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Russiagate

Okay, okay, okay. I confess. In the two full years of the Mueller investigation, I’ve written scarcely a single word in this space on the subject.

That’s not an accident. It’s entirely by design. Not anything nefarious, mind you. The truth is, I’m bored by political scandals.

Maybe some of that goes back to my early imprint of Watergate. I remember as a kid constantly hearing about it for, what then, seemed like my whole life. Of course, since I was all of seven or eight years old at the time, the couple of years it was front and center in the news pretty much was my whole life. My understanding of it was roughly that the President had done something bad, and some old guy Senator asked some question about what the President knew and when he knew it. The next thing I knew, we had a new President, oddly, a man named after a car company, whose main attribute seemed to be a penchant for falling down staircases.

Now my boredom with Watergate obviously had a lot to do with my young age. But fast forward forty-five years, and, remarkably, my attitude toward political scandals is not all that much different. For my part, I’d much rather write about ideas than about the Mueller investigation.

That said, with the close of the investigation into President Trump’s alleged Russian collusion, I think a few words on the topic are in order.

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Financial CrisisTrump touts ‘strongest economy in the world’ after disappointing jobs report,” ran a recent headline that managed to capture both the official line of the Trump administration and the contrasting reality portrayed by many recent underlying economic data points.

The February 2019 jobs report, released in early March, was expected to show a gain of 190,000 jobs, but instead reflected a gain of only 20,000. That’s a big miss in anybody’s book.

Now one could argue that President Trump’s statement is not negated by the disappointing jobs report. The US could indeed have the strongest economy in the world – depending on how one defines “strong” – and still do a face plant when it comes to the production of new jobs. All that is required for these two ideas to be true at the same time is for the rest of the world to be in a bigger mess than the US.

It is the contention, however, of this author that, in spite of all the talk of a booming economy coming from the Administration and from various sources on Wall Street and in the media, the US economy is not doing well and, in fact, is very likely headed into recession. It may actually be in recession as of this writing. Below are thirteen reasons why this author thinks so.

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Yield Curve Inversion

US Treasury yield curve as of close of business on 3/22/19.  Note the highlighted areas on the chart showing the 1-month Treasury yield is higher than the 10-year Treasury yield.  This abnormal situation is widely considered to be the most accurate predictor of a future recession. (Source, CNBC).

You may have heard that the US stock market got smacked around pretty hard today. The Dow was off 460.19 or 1.77%. The S&P and NASDAQ had it even worse, off 1.90% and 2.50% respectively.

But while the stock market plunge took center stage today, a major secondary story was the continuing inversion of the US Treasury yield curve. Typical was the headline on CNBC which read Bonds are flashing a huge recession signal – here’s what happened to stocks last time it happened.

The article goes on to quote equity strategist Jonathan Golub saying that a yield curve inversion has preceded each recession over the last 50 years. Golub is hardly alone in saying this. If you listen to knowledgeable investors, they consistently will tell you that a yield curve inversion is the most accurate predictor of an oncoming recession. But this raises the question, So just what is a yield curve inversion anyway?

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