In December as junk bonds began being really buffeted we asked whether a recessionary storm was on the way. Now even the guys on TV are openly talking about a recession.
It’s funny. No one ever wants to say “recession.” But what is happening in oil and in China reminds me very much of the rumblings and tumblings in the US housing market in 2007-2008. I can remember screaming at the TV as the real estate bulls were trotted out back then.
“Oh we’ll see a reduction in year over year price gains but housing always goes up. There’s no way there would be a broad price drop in housing. It just doesn’t happen.”
6 months later Wall Street was looking into the abyss.
Since corporate profits turned negative in mid-2015, Wall Street has pondered whether it’s just a passing phase or a signal of something worse. History strongly suggests the latter.
Recessions have followed consecutive quarters of earnings declines 81 percent of the time, according to an analysis from JPMorgan Chase strategists, who said they combed through 115 years of records for their findings.
The news gets worse: Of the remaining 19 percent of the time, recession was only avoided through either monetary or fiscal stimulus.