Credit Suisse is still in the weak economy, but stay long equities camp. They say the risk of a double dip is very low and history backs their claims. They note that no recession has occurred within the current type of environment:
“We note that each US recession since 1960 has been preceded by all the following factors:
- A flat or inverted yield curve (10-year minus 3-month);
- Positive real short-term rates (3-month minus core CPI);
- Excess inventories of finished goods (inventory level above trend);
- The growth rate of lead indicators falling to zero (based on the Conference Board index of leading indicators).
In particular, over the past 60 years, there has not been one recession in the US where the yield curve was steeper than 0.7% (compared to 2.8% currently), real short-term rates were lower than minus 0.3% (now -0.8%), inventories were more than 3% below trend (now 17% below) or the Conference Board index of leading indicators rose more than 1.6% on a 6m basis (now 3.9%) six months before the start of the recession. That is to say: the preconditions for a double-dip in the US are not place.”