Economist cautions of potential blowoff top in stocks and crypto leading to severe recession
In the past few months, there has been a lot of talk about a potential recession in the United States as various economic indicators begin to show negative signs. A macroeconomist named Henrik Zeberg recently warned that the US economy could be on the brink of one of the worst recessions in history. In a post made on June 6th, Zeberg pointed out that this recession could follow a period of strong growth in the stock market and the cryptocurrency sector.
Zeberg predicted a significant drop in two-year Treasury yields, which historically has been a sign of an impending recession similar to the Great Depression of 1929. He shared a chart that compares these yields with the Federal Funds Rate, showing that changes in market yields have often come before actions taken by the Federal Reserve. The chart also looked at the Relative Strength Index (RSI), which indicates momentum in price movements. Large bearish patterns in the RSI have preceded market crashes, suggesting that a significant decline could be on the horizon.
According to Zeberg, a crash in two-year yields is imminent, along with clear signals of an upcoming recession. Traditionally, declining Treasury yields show that investors are seeking safe-haven assets due to economic uncertainty, leading to higher bond prices. This trend often occurs before a market downturn or recession.
With the possibility of a blow-off top in US equities and cryptocurrencies, there could be a final surge in asset prices before a sudden drop. This surge is usually driven by speculative buying, setting the stage for significant market corrections or crashes. While large-cap companies have been driving the recent market rally, cryptocurrencies like Bitcoin are attempting to break through key resistance levels.
The Great Depression of 1929 serves as a reminder of the severe economic downturns that history has seen. It was marked by widespread unemployment, deflation, and significant drops in industrial output. With various indicators pointing towards a potential recession, questions remain about when it might strike. According to Game of Trades, a platform for investment research, the recession is likely to hit in the latter half of 2024 based on the 10-year/3-month US Treasury curve, known for its predictive abilities in predicting economic contractions.
