• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing

The Recession Bells Are Tolling, and They Are Tolling for All of Us

Here are some of the signs I'm seeing now.
By JIM COLLINS
Aug 9, 2019 Updated Aug 11, 2019 | 11:01 AM EDT

I doubt that noted English poet John Donne was a speculator, but his words are certainly relevant to this week's markets. "Therefore never send to know for whom the bell tolls. It tolls for thee."

The bells are ringing for an economic slowdown at a level at which I have not heard since the pre-Lehman days in the summer of 2008. Of course, those peals produced the Great Financial Crisis, and, in hindsight, the signs were patently obvious that the world was heading for a deep recession. As I noted in my RM column yesterday, I see many of those same signs today.

Exhibit A is the the U.S Treasury yield curve. While the spread between the 3-month (1.99%) and 10-year (1.68%) UST yields is still solidly negative, there is a point at which the absolute levels of yield are important, as well. The yield on the 5-year UST was a jaw-droppingly low 1.52% this morning. That is not a sign of healthy economic outlook. To the contrary low UST yields are signs that bond market players expect a sharp contraction in the pace of U.S. economic growth and the deflationary forces that would accompany such a slowdown.

Exhibit B is the global exchange rate complex. The People's Bank of China set its official exchange rate at 7.0136 yuan per dollar this morning. The weakening of the Chinese currency is a huge brick in my current wall of worry. Is 7.01 really that much worse than 6.99? Of course 7 CNY/USD is a psychologically important level not an instant barrier to commerce, but markets run on sentiment.

In my RM column yesterday I mentioned a conference call with noted economist Andrew Hunt hosted by my firm Excelsior Capital Partners on Wednesday. The situation Andrew is describing is one in which China needs to print money - devaluing the yuan even further - to maintain liquidity in its overleveraged financial system. Andrew pegs the real rate of Chinese economic growth at 2%-3%, not the reported level of 6.5%-6.6% which is so steady as to have zero credence with economists. At a 2% growth rate Chinese companies would not be able to meet their liabilities and Chinese banks - without government intervention - would surely fail. That's what the yuan's move through 7 should be telling the markets, and it is a very scary story.

The U.S. markets have enormous blinders on when it comes to the rest of the world. That's why I value Andrew's work, and that's why I think the stock market is heading for a major correction. The Chinese consumer has been counted on to become the incremental buyer of scores of separate goods and commodities. Without that demand pull, supply overhangs develop - as Andrew points out much of U.S. GDP growth in the first half of 2019 was driven by inventory growth - and then inventory corrections occur. These can lead to recessions.

That's what the bond market is seeing, and the low UST yields make that worldview obvious to all but the most diehard U.S. stock investors and their computers. The world NEEDS a healthy Chinese economy. Otherwise there is just too much "stuff" being produced around the world for the Western economies to consume. That would include oil, cars, agricultural commodities and a host of consumer goods, as well. That many of those products are made in China only makes this feedback loop more painful.

The scenario is as follows: China's fragile economy sputters to a halt, sending its overleveraged financial system into distress which stresses Western financial systems and causes those economies to slow, which means that Chinese workers have less demand for the iPhones, TVs and other goods they produce thereby sending China further into real recession.

Yikes!

It is not some far fetched worst-case scenario. It is exactly what is happening now, in August 2019. So, go back and read your John Donne. The recession bells are tolling, and they are tolling for all of us. Reduce your equity exposure now.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins had no position in the securities mentioned.

TAGS: Economy | Investing | Markets | Stocks | Trading | Treasury Bonds | China

More from Investing

Making Sense of Irrational Market Moves

James "Rev Shark" DePorre
Aug 11, 2022 4:55 PM EDT

Has this recent very powerful rally created a supply of underinvested bulls who are anxious to buy pullbacks and dips?

I Smell a Play With Clarus Corp.

Mark Sebastian
Aug 11, 2022 2:42 PM EDT

Is there a possible buyout? A looming breakout? Let's see.

The Market Was Out of Whack in 2022, So Time to Reset Your Strategy

Carley Garner
Aug 11, 2022 2:32 PM EDT

Let's perform an intermarket correlation check, and see how commodities moved vs. themselves and the buck -- and what to expect next.

Think Twice Before Getting on That Six Flags Ride

Bruce Kamich
Aug 11, 2022 2:10 PM EDT

SIX gaps lower and a new decline has been set in motion after earnings. Let's check the charts.

This New Energy Fund Sounds Dirty, But Could Help Investors Clean Up

Mark Abssy
Aug 11, 2022 1:33 PM EDT

The Strive U.S. Energy exchange-traded fund is billed as an anti-ESG ETF. Let's see how it stacks up against the similar Energy Select SPDR Fund.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • 09:24 AM EDT PETER TCHIR

    Jobs Report Reaction: Incredibly Strong, But Questions to Ask

    An incredibly strong July jobs report. Not only d...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login