On December 12th, the risk-aversion sentiment in the U.S. financial market made a strong comeback, with the market's optimistic mood dissipating completely. The CBOE Volatility Index (VIX), a measure of market volatility, rebounded sharply by over 15% from its yearly low. If the current U.S. market is likened to the super volcano of Yellowstone National Park, then the U.S. stock market is the eruption point of this active volcano. U.S. financial funds are fleeing en masse to avoid risks, and six major signs indicate that the U.S. economic downturn has already begun. Now, including most economists, Goldman Sachs, Bank of America, and JPMorgan Chase, Wall Street investment banks believe that the current situation will be worse.
The renowned investment fund Coolabah Capital Investments analyzed in its published report that the U.S. economic recession risk prediction model based on the U.S. bond and stock markets is now indicating a severe recession risk for the U.S.
Although Federal Reserve Chairman Powell hinted that the pace of interest rate hikes would slow down in December, the latest releases, including non-farm employment, ISM service index, and Producer Price Index (PPI), all warned of the stubbornness of U.S. inflationary pressures. This has intensified Wall Street's concerns that the Fed might adhere to its tighter policy of higher interest rate expectations for a longer period, leading to worries that the U.S. economy will go into recession.
For most of 2022, there has been much debate about whether the U.S. economy is in recession, heading towards recession, or about to turn in a positive direction. Unfortunately, almost all data now tell us that as the approach of early 2023 nears, the condition of the U.S. economy begins to deteriorate rapidly. Even extremely optimistic business leaders like Jeff Bezos have warned to prepare for tougher times.
In the past week, several executives from major U.S. banks, including Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, have expressed pessimistic views. JPMorgan Chase CEO Jamie Dimon warned that stubbornly high inflation could trigger a U.S. economic recession in 2023, as a plummet in U.S. assets would lead to a depletion of consumer spending, and funds in the U.S. financial market would flee en masse to avoid risks.
According to data released by Refinitiv Lipper on December 11th, in the week ending December 7th, U.S. stock funds saw a net outflow of $26.66 billion, setting the largest record since April 2021. The net sale amount of U.S. Treasury bonds was even higher, reaching $32 billion. At the same time, according to calculations based on CFTC data, the net short position of the U.S. dollar jumped to the most since July 2021 in the latest week, and the net short position for shorting 5-year and 10-year U.S. Treasury bonds also reached the highest since September.
The GSDE model of the New York Fed (the Fed's "internal reference") showed in its latest forecast released on December 11th that the U.S. would experience a negative growth of 0.5% in 2023, with an 85% probability of experiencing a major recession like that of the 1990s, and only a 10% chance of achieving a soft landing. This is because when the Fed raised interest rates aggressively in the early 1980s, it directly led to one of the most painful major recessions in U.S. economic history. Additionally, as of December 10th, the search volume for "U.S. economic recession" on Google Trends also set a new high since 2003.
The U.S. economy is about to enter a very rapid recession, which can be seen from many aspects. This also indirectly confirms the earlier report by the BWC Chinese website team that the "U.S. economy has already begun a hidden recession" would be more accurate. Here are the six major signs we have been waiting for, indicating that the U.S. economic recession has already begun.
The first sign is that in the past two weeks, the sharp rise in short-term bond interest rates has caused the key U.S. Treasury yield to invert again. Among them, the two-year to 10-year U.S. Treasury yield curve, a key indicator of recession, has also inverted. The inversion of the U.S. Treasury yield curve is a harbinger of an economic recession and depression.
As of December 9th, 62% of the yield spreads of 10 different maturities of U.S. Treasury bonds tracked by the team were inverted. Therefore, if the number of inversions increases, this will confirm a U.S. economic recession. However, to make matters worse, as the Fed continues to raise interest rates, more curves will invert.The second sign is that the U.S. housing market has never been in such disarray since the last real estate market crash. As of November, U.S. home prices have fallen for three consecutive months, and existing home sales have declined for nine consecutive months. According to data from the National Association of Realtors (NAR), home sales across all regions of the United States have seen double-digit declines compared to a year ago. The West saw the largest drop at 37.5%, followed by the South with a 27.2% decline, the Midwest down by 25.5%, and the Northeast down by 23.0%.
The third sign is that the U.S. Purchasing Managers' Index (PMI) determines the economic health of the manufacturing sector. A reading above 50 indicates expansion in manufacturing. Surprisingly, the Chicago PMI survey released on December 1 showed a reading of 37.2 (expected to be 47.0), falling to the lowest level since the peak of the COVID-19 lockdowns in 2020. Throughout the survey's history, the Chicago Purchasing Managers' Index has only fallen below 40 during U.S. economic recessions.
The fourth sign is that, according to a survey report released by the National Federation of Independent Business (NFIB) on December 10, the business sentiment indicator expecting an improvement in business conditions over the next six months has reached its most pessimistic point in the survey's 48-year history. 59% of U.S. manufacturers believe that a U.S. economic recession has already arrived.
The overall confidence expressed by all members of the federation in the U.S. economy is at a historically associated level with deep recessions and bear markets. Not only the confidence of U.S. small businesses but also that of CEOs of almost all major U.S. companies has declined and continues to worsen.
The survey report indicates that U.S. business executives are preparing for an almost inevitable recession in 2023. These U.S. business executives and economists are increasingly concerned that a hawkish Federal Reserve will continue to cause a more severe negative cycle impact on the U.S. financial markets, real estate, and corporate performance, leading to a mass exodus of funds from the U.S. financial markets.
The fifth sign is that with the sharp drop in U.S. stock prices in 2022, this has led to nearly $3 trillion being wiped out from Americans' retirement accounts. It has also caused the loss of trillions of dollars in value from Americans' retirement savings.
The sixth sign is that the flow of funds data report released by the Federal Reserve on December 11 also shows that due to the stock market slump, the decline in U.S. household net worth has set a historical record. U.S. households lost $8.1 trillion in the second and third quarters of this year, which is the largest quarterly loss ever recorded (greater than the total loss reported in the first quarter of 2020), of which $7.7 trillion in stock value held by households has vanished.
Most importantly, as the U.S. economy rapidly enters a recession expectation, inflation continues to erode purchasing power, and consumer demand is eliminated, the risk of a U.S. economic recession may be higher than many people realize, causing Americans to bear greater losses from financial market turmoil. The recent panic exit of investors in the U.S. financial market is the latest evidence.
The financial research team found that on December 12, the highest value of Libor, an important indicator of interbank lending costs, rose to 5.662% (climbing 46.9% from the beginning of the year), indicating that U.S. debt liquidity is becoming more and more scarce, making it more difficult for U.S. companies to obtain low-cost funds.
Goldman Sachs' report published on December 10 believes that the risk of debt default in U.S. leveraged loans is the greatest, with the possibility of an implosion, directly triggering an explosion in U.S. financial asset prices. For example, public pensions have always been an undisputed fact of the U.S. debt financial "bomb".Subsequently, the American financial website ZeroHedge reported on December 11 that the United States has already seen a massive migration of millionaires in cities due to debt and inflation crises, truly enacting an American version of "Exodus," and even groups of Americans have moved to Mexico to escape high inflation in the United States.
For example, in recent months, more than 8,000 millionaires have been fleeing Chicago, the largest city in Illinois, in record numbers. The foreign media stated that this phenomenon of American millionaire migration is also evident in other high-tax states. Such as West Virginia, Louisiana, Hawaii, Mississippi, Alaska, Connecticut, and Wyoming, and Illinois is just the beginning. The exodus of these American millionaires is revealing that the U.S. economy has already begun to decline, and this cover-up for the U.S. economy has officially been lifted.