Given the tough week we just endured, and the thick cloud of doom that hangs stagnant over financial markets, I must reiterate a critical data point that is being obscured by this gloom.

The bears are ranting and raving about a recession or a bear market, but investors need to concentrate on something that I’ve been going on about now for some time.  It is worth repeating because in 2020—with hindsight—it will be the kind of thing that you say, “Oh, of course there wasn’t going to be a recession. Just look at what the long term yield curve spread was telling us in the fall of 2019.”

That’s what I said would come to pass. For all the same reasons, which I will illustrate below, it will pay investors to heed the rest of the signal from the long term yield curve spread.  I have used the nine months change in the US Treasury 30-year-10-year yield curve because it has a remarkable track record of leading ISM by about 16 months. See the chart below.  Thus, while equities sold off sharply on the weak ISM print, the bond market had seen this for the past 1.5 years.

I have been advising of the probability of a sub-48 print in ISM by September for many months now.  That’s exactly what happened last week, and it sent markets reeling. The Institu...

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