Hugh Johnson: Economic recession likely

August 14, 2019 11:31 PM

GUILDERLAND - When the morning bell sounded on Wall Street on Wednesday, it was more like a warning bell.

"The US economy may very well be headed towards an economic recess," says Hugh Johnson, of Hugh Johnson Advisers in Guilderland.


Johnson says after the longest economic expansion in history, lower stock prices were kind of inevitable.

"Trees don't grow to the sky and sooner or later it's going to end and the message today was that indeed it may be ending right now," Johnson asserts.

Ending because of a phenomena known as the Inverted Yield Curve, when interest rates on long term securities are lower than those paid on short term securities.

"So when the Yield Curve inverts it does signal that we're heading towards a recession most of the time and you need to take it very, very seriously," Johnson advises, "You have to look at everything."

Everything includes tariffs, which experts say are hurting US consumers and some businesses. Dangers of a recession include: likely job losses, 401Ks and other retirement accounts that would lose value; and for those with credit issues, it could be harder to borrow money.

"We're going to see a slow down in the economy and we're going to see hiring is going to get less robust," Johnson predicts.

Part of the problem too, Johnson suggests, and something that threatens to send investors on kind of an economic roller coaster, is the ongoing trade war with China.

President Trump blames the Federal Reserve for the current state of the economy, tweeting Wednesday: We should easily be reaping big rewards and gains, but the Fed is holding us back. We will win!

"His statements and tweets do influence the financial markets," Johnson says, "You see a lot of volatility when he says things such as I'm not going to play ball with China."

History tells us recessions typically trail the Inverted Yield Curve by about a year. There has been a recession, Johnson points out, each of the last seven times the Inverted Yield Curve has occurred over the last 50 years.


Dan Levy

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