In today’s chart blog, we see crude oil production hit a record high, a projected recovery for lagging small caps, and try to catch a glimpse into the future. How long after a 10-2 year yield curve inversion have recessions typically begun, and will the soaring deficit—now expected to top $1 Trillion in 2020, per the CBO—hamstring government intervention when a recession does arrive? Meanwhile, negative-yielding debt continues to expand, and even the U.S. 10-year TIPS has gotten in on the trend.
While today’s economic news is largely mixed, our excitement for the holiday weekend is not: wishing you all a safe and happy Labor Day!
1. Does anyone remember the peak oil fears? Don’t bet against U.S. ingenuity!!
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%207.png?width=570&name=8.30%20chart%207.png)
Source: WSJ Daily Shot, as of 8/29/19
2. Why have small caps lagged YTD? It is all about earnings…
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%206.png?width=577&name=8.30%20chart%206.png)
Source: StockCharts.com, as of 8/30/19
3. Is the August collapse in U.S. bond yields predicting a slowing economy? Well, our 2Q19 GDP was revised down to 2% and 3Q19 looks even weaker…
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%2011-2.png?width=561&name=8.30%20chart%2011-2.png)
Source: Oxford Economics, as of 8/30/19
4. Historically, once the 10s-2s inverts, how long has it taken for the onset of a recession?
![](https://blog.investbcm.com/hubfs/8.30%20chart%205-2.png)
Source: Deutsche Bank Research, as of 8/29/19
5. Will this mean the next recession, whenever it arrives, will be particularly painful?
![](https://blog.investbcm.com/hubfs/8.30%20chart%204.png)
Source: CBO & J.P. Morgan, as of 8/29/19
6. After a yield curve inversion, another historical “sign” of a pending recession is the drop off in employment. Is Germany leading the way?
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%209.png?width=550&name=8.30%20chart%209.png)
Source: Pantheon Macroeconomics, as of 8/30/19
7. The Federal German Government will make over 6 billion Euros this year by selling negative yielding debt. This is not rational long-term, but the markets can stay irrational for long periods of time!
![](https://blog.investbcm.com/hubfs/8.30%20chart%203-1.png)
Source: WSJ Daily Shot, as of 8/29/19
8. And for those who doubt whether U.S. yields can go negative, it is already starting!
![](https://blog.investbcm.com/hubfs/8.30%20chart%201.png)
Source: WSJ Daily Shot, as of 8/29/19
9. As China lets the Yuan fall, other EM nations like Vietnam are seeing their currencies rise. Will the currency differential inhibit U.S. companies from shifting from China to other EM countries?
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%202.png?width=562&name=8.30%20chart%202.png)
Source: J.P. Morgan, as of 8/29/19
10. Remember the Chinese tariffs targeted most of these red states…
![](https://blog.investbcm.com/hubfs/8.30%20chart%2010.png)
Source: The Economist, as of 8/30/19
11. Finally, a positive surprise out of Japan. We will watch the trend…
![](https://blog.investbcm.com/hs-fs/hubfs/8.30%20chart%208.png?width=469&name=8.30%20chart%208.png)
Source: WSJ Daily Shot, as of 8/30/19