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UBS: There’s a 31 Percent Chance of a Recession in Next Year

NewsMax  |  By F. McGuire

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A respected U.S. central bank official and a team of economic strategists have warned that the nation is flirting with the brink of a recession.

UBS Global Macro estimates a nearly one-in-three chance of a recession.

“UBS’ credit model, designed to find the likelihood of a recession over the next few quarters, considers four corporate credit measures: interest coverage, leverage, loan performance, and bank lending standards with recessions,” Business Insider explained.

“Based on the historical relationship between those measures and ensuing recessions, the bank’s model estimates the risk of a recession at 31% over the next year, from Q2’16 to Q2’17,” BI reported.

“While this hasn’t changed from previous estimates of 28-32% over the past few quarters, US recession risks remain elevated when compared to much of the post-crisis period,” BI reported.

“Elevating this recession risk, according to the UBS report, are debt growth, up 5.5% year over year, struggling domestic profits, which fell 5.4% quarter over quarter in Q2 in a sup rise to analysts, and tighter lending standards,” BI said.

Meanwhile, Boston Fed President Eric Rosengren on Friday said he wanted to raise interest rates this week to avoid a recession later, Reuters reported.

Rosengren said he had argued for “a modest, gradual tightening: out of a concern that not doing so would put the recovery’s duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession.”

“By 2019, I expect the unemployment rate to have declined below 4.5 percent. While I have a long track record of advocating for policy that supports robust labor market conditions, that is below the rate that I believe is sustainable in the long run,” Rosengren said in a statement. 

Rosengren dissented at this week’s Federal Reserve rate- setting meeting that left interest rates unchanged at a range of 0.25 to 0.50 percent.
Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester also dissented, saying they favored raising rates this week.

Neither has yet commented publicly on their reasons. It was the first time since December 2014 that three Fed officials have dissented although George has run against the grain at four of the past five Fed policy meetings.

In his statement, Rosengren said such a low unemployment rate risked overheating the economy, putting upward pressure on inflation and increasing financial-market imbalances, which could ultimately lead to recession.

The U.S. jobless rate currently stands at 4.9 percent.

The U.S. economy last entered a recession — defined as two consecutive quarters of year-on-year economic contraction — in December 2007, after the housing bubble burst, leading to a global financial crisis. That recession, dubbed the Great Recession, ended in mid-2009, making it the longest U.S. recession since the end of World War II, CNBC reported.

To be sure, Charles Biderman, CEO of TrimTabs Asset Management, warns that the U.S. and world economies are on the path to economic chaos.

“We’re in a manufacturing recession,” he explained to CNBC. And because of Brexit, “the world is entering into a global recession.”

He explained that a unique combination of economic and financial factors may possibly doom the U.S.

“The fuel for the rising market, which is stock buybacks, is declining. June was the least amount of stock buybacks in many a month. For the first half of this year, we have seen a one-third decline in announced buybacks,” he said. “That is the only fuel for us taking stock higher — companies giving money to shareholders by reducing the share count,” he said.

“We’re also seeing a dramatic decline in growth in the U.S. economy’s incomes,” he said. “Everybody talks about spending and GDP, but it’s incomes that count,” he said.

He said individuals are showing a 2 percent gain in income and that’s not enough to take the economy higher.

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