First let's be clear. I don't know when the next recession will hit.
Timing is impossible to predict with precision. However, I've noticed a handful of indicators that are shifting together. Any one indicator is questionable on its own, however, I believe that, taken as a whole, they are showing that the economy is shifting.
Let's examine them together:
1) Class 8 truck sales is down.
A recession is when GDP is declining. That means the economy is shrinking. This happens when people reduce their consumption of goods. The first way this shows up is in reduced inventory reorders from stores, which automatically means truckers see fewer shipments. When truckers see this happening they stop buying more trucks. We are currently seeing class 8 truck orders drop off a cliff. That can only mean there is reduced demand for shipping goods. I don't really care about the argument for new emissions rules creating false demand over that last few years because you can go to trucking forums and see that truckers are doing one way shipments when they used to be able to drive a full truck both ways. Face it, stores are ordering less goods because they are selling less goods. That is the definition of a recession.
2) Gold is up.
When people are uncertain about the economy they buy gold because they consider it safe. Gold has risen by 40% this year. That means demand for it has increased. In other words, demand for safety has increased because uncertainty has increased. However, in order to move to safety, investors have to sell assets (stocks and bonds) to buy gold. That means increased selling on the stock market. That puts downward pressure and reduces the ability of the market to rise. I am aware that the S&P is still rising as I write this but so is gold. The money going into gold is coming out of something.
3) Treasuries are up (prices, which are inverse to yield).
Same rationale as gold. People are moving to safety which means they are selling something that is more risky, but what? Corporate bonds are up. Stocks are up. Where is the money flowing out so that people can buy gold? Perhaps the smart money is flowing to safety. They are the earlier birds and main street is always late. This is a downward spiral, the more people move to safety the more people have to move to safety. It is only a matter of time. At this point what change could possibly occur to make the markets safer or more valuable than treasuries? Until that change happens we will continue to see the shift to safety accelerate.
4) Unemployment is down.
When everyone has a job companies must compete for workers by raising wages. As wages rise profits fall, forecasts fall, and hiring slows. We are currently at full employment which will begin the downward spiral of shrinking corporate profits. Additionally, unemployment is nearly crossing the 3 month average of unemployment which is a reliable indicator of a recession.
5) Temp agencies are experiencing a slowdown.
Temp agencies see demand when companies are expanding. It's easy to hire temps for uncertain growth when businesses are expanding. When demand for temporary workers drops, it means that companies are cutting their expansion projects. That indicates their forecasts are weakening and executives are nervous about adding costs and risks within their companies. (Perhaps due to diminishing demand. See the class 8 trucking argument above.) Anyway, nobody wants to jump into the water right now. It's only a matter of time before companies begin to cut losing projects, which is when hiring stalls and unemployment will begin to rise. We're already seeing hiring slow a bit.
6) An election is near.
People get nervous around elections. There has been a recession within 12 months of almost every presidential election in the 20th and 21st centuries. Just speculation here, but elections cause uncertainty and that causes people to move to safety. It's just part of the spiral to safety (reflexivity is the formal term) you see in gold and treasuries.
7) Billionaires are betting on a recession.
See George Soros, Jeffrey Gundlach and Stan Druckenmiller. They are all betting on a recession. These guys are early birds that can take the pain of short term losses to be right on the big move. Soros is long gold, short the S&P and short Deutsche Bank. Gundlach is long gold too. They have access to far more resources than just about anyone. The decisions they make risk billions of dollars so they aren't playing around when they bet big. Plus, they play the numbers game using probabilities. Bearish bets by these guys indicate that the probabilities are in favor of a shift to safety. That's how they play the game and why they are billionaires. They take high probability trades.
8) Talking heads are pitching safety.
Talking heads lag reality. They always do. I don't have any data, just experience to verify this but if you watch over the next few months you'll see their recommendations are always behind and therefore cause main street to lose money. They only say 'buy' when the market is topping. They say start to say 'buy' the dips when the market is tanking. The say it can fall another 30% when it is at the bottom. They say it's at the bottom long after it starts to rise. Given this trend, when the talking heads pitch safety. It's too late. We are long past the time to move to safety which puts us in a risky place.
9) Totality of the above 8 points.
So, let's review. The country is buying less goods as evidenced by trucking. Therefore, company's reduce their forecasts and are not pursuing growth projects as evidenced by fewer temp workers and slowing hiring. This makes Wall Street nervous so they being shifting money away from stocks to safer positions such as gold and treasuries. The more Wall Street shifts money to safety, the less dollars companies have to expand which reduces hiring and reduces consumers discretionary income. A reduction in discretionary income reduces demand for goods which reduces trucking...and we're back to the beginning.
Now, just in case you think this is all doom and gloom and I'm just looking for the bad...you're right, there is no good. I've looked. Where is a bright spot? Russia, Venezuela, and the Middle East are broke because oil prices are down. Europe is in question due to Brexit and hefty debt and demographic challenges. China is in a slowdown. Japan is...well...Japan. Where can a guy put his money with confidence and an expectation of growth?
Right now the only question is where can a guy put his money that he won't lose it.
The answer is gold and treasuries. As more people discover this it will lead to an acceleration in the movement towards a recession. The exception to that is if Ray Dalio is correct in his estimation that we are headed for stagnation. Either way, safety looks good.
