With No Second Half Rebound, Confirming The Squeeze

It’s a palpable impatience. Having learned absolutely nothing from the most recent German example, there’s this pervasive belief that if the economy hasn’t fallen apart by now it must be going the other way. The right way. Those are the only two options for mainstream analysis (which means it isn’t analysis).

You can see it in how everything is framed. When first presented with this “unexpected” globally synchronized downturn early on in 2019 (they ignored all the market warnings and data throughout 2018), it was dismissed as the product of “transitory” factors. Once they dissipated it would be all clear. Anyone remember the constant projections for a second-half rebound?

The second half has come and is now long gone, and we are still debating the direction.

Those forecasts were predicated on the assumption this is the dynamic. A downturn comes on and develops quickly. After a few months, either recession or right back to growth again (the near miss, or growth scare scenario).

It all came to a head in August and right at the beginning of September (a few weeks before repo; hmmm). The way the bond market was described, curve inversion was an all-or-nothing threshold. If the economy didn’t right then enter recession it was assumed it never would.

Thus, as the curve un-inverted (in the one place anyone pays attention to) the second half rebound was given its market backing. The economy had backed away from the edge, which, in the conventional view, means we have to be back on the right track.

But that’s not at all how it has gone in Germany (and many other places). German industry didn’t crash in a violent downswing, yet it has reached those proportions along the X axis. The depths of something consistent with recession have been achieved, but it took seemingly forever to get there.

Not only that, once it attained those depths German manufacturing in particular has remained at them. Time, the Y axis, appears to be no constraint, an outcome which defies the conventional view of it-has-to-be-recession-or-boom.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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