Originally published on frontruncrypto.com — click here to subscribe for free.
Dear frontrunners,
Previously we discussed the dispersion of opinion with respect to economists’ ability to answer the following question: “Are we in a recession?”. We explored how institutions quantify the word “recession” and what macroeconomic indicators are used. The general consensus is there is no consensus. Some institutions reference the 3M/10Y yield curve inversion, some firms rely on a composition of metrics that assess economic health across a spectrum of market indicators, and some firms organize behind “proprietary algorithms” where they don’t disclose any details.
Below is Goldman Sach’s recession forecast for 2023 with an assigned probability of 35%. Aggregated against a backdrop of ~500+ other forecasts with a median probability of 65%. Every forecaster has a different opinion. The net-net is an abundance of noise with no actionable insight.
I subscribe to the philosophy of beauty in simplicity and defer to the 3M/10Y yield curve inversion as the barometer for a recessionary environment. It has been an accurate predictor since 1950 and is easy to understand. When the yield of a 3-month treasury is > the yield of a 10-year treasury, the yield curve is inverted, an economic predictor of an…