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No Sign of Recession Fears in Fixed-Income Markets

When it comes to looking toward the future of the economy, the two best fixed-income-based indicators are the yield curve and credit spreads. So what are…

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When it comes to looking toward the future of the economy, the two best fixed-income-based indicators are the yield curve and credit spreads. So what are they saying right now about the potential for a recession?

The word recession is popping up with increasing frequency in the news and internet searches. Google Trends shows that searches for the word have risen 25-fold over the past six months, as a June 20 YouGov poll showed that 58% of Americans felt that the economy was already in a recession. Only 19% disagreed.

Graphic: Google Trends: Interest Over Time in "Recession"

Indeed, with prices rising 9.1% year-over-year and outpacing growth in wages, it may be like a recession for those who feel their purchasing power eroding. Even so, it does not yet meet the technical definition of a recession, which equals two straight quarters of negative growth.

In the first quarter of 2022, GDP did shrink by an annualized 1.6% from Q4 2021, but it grew by 3.5% when compared to Q1 2021. The reason why quarter-over-quarter growth was negative in Q1 2022 was largely because inventories declined, imports grew and government spending fell. Other key areas, including business investment and personal consumption, continued to grow. Moreover, the Q1 decline in inventories may presage a subsequent rebound in coming quarters as those inventories might be restocked.

Thus far in 2022, employment growth has remained robust. Other indicators like purchasing manager surveys show a moderating pace of growth, but that growth is still positive. The Conference Board Consumer Confidence Survey shows that Americans rate the economy’s present situation quite highly and their concerns are mainly about the future.

Graphic: Conference Board Consumer Confidence

When it comes to looking ahead at the future of the economy, fixed-income investors have among the best historical track record. There are essentially two fixed-income-based indicators of the future direction of economic activity:

  1. The yield curve: The difference between long-term and short-term rates can be a useful indicator of where the economy might be going in six to 24 months.
  2. Credit spreads: The difference between high-yield corporate bonds and U.S. Treasuries of equivalent maturities can be an excellent indicator of where the economy is going in the coming few months.

For the moment, the fixed-income markets are not signaling a recession on the immediate horizon. The yield curve in the U.S. remains moderately steep. Prior to nearly every previous recession, the yield curve inverted – meaning that short-term rates rose above the level of long-term rates. For example, yield curves inverted prior to recessions in 1980, 1981-82, 1990, 2001, 2008-09, and 2020.

Graphic: U.S. Public Sector Yield Curve and GDP Growth

While certain segments of the yield curve have inverted at various times over the past several months, we have not had a full inversion of the 3M10Y. However, a yield curve inversion is a possibility soon, especially if the Fed continues to hike rates aggressively.

As of the end of June, the Treasury yield curve still showed 150 basis points (bps) of positive steepness. The private sector curve, 10-year swaps less 3M LIBOR, is slightly less steep, with 96bps positive slope as of the end of June, and it has a somewhat better track record of forecasting accelerations and decelerations in the pace of economic growth.

The key takeaway, however, is that if the Fed does raise rates enough to invert the yield curve, that might not imply a near-term recession.

Over the 20 years from 1999-2019, yield curves reached their peak correlation with future growth about one and a half to two years in the future. Thus, a yield curve inversion in late 2022, if it happens, might not suggest a high likelihood of a recession until late 2024.

Finally, there have been times when yield curves have briefly inverted but the inversion was not followed by an actual downturn. As such, the curve might have to stay inverted for several months before the risk of recession really begins to rise.

Secondly, and perhaps more importantly in the short term, credit spreads are not yet signaling the onset of an economic downturn. To be sure, credit spreads have widened as stocks began selling off but, as of this writing, high-yield bonds are trading at yields around 5.8% percent over Treasuries of equivalent maturity.

Prior to past recessions, these spreads typically widened out to around 6% to 10% or more over Treasuries and stayed there for many months. Brief spikes in spreads occurred in 2011 and 2015 without subsequent recessions. Such spread-widening could happen quickly, however, if equities continue to sell off.

Graphic: Bloomberg Barclays High Yield OAS-Treasuries

Our model of U.S. employment shows that in the 24 years before the pandemic, credit spreads, taken alone, explained over 60% of the month-to-month variation in non-farm payrolls. The current spread of high-yield corporate bonds over U.S. Treasuries is suggestive of employment growth of around 150,000 per month in the coming months.

In our model, credit spreads have to widen out to above 7% before monthly employment growth tends to go negative. 150,000 per month growth in payrolls is a much slower pace of growth in payrolls than in recent months but with the U.S. economy back near full employment, this may be close to the limit of what the U.S. economy can sustain.

