Measuring the risk of recession

Carl Icahn said yesterday that a recession “or even worse” was brewing. “I think there’s going to be a hard landing,” Icahn told CNBC. He’s not the only one issuing warnings about growth. Dallas Fed economists, in an analysis released yesterday, said that while the bulk of Russian oil exports were cut off for much of this year, “a global economic downturn seems inevitable.”

Stock traders appear more bullish, with the S&P 500 rising in five of the past six trading sessions, regaining much of the ground lost since its peak in early January. Signals from bonds are more mixed, but parts of this market also suggest traders are not betting on an impending recession.

Business Credit Check: For much of the past year, BBB corporate bonds — which are the lowest-rated debt still considered investment grade — have performed better, relative to government bonds, than higher-grade debt. rated a notch higher. “BBBs trade very tightly against single Aces,” Bank of America credit strategist Yuri Seliger told DealBook. The ratio of these bond spreads to public debt is the lowest in a decade.

When lower-rated corporate bonds do better, the economy usually follows. These riskier borrowers tend to show higher growth when the economy is good and higher default rates when the economy is bad. When investