Signs Are We're Heading Toward Recession

The United States is currently in the second longest economic boom of all time, followed only by the expansion between 1991 and 2001. And as they say, "all good things..."

Obviously the Dow plunging 800 points last Wednesday certainly doesn't foreshadow good things to come. That being said, timing exactly when we will dip into a recession (and how bad that recession will be) are fool's gold. But it appears more and more likely that we are nearing that point. 

First, from MarketWatch,

​​The average stock today is trading at 73% above its historical average valuation. There are only two other times in history that stocks were more expensive than they are today: just before the Great Depression hit and in the 1999 run-up to the dot-com bubble’s bursting.

MarketWatch also notes that the so-called "Buffet Indicator" (the market value of all equities divided by the GDP) is also nearing historic highs. (It was at 151.3% prior to the Dot.com bubble and is at 125.2% today).

In addition, the yield curve is flattening and beginning to invert. "An inverted yield curve is," as Investopedia describes,  "an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality." Normally, investors want to be compensated for risks that may come down the line on longer-term bonds. When the yield curve inverts, that means investors are concerned about the short term; i.e. a recession looms. Here's how it looks today (and compare it to 2008 right before the Great Recession):

Inverted yield curves have predicted the last seven recessions!

Of course, a flattening yield curve is not an inverted one and there's no way to be sure it will completely flip (or that the eighth time will be like the previous seven). We always need to be cautious of the guy who has predicted nine of the last two recessions. 

That being said, the signs don't look good. An after over nine years of growth, we're kind of due.