Graphic: NFP MoM Change versus Credit Spreads
Graphic: Non-Farm Payrolls: Private Sector Jobs

With high inflation, it’s clear that consumers in the U.S. and many other nations are feeling concerned about the economy. It’s important to point out, however, that in 2022, the economy has essentially the opposite problem that it had following the 2008 financial crisis. Back then, demand was too weak, there weren’t enough jobs to go around, and deflation was the major risk.

Today, the economy is overheating, there is too much money chasing too few goods, and there are more jobs on offer than there are workers to fill them. It’s as though the economy went from having hypothermia in 2009 to running a fever in 2022. The challenge for policymakers will be to bring down the economic temperature enough to create a soft landing without reducing it too much and making recession a reality.

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Decrease in Japanese children’s ability to balance during movement related to COVID-19 activity restrictions

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected…

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A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

Credit: Credit must be given when image is used

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

During the COVID-19 pandemic, in Japan, as in other countries, schools and sports clubs tried to prevent the spread of infection by reducing physical education and restricting outdoor physical activities, club activities, and sports. However, children who are denied opportunities for physical activity with social elements may develop bad habits. During the pandemic, children, like adults, increased the time they spent looking at television, smartphone, and computer screens, exercised less, and slept less. Such changes in lifestyle can harm adolescent bodies, leading to weight gain and health problems. 

Visiting Researcher Tadashi Ito and Professor Hideshi Sugiura from the Department of Biological Functional Science at the Nagoya University Graduate School of Medicine, together with Dr. Yuji Ito from the Department of Pediatrics at Nagoya University Hospital, and  Dr. Nobuhiko Ochi and Dr. Koji Noritake from Aichi Prefectural Mikawa Aoitori Medical and Rehabilitation Center for Developmental Disabilities, conducted a study of Japanese children and students in elementary and junior high schools, aged 9-15, by analyzing data from physical examinations before and during the COVID-19 pandemic. They evaluated the children’s muscle strength, dynamic balance functions, walking speed, body fat percentage, screen time, sleep time, quality of life, and physical activity time.  

The researchers found that after the onset of the pandemic, children were more likely to have decreased balance ability when moving, larger body fat percentage, report spending more time looking at TV, computers or smartphones, and sleep less. Since there were no changes in the time spent on physical activity or the number of meals eaten, Sugiura and his colleagues suggest that the worsening of physical functions was related to the quality of exercise of the children. The researchers reported their findings in the International Journal of Environmental Research and Public Health.  

“Since the outbreak of the novel coronavirus in Japan after April 2020, children have not been able to engage in sufficient physical education, sports activities, and outdoor play at school. It became clear that balance ability during movement was easily affected, lifestyle habits were disrupted, and the percentage of body fat was likely to increase,” explained Ito. “This may have been because of shorter outdoor playtime and club activities, which impeded children’s ability to learn the motor skills necessary to balance during movement.” 

“Limitations on children’s opportunities for physical activity because of the outbreak of the novel coronavirus have had a significant impact on the development of physical function and lifestyle and may cause physical deterioration and health problems in the future,” warned Ito. “Especially, the risk of injury to children may increase because of a reduced dynamic balance function.” 

The results suggest that even after the novel coronavirus becomes endemic, it is important to consider the effects of social restrictions on the body composition of adolescents. Since physical activities with a social element may be important for health, authorities should prioritize preventing the reduction of children’s physical inactivity and actively encourage them to play outdoors and exercise. The group has some recommendations for families worried about the effects of school closings and other coronavirus measures on their children. “It is important for children to practice dynamic balance ability, maintaining balance to avoid falling over while performing movements,” Ito advised. “To improve balance function in children, it is important to incorporate enhanced content, such as short-term exercise programs specifically designed to improve balance functions.” 


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Contradictions, Lies, And “I Don’t Recalls”: The Fauci Deposition

Contradictions, Lies, And "I Don’t Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General…

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Contradictions, Lies, And "I Don't Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General Eric Schmitt released the transcript of the testimony of Dr. Anthony Fauci. As you might recall, Fauci was deposed as part of an ongoing federal lawsuit challenging the Biden Administration’s violations of the First Amendment in targeting and suppressing the speech of Americans who challenged the government’s narrative on COVID-19.

Here is the Fauci deposition transcript.

And here are the highlights…

EcoHealth Alliance - the Peter Daszak group - is knee-deep in the Wuhan controversy, having been funded by the Fauci’s NIH for coronavirus and gain of function research in China (and having worked with the Chinese team in Wuhan). What does Fauci say about EcoHealth Alliance? Over two years after the COVID-19 pandemic began, and after millions dead worldwide, he’s “vaguely familiar” with their work.

In early 2020, Fauci was put on notice that his group - NIAID - had funded EcoHealth alliance on bat coronavirus research for the past five years.

This coincided with early reports - directly to Fauci, from Jeremy Ferrar and Christian Anderson - “of the possibility of there being a manipulation of the virus” based on the fact that “it was an unusual virus.”

Fauci conceded that he was specifically made aware by Anderson that “the unusual features of the virus” make it look “potentially engineered.”

Fauci couldn’t recall why he sent an article discussing gain of function research in China to his deputy, Hugh Auchincloss, telling him it was essential that they speak on the phone. He couldn’t recall speaking with Auchincloss via phone that day. But remarkably, Fauci did remember assigning research tasks to Auchincloss

Fauci was evasive on conversations with Francis Collins about whether NIAID may have funded coronavirus-related research in China, eventually stating “I don’t recall.”

The phrase “I don’t recall” was prominent in Fauci’s deposition. He said it a total of 174 times:

For example, Fauci couldn’t remember what anyone said on a call discussing whether the virus originated in a lab:

During that same call, Fauci couldn’t recall whether anyone expressed concern that the lab leak “might discredit scientific funding projects.” He also couldn’t recall whether there was a discussion about a lab leak distracting from the virus response. Fauci did remember, however, that they agreed there needed to be more time to investigate the virus origins - including the lab leak theory.

What else couldn’t Fauci remember? Whether, early into the pandemic, his confidants raised concerns about social media posts about the origins of COVID-19.

Yet Fauci did admit he was concerned about social media posts blaming China for the pandemic. He even admitted the accidental lab leak “certainly is a possibility,” contradicting his prior claims to National Geographic where he said the virus “could not have been artificially or deliberately manipulated.”

Fauci also couldn’t recall whether he had any conversations with Daszak about the origins of COVID-19 in February 2020, but admitted those conversations might have happened: “I told you before that I did not remember any direct conversations with him about the origin, and I said I very well might have had conversations but I don't specifically remember conversations.” And he couldn’t recall telling the media early on during the pandemic that the virus was consistent with a jump “from an animal to a human.”

Fauci said he was in the dark on social media actions to curb speech and suspend accounts that posted COVID-19 information that didn’t fit the mainstream narrative: “I’m not aware of suppression of speech on social media.” Yet it was Fauci’s proclamations of the truth, whether about the origins of COVID-19 to the effectiveness of hydroxychloroquine, that led to social media companies banning discussions of contrary information.

Regarding those removals of content, Fauci had no personal knowledge of a US Government/Social Media effort to curb “misinformation.” But he conceded the possibility numerous times.

Then there’s the issue of masks. In February 2020, Fauci informed an acquaintance that was traveling: “I do not recommend that you wear a mask.” Fauci would later become a vocal proponent of masks only two months later.

I’m near my Substack length limit - posting the excerpts does that - but you can see from Fauci’s testimony that his public statements about COVID-19 origins and the necessity to wear a mask didn’t match his private conversations. This has been known for some time, but it’s finally nice to get him on record.

Again, read it all and subscribe here.

Tyler Durden Mon, 12/05/2022 - 21:40

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The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

Authored by Michael Senger via ‘The New Normal’ Substack,

If the intent…

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The Gall Of Lockdowners Who Support China's Anti-Lockdown Protests

Authored by Michael Senger via 'The New Normal' Substack,

If the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then Xi Jinping has certainly made his point...

Across the political spectrum, voices have risen up in support of the Chinese people who’ve launched protests of unprecedented scale against the Chinese Communist Party’s indefinite Covid lockdown measures.

As well they should. Even by Chinese standards, the lockdowns that Xi Jinping pioneered with the onset of Covid are horrific in terms of their scale, their duration, their depravity, and the new totalitarian surveillance measures to which they’ve led. Anyone who participates in a protest in China runs a risk of being subject to cruel and arbitrary punishment. For ordinary Chinese people to brave that risk in defiance of this new form of inhuman medical tyranny is an act of courage worthy of admiration.

There are notable exceptions to the otherwise widespread support the protesters have received. Apple has been silent about the protests, and had the gall to limit the protesters’ use of a communication service called AirDrop in compliance with the CCP’s demands, even as it threatens to remove Twitter from its app store over Elon Musk’s free speech policy. This comes even after Apple has long ignored requests by FCC officials to remove the Chinese-owned app TikTok from its app store over unprecedented national security concerns. So Apple complies with requests by the Chinese government, but not the United States government. Let that sink in…

Apple is, unfortunately, far from alone in its CCP apologism. Anthony Fauci told CNN that China’s totalitarian lockdowns would be fully justified so long as the purpose was to “get all the people vaccinated.”

This kind of apologism for the CCP’s grisly bastardization of “public health” is horrific, especially coming from the man most widely seen as the leader of America’s response to Covid.

But what may be even more galling than this apologism is the widespread support China’s anti-lockdown protesters have received even among those who demonized anti-lockdown protesters in their home countries and wished their lockdowns were more like China’s.

In 2020, the New York Times denounced anti-lockdown protesters as “Anti-Vaxxers, Anticapitalists, Neo-Nazis” and urged the United States to be more like China.

