The problem with bracing for recession too soon

WED, AUG 21, 2019

YOUR AFTERNOON NEWS UPDATE AND MARKET ACTION FROM CNBC

AS OF WED, AUG 21, 2019 • 12:01 ET

DJIA		26258.17
		+1.14%	+295.73

S&P 500		2927.25
		+0.92%	+26.74

NASDAQ		8030.83
		+1.04%	+82.27

EDITOR'S NOTE

Back in 2012, one of my roommates was a guy who worked in commercial real estate for a major bank.

He was itching to strike out on his own and invest in some real estate he'd been eyeing in Brooklyn in a neighborhood that was just starting to get hot. I encouraged him to go for it. "Nah," he said. "It's too late. There's no way this cycle can keep going."

I told him that it might; that the credit markets were pretty hot and guys like Brian Reynolds were saying the next downturn was probably still several years off. But he thought valuations were already getting too lofty, and besides, we were all still scarred by the real estate crash of 2007-08. I totally understood his hesitation.

But that was seven years ago now--ancient history! And I often wonder what course his career ended up taking, and what might've happened if he'd taken the plunge at the time.

There's no sure way to know when these cycles are going to end. But like we discussed yesterday, it's definitely worth watching credit markets closely for confirmation--or not--that the cycle is turning.

People asked for a few more ways to follow this. Here are some suggestions:

> Watch spreads on corporate debt relative to U.S. Treasuries. The smaller they are, the more bullish that is. A quasi-proxy for this, if you have trouble looking that up, is to follow ETFs like HYG (junk debt) or LQD (investment grade). LQD today is trading at a 52-week high. (That's pretty darn bullish.)

> Check out the daily bond deal snapshot offered by places like IFR (one way to follow them is on Twitter). That's where you'll see things like 3M's debt deal Monday pop up.

> Subscribe to P&I's email newsletters, which often have nuggets like this one today on Calpers' portfolio tweaks, that tell you where demand for all this credit is coming from.

Exciting, right? ;-)

See you at 1 p.m.!

Kelly

Kelly Evans

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