Out Fox The $treet

The New York Fed has a   great chart   that I've used in the past that predicts the possibility of a recession over the next year based on the treasury spread between the 10 year bond rate and the 3 month bill rate. The monthly average for July was nearly 3% again suggesting very little odds of a recession.  The probability of a US recession in the next 12 months predicted by the Treasury Spread is actually below 1%. Recessions just don't happen when the treasury spread is this bullish. Weak ISM reports should be counter balanced with weekly claims below 400K.  Investors seem to be rushing to judgement based on numbers that bounce around. Recessions have always been caused by the severe tightening of monetary supply which once put into place can't be reversed easily. The recession odds remain very low with corporate profits continuing to soar and monetary policy very positive. 

Mark Perry's Carpe Diem blog had a great little post on the recession predictive ability of the Treasury Spread. The New York Fed has a great chart that I've used in the past that predicts the possibility of a recession over the next year based on the treasury spread between the 10 year bond rate and the 3 month bill rate. As the chart shows, the possibility of a recession is below 1%. It just doesn't seem to happen when the treasury spread is this large. The market is increasing worried about a recession even though it just isn't likely under the current monetary circumstances. Clearly when an economy hits a soft patch as it did during April and May, the slant of the yield curve is hugely important in determining the next move whether up or down. With such a positive curve at over 3%, corporations and investors are encouraged to take on risks and in essence buy the dips. While a negative sloping yield curve causes the reduction in borrowing and business expansion...