Let's talk about recession indicators piling up.... - Belle of the Ranch

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about recession indicators piling up.

As Trump continues to say the country is doing great and the economy is the hottest ever, the reality is that multiple indicators that tend to precede economic downturns have piled up like the rubble of the East Wing.

First is the one that lets you know stock prices are overvalued. The Buffett indicator compares the market to the GDP as a percentage. While the exact number varies by the analyst talking about it, anything above something around 130% is seen as playing with fire. It's currently well over 200%.

Second is oil price shocks. That should be obvious. But an unexpected increase in the cost of something that affects all other prices upsets markets, demand, supply, and everything on a fundamental level. The International Energy Agency has categorized the oil shock caused by Trump's war as the worst one in history. Brent was up about 80% year-to-date on Friday. WTI crude had almost doubled with a 95% increase year-to date. The IEA is saying the oil crunch will get worse in April.

Third, the University of Michigan's consumer sentiment survey has dropped to 53.3. That's lower than it was in 2008. A big drop like we've been seeing has preceded every recession in the last 45 years or so. March's reading is actually the third lowest in the history of the survey.

Fourth is another method of valuing the stock market called the Schiller cape ratio. We've talked about it before, but briefly, it's a cyclically adjusted price to earnings ratio, cape. The higher it is, the more overvalued stocks are seen to be. It helps predict long-term trends. January's 39.7 was the second highest recorded using over 150 years of data. It was slightly higher just before the dot com bust. Anything over 22 is noticeable. Anything over say 25 or so suggests lower returns in the future. It's still just below 39.

The fifth is one I don't think we've talked about before. It's when the S&P 500 drops below its 200-day moving average. The 200-day moving average sounds like a complicated term, but it's really just the index's average closing price over the previous 200 trading days. When the S&P 500 drops below its 200-day moving average, it signals a bearish trend, a downturn that happened on March 19th.

As an added bonus, analysts are worried about a potential death cross. With a name like that, you know it's going to be good news, right? That's when the 50-day average drops below the 200-day average. That tends to signal long-term downturn.

Economic jargon aside, Americans feel this. Trump's approval on the economy has plummeted. A recent poll found only 31% of Americans approve of how Trump is handling the economy. He promised a Golden Age and delivered a slow-motion train wreck.

Anyway, it's just a thought. Y'all have a good day.