Jeremy Grantham: Most Ancient Recession Predictor Indicates Recession Pending

In his latest letter, Jeremy Grantham says the most ancient recession predictor is indicating a recession is pending. Here’s an excerpt from the letter:

Other factors suggesting a long or delayed decline include the fact that we start today with a still very strong labor market, inflation apparently beginning to subside, and China hopefully regrouping from a strict lockdown phase that has badly interfered with both their domestic and international business.

But the most ancient and effective predictor of future recession, the 10-year minus 3-month yield spread (see Exhibit 2 below), is now clearly signaling recession within the next year. This spread has gone negative only 8 times in the past 50 years and all 8 times have been followed by recessions.

To rub it in, there have been no other recessions. That is, every one of them was preceded by a negative reading. Not bad.

You can read the entire letter here:

Jeremy Grantham: After A Time Out, Back To The Meat Grinder