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Tags: bank of america | subramanian | economy | recession

Bank of America's Subramanian: Some Economic Indicators Predict Recession

Bank of America's Subramanian: Some Economic Indicators Predict Recession

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By    |   Monday, 10 October 2016 06:20 AM EDT


Bank of America Merrill Lynch warned that the United States shows “evidence for an imminent recession.”

"While the range of signals is wide, in aggregate they do suggest that, if data were to continue to weaken in line with the recent pace, history would point to a recession in the second half of 2017," wrote Savita Subramanian, head of U.S. equity and quantitative strategy.

"But in examining some of some of our favorite indicators' recent trends, we did find evidence for an imminent recession," she wrote.

She "looked at five main macro factors to determine what they are saying about a recession: the two-year Treasury yield vs. the 10-year yield, the ISM manufacturing index, building permits, temporary-help job growth, and commercial and industrial loan growth," Business Insider wrote.

"By looking at what each of these indicators did before previous recessions over the life of the indicator, Subramanian came up with an estimate of where we are in the business cycle," BI reported.

"In this scenario, the range of potential recession start dates implied by these models was as early as July 2016 and as far off as April 2019, with an average start date of October 2017," Subramanian wrote.

She said that some macro indicators such as consumer confidence and initial jobless claims would indicate that a recession is far off.

"Large cap active managers have the highest cyclical exposure since 2012 and their overall beta exposure is near cycle highs," the note said.

"Meanwhile, equity funds (mostly passive) have seen over $100bn more inflows over the last five years than during the same period ahead of the 2007 market peak. We also estimate that US household equity exposure has risen to levels similar to where markets peaked in 2007."

She isn't alone in her warnings about the economy.  

Peter Boockvar, chief market analyst at The Lindsey Group, says that for investors, it doesn’t matter who wins the presidential race – the looming recession and bear stock market should be your greatest concern. 

“As we are in the second longest bull market of all time and as we approach the eighth year of this economic expansion (however punk), odds are high that whoever the next president is they will preside over a recession, a bear market and rising debts and deficits,” he wrote for CNBC.com.

“But how the markets react over the next four years may not be that different regardless of who is president,” Boockvar wrote. “We are in the midst of the third major asset price bubble in the past 15-20 years. Unfortunately this is the biggest one ever, manifest mostly in sovereign and corporate bonds. All assets priced off low rates are thus by extension in a bubble as well. Therefore the behavior of central bankers and the influence of global interest rates will be the main driver of asset prices over the next four years, not the next president,” he wrote.

And he isn't alone in predicting that the winner of the contentious presidential race will ultimately have little effect on markets. One of the most beloved financial gurus bluntly says it doesn't really matter who wins the White House.

A Trump presidency wouldn’t be the blow to U.S. business that some fear, according to Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., Bloomberg reported.

“If either Donald Trump or Hillary Clinton becomes president, and one of them is very likely to be, I think Berkshire will continue to do fine,” Buffett, 85, said at the company’s annual shareholders meeting in Omaha, Nebraska.

Buffett, who has criticized Trump in the past and scorned politicians’ pessimism about the country, looked past the current voter angst for a longer view of U.S. economic prospects.

“Twenty years from now, there’ll be far more output per capita in the United States in real terms than there is now. In 50 years, it’ll be far more,” Buffett said. “No presidential candidate or president is going to end that. They can shape it in ways that are good or bad, but they can’t end it.”  

(Newsmax wire services contributed to this report).

© 2023 Newsmax Finance. All rights reserved.

Bank of America Merrill Lynch warned that the United States shows “evidence for an imminent recession.”
bank of america, subramanian, economy, recession
Monday, 10 October 2016 06:20 AM
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