I continue to view this period as very similar to 1973, with recession imminent (technically defined; we are actually in a low grade depression). The blue forecast line in the graph below is judgmental.
In A phase space, it is clear that we are turning the corner into the downturn; it is only unclear how much longer the Fed can prop it up. We are at the point A = 1.5, Delta A (YOY change) = 0.8 on the graph below, which shows four decades of history. The slide downhill comes next, whether late this year or several years from now, it is hard to tell. There is no forecasting involved other than assuming the A attractor is relatively stable. This is really just to say that “the law of the business cycle has not been repealed.” I just find it hard to believe that with the incomes of roughly 90 percent of the American population falling in real terms, that even with the extraordinary lack of labor force participation recently, that a recession can be avoided in the near term. Perhaps we’ll have a recession without an increase in unemployment (in the sense of two or more quarters of negative real growth). Whether the NBER in its wisdom would find that to be a recession is totally irrelevant. What I am forecasting is the collapse of confidence that always accompanies the business cycle downturn, and I do believe people will be smart enough to smell the coffee at some point regardless of the published unemployment rate. Times are changing.
The adaptation level is now at 8.6 percent unemployment. Any uptick to within a “just noticeable difference” of that number will probably signal imminence of further decline. Just rising above 8 percent will probably have psychological significance.
I read the attack on paper gold as a harbinger of things to come. There is a lot of liquidity looking for a buy point. TPTB might decide a quick, “controlled” rout is in their interest.