published: Jan. 29, 2018, 4:08 p.m.

The Next U.S. Recession (View from '18)

The next downturn will be driven by deteriorating household balance sheets. The following factors are especially critical:

I. Falling Personal Saving amid resurgent Animal Spirts:

II. Skyrocketing healthcare costs, falling insurance coverage rates, and an aging population:

III. Growing Debt Burdens among the young people who entered school to escape the last downturn:

IV. Explosion in non-housing debt amid monetary tightening:

These factors merit close attention, as opinion leaders advance the "boom" narrative.

published: March 28, 2018, 4:06 p.m.


Recent stock market declines undermine the "boom" narrative that was ubiquitous in January. For much of 2017, value investors interpreted elevated CAPE as bad omen for U.S. Stock investors - and as a signal to diversify outside the U.S.

To the degree that stock values are determined by earnings (and concomitant dividends), high CAPE levels should concern "value" traders, and excite covered call sellers and put option buyers. The connection between the change in real dividends and the change is CAPE is worth exploring in this regards. Here's a look at the relationship between the log of CAPE and the log of Real Dividends:

published: May 10, 2018, 4:13 p.m.

Trough Unemployment?

The connection between the US Saving Rate and the unemployment rate has historically been positive - rising unemployment coincides with rising household saving. This is due to the fact that as because households temper spending, firms reduce hiring, thereby increasing unemployment.

As saving and unemployment rates remain below trend, it's unclear which of the two will rise first. My suspicion is that we've reached trough saving rates in the U.S. (between 2%-3.5%) and that this fact portends a rise in the unemployment rate in coming quarters. QE unwinding might complicate this analysis, however.

For the those so inclined, here is a GitHub repository examining the relationship between personal saving and unemployment: