Thread by @HenrikZeberg

Major #BlowOffTop before #Recession. The Recession will be very severe - and cause the largest Market Crash since the Crash of 1929.

This is my Outlook (January 2024)!

In early 2023, I said that I would be met with doubts and a question of "Why Recession?, as the stock market soared into late 2023 - and continues to do so into 2024.

Now we are here! My doubters are rising (and will continue to do so, as the market strengthens coming months)

The arguments are:

1) "We already had the Recession in '22"

2) "Fed is aware and will not allow it"

3) "Fed has changed the Game"

4) "We are in a new liquidity cycle"

5) "It will not be allowed in a Presidential Election year"

..... and so on!

All chitchat - and based in a complete lack of understanding of the Business Cycles.

So - why Recession? (....this is giving more than I should - so stay tuned😉)

First argument is based on our Business Cycle Model developed with Swissblock and @Negentropic_

Our Business Cycle has flashed a Recession signal in 2023. Leading Indicators have crashed under our Equilibrium Line.

In 80 years of data, the Recession Signal from our Model has NEVER been wrong. No false signals - ever!

Second argument goes on the Yield Inversion.

Yield inversion is a signal of coming Recession. Not immidiately - but eventually.

Analysts have observed this signal in 2023 - but due to impatience dismissed it. This is a great mistake.

From the bottom of the Yield Inversion, we normally see 12-15 months before a Recessions sets in. The bottom was in June 2023.

This signal is very much alive!

Third argument is based on the outlook for Industrial Production.

The setup is similar to the situation just before the Financial Crisis.

Rising level after #Corona but the strength of the move is dominated by divergence (RSI). This is a complete mirror of what we saw going into 2007-08.

Industrial Production is about to drop strongly and a Recession will set in.

Fourth argument goes on the Housing Market. It has plummeted. NAHB and the Housing Market leads Unemployment.

As Housing is hit by higher rates - people start to save their money. They consume less, which deteriorates the Economic environment. It does not happen instantaneously - but eventually.

The bigger the decline in NAHB - the larger the rise in Unemployment.

.... and the current decline in NAHB is larger than the decline before the Financial Crisis.

Just like in 2007, we haven't seen the strong move in Unemployment .... yet!

5th argument is related to the rise of Personal Interest Payments.

As market rates rise - consumers are hit on their mortgages and other debt.

Every rise in rates over the years has caused a Recession, as the consumers need to pull back on their Consumption.

This causes Unemployment to start to rise.

Again - it does not happen immidiately - but eventually! This is the normal lag in the Economic Business Cycle.

And we have just seen the largest spike in Personal Interest Payments - ever!

A parabolic rise in Unemployment can be expected

6th argument is on Housing Affordability.

As Interest Payments rise - Housing Affordability plummets. We are currently at levels below the situation going into the Financial Crisis.

The only reason we don't see the watershed moment yet .... is because the consumer has not lost his job.... yet!

When the unemployment situation deteriorates a lot of people will lose their homes as default rates skyrockets.

7th argument is based on Retailer's inventory levels.

Companies and retailers around the World have filled their storages and inventories - expecting the hype in Demand which they experinced in 2021-22 to come back again... (due to stimulus).

Only this Demand is gone. The stimulus is gone!

Retailer's inventory levels are way above trend line - while JOLTS and Housing Market roll over.

What could possible go wrong?

Conclusion

Major Recession will set in. The Titanic has already hit the Iceberg - and it will sink.

There is nothing that can be done from the Fed or any administration.

The consumer is hurt bad through Housing and Personal Interest Payments - and will soon feel Uenemployment as well.

The Recession will be worse than 2007-09!