WSJ.COM's The Daily Shot and directly from Oxford Economics & Piper Jaffray

 

'

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

https://www.home.saxo/insights/news-and-research/authors/steen-jakobsen

 

 

 

 

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