Gordon Long Market Research and Analytics
The central bankers are capable of achieving many extraordinary results but not all economic and financial problems can be solved by central bankers. Central Bankers for example have the power to solve liquidity issues, but it is impossible for them to solve solvency issues. Central Bankers through Financial Repression can transfer risk , however they can't remove it from the system. Additionally, Central bankers may be able to delay a recession temporarily, but they can't prevent the business cycle from running its natural course.
This inability to control the business cycle has the potential to be the unavoidable trigger that brings the great Central Bank Bubble to an end.
The US after eight years is by most comparisons overdue a recession. Unfortunately, the next recession is going to happen when the central bankers are least capable of further attempting to slow the inevitable. The central bankers may have delayed a US recession about as far as they are capable of doing.
A Nearly Perfect Storm Brewing
The market technicians of all persuasions are almost unanimously now calling for a major correction. What is most troubling in their work is that their indicators are not just short and intermediate term measures but critical long term indicators:
The mal-investment that recessions normally purge as part of a healthy capitalist system has reached such a level that deteriorating real total business investment has diverged from the S&P 500 Index as well as C&I Loans. In our opinion (which we have labeled here), sound business investment has shifted from being distorted to what can now only be described as broken. Corporate profits, sales revenues, margins and EBITDA cash-flow are all falling or are rolling over.
Every recession on record since the end of WWII (but one) has signaled the four warnings outlined here. That one exception had a completely different economic climate than the current one. The chances of a US Recession in 2017 should be considered highly likely.
The problem with the next US recession is that the magnitude of distortions and leverage in the system will potentially quickly cascade into a full scale, unmanageable economic problem and likely a full scale protracted recession (or even worse).
A "Whiff" of Inflation
Few market watchers appear to appreciate that inflation tends to rise into and during a recession.
Consumer prices in U.S. rose in September at the fastest pace in five months. The Year-over-Year inflation rate is now the highest it has been since October 2014. Few are yet paying attention.