As Ray Dalio Puts Recession Odds At 40%, Here’s A Chart Trio And A Message From Kudlow

“Is a recession in the US inevitable?”, an impatient Christine Tan pressed, attempting to focus Ray Dalio during a somewhat rambling CNBC interview late last week.

Ray has a tendency to veer off onto the rumble strips whenever he gets to musing about the epochal shifts taking place across western democracies, and while those of us with the luxury of time are more than happy to entertain those tangents, television anchors occasionally have to coax him back onto the highway.

“Well, of course, recessions are always inevitable, the only question is when”, Dalio responded.

(If the video does not load, please refresh your page – full clip here) 

There you go. “I think that in the next two years, let’s say prior to the next election, there’s probably a 40% chance of a recession”, Ray reckons.

That is largely a nebulous soundbite, and through no fault of Dalio’s. He was trying to get through his usual list of profound talking points (which always includes allusions to the 1930s, related discussions of populism and somewhat incisive critiques of late-stage capitalism, among other things) but that just wasn’t the forum, apparently.

Jokes aside, Dalio also discussed prospective currency wars and said he wouldn’t rule out Beijing weaponizing its stash of US Treasurys once both sides in the Sino-US spat begin looking to inflict “maximum harm” on each other.

When it comes to the recession story, the truth is that Ray can’t pinpoint the onset of a downturn any better than any other intelligent person, although unlike Peter Navarro and Larry Kudlow, he does understand that there is an elevated chance of the longest expansion in US history finally taking a bow sometime relatively soon.

Recession clickbait is now all the rage again (just as it was in December, by the way), thanks to last week’s “crazy” 2s10s inversion. Seeing as how we already know what the yield curve is “saying”, we might as well look at other indicators, right? Or, asked differently, has there ever been a better time for a generic recession indicator article like this one? We think not!

“The risks of a recession have increased, and we are now very much on ‘recession watch'”, BofA said Friday, noting that they are hardly alone in looking anxiously out to sea for signs of the coming squall.

“The latest Bloomberg survey shows that the consensus believes there is roughly a 35% probability of a recession over the next 12 months”, the bank writes. That’s roughly on par with levels seen in and around the Eurozone debt crisis.

(BofA, from BBG)

BofA continues, citing the Survey of Professional Forecasters, which queries folks on the probability they would put on negative real growth over the next four quarters. That gauge shows respondents on average see a 26% probability, the most elevated since the crisis.

(BofA, Philly Fed)

In explaining why the probability of negative growth is actually higher now than it was around the GFC, BofA writes that “back then… the shock moved quickly and abruptly, taking people by surprise [while] today, the trade war is a slow motion train wreck and the wounds from the Great Recession are still fresh”.

(You’ve got to love how people have now completely given up on sugar coating things when it comes to the trade war – it’s a “slow motion train wreck”.)

Finally, the bank cautions that the Fed itself is concerned. “Looking at the last SEP in June, while many officials generally penciled in a benign growth path, most see the risks skewed to the downside”, BofA recalls, adding that “the last time there was such heightened downside risk was in 2012 when there was concern around the European sovereign debt crisis and the implementation of fiscal austerity measures in the US”.

(BofA)

This is all too depressing, though, wouldn’t you agree?

Let’s bring in Kudlow and his “theme” to brighten things up. Take it away, Larry:

That’s better. Thanks, Larry.