But in 2022, the New York Times admired the bravery of China’s anti-lockdown protesters fighting Xi Jinping’s “unbending approach to the pandemic” that has “hurt businesses and strangled growth.”

In 2020, CNN published an open letter from “over 1,000 health professionals” denouncing anti-lockdown protests as “rooted in white nationalism” while admiring “China’s Covid success compared to Europe.”

But in 2022, CNN admired China’s anti-lockdown protesters as “young people” who “cry for freedom”

In 2020, the Washington Post denounced anti-lockdown protesters as “angry” populists who “deeply distrust elites,” and wished the United States was more like China.

But in 2022, the Washington Post celebrated global “demonstrations of solidarity” with China’s anti-lockdown protests.

In 2020, the New Yorker denounced anti-lockdown protesters as “militias against masks” while marveling at how “China controlled the coronavirus.”

But in 2022, the New Yorker admired the protesters standing up to Xi Jinping.

Earlier this year, Amnesty International issued a statement of concern about Canada’s anti-lockdown Freedom Convoy protests being affiliated with “overtly racist, white supremacist groups,” even as Justin Trudeau invoked the Emergencies Act to crush the protests.

But now, Amnesty International has issued a statement urging the Chinese government not to detain peaceful protesters.

These headlines are, of course, in addition to the hundreds of other commentators, influencers, and health officials, such as NYT journalist Zeynep Tufekci, who used their platforms in 2020 to urge for lockdowns that were even stricter than those their governments imposed, but now join in support for those in China protesting the same policies they were urging their own countries to emulate.

Etymologically, Zeynep’s latter comment makes no sense. Lockdowns had no history in western public health policy and weren’t part of any democratic country’s pandemic plan prior to Xi Jinping’s lockdown of Wuhan in 2020. Though some countries, such as Italy, imposed lockdowns shortly before the United States, their officials too had simply taken the policy from China. Thus, because no other precedent existed, any call for a “real lockdown” or a “full lockdown” in spring 2020 was inherently a call for a Chinese-style lockdown.

Though by “full lockdown” Zeynep may have intended somewhere in between the strictness of lockdowns in the United States and China, there was no way for any reader to know what that medium was; it existed only in her own head. Thus, the reader is left only with a call for a “full lockdown,” and the only example of a “successful” “full lockdown” that then existed was a full Chinese lockdown.

Zeynep’s latter comment further illustrates the efficacy of what was arguably some of the CCP’s most effective lockdown propaganda in early 2020: The ridiculous viral videos of CCP cadres “welding doors shut” so poor Wuhan residents couldn’t escape.

CCP apologists have argued that these videos prove the CCP was not trying to influence the international response to Covid, because they make the CCP look so bad. But on the contrary, the over-the-top inhumanity of the idea of welding residents’ doors shut was precisely the purpose of this propaganda campaign. The idea had to be so absurd that no decent government would ever actually try it. It thus gave the CCP and its apologists an infinite excuse for why lockdowns “worked” in China and nowhere else—because only China had ever had a “real lockdown” in which residents were welded into their homes.

When those with a decent knowledge of geopolitics or a bit of common sense see a graph like this, which looks nothing like that of any other country in the world, from a regime with a long history of faking its data on virtually every topic, the conclusion is obvious: China’s results are fraudulent. But to simple minds, a weld is a strong, durable bond capable of incredible feats, from supporting skyscrapers to spaceships. Surely, if a weld can do all that, then it must be able to stop a ubiquitous respiratory virus?

The entire concept is, of course, utterly asinine. You cannot stop a respiratory virus by indefinitely suspending everyone’s rights. But this idea that lockdowns had worked in China because the CCP had gone so far as to weld people into their homes was invoked over and over again during Covid, creating a limitless “No-True-Scotsman” out for lockdown apologists as to why lockdowns weren’t “working” anywhere except China. Whether COVID-19 cases went up, down, or sideways, the solution would always be the same: “Be more like China.”

The use of this darkly humorous propaganda campaign of welding residents into their homes speaks to two key points as to how Xi Jinping and CCP hawks like him view China’s relationship with the west. The first is that westerners will never respect the CCP; thus, you can make westerners believe anything so long as it confirms westerners’ prior belief that the CCP is barbaric.

Second, Xi Jinping sees the concepts of democracy and human rights as mere propaganda that western elites use to further their own self-interest. So long as they approve of a policy, then it’s not a human rights violation, but if they oppose it, then it is. It remains to be seen whether the response to Covid will, in the long run, ultimately advance Xi’s goal of making the world China. But insofar as the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then he’s certainly made his point.

*  *  *

Michael P Senger is an attorney and author of Snake Oil: How Xi Jinping Shut Down the World. Want to support my work? Get the book

Tyler Durden Mon, 12/05/2022 - 15:53

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