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The Challenge: Recession

Recession or no recession - that is the question. Or is it?

The challenge: good data on both sides, supporting contradictory conclusions.

Yes, rates may go back down and drift in between 6%-6.5%. Treasury rates don’t necessarily need to drop for that to happen - but the gap between the 10 year Treasury and mortgages needs to close up, and get back down to the historical average of 1.5%-2%.

However, the attached charts from Mikael Sarwe (twitter), Head of Strategy & Research Sweden at Nordea Markets, clearly indicate a recession:

But on the other hand, employment is still very strong, housing demand - a major driver of GDP - still exceeds supply, and consumer balance sheets are in a solid position. So it’s not that bad. Yet.

Based on the long tail of Fed interest rate increases, and when you look at the CNBC headlines stating that "More Americans are in a bind as inflation forces them to dip into their cash reserves to cover basic necessities” - it looks like the worst is yet to come.

That’s unfortunate, not just because Americans are going to need that money in the coming year and the next one. It’s unfortunate because by putting a price on risk we could lower the household debt and create significantly better cash flow for households, so they won’t have to deep into their savings anymore.

Rates may continue to drop into the 5% when the recession begins to be realized - but it means we don’t have more time to waste.

Contigo Capital’s Risk-Transfer model is in late development and will be launched soon.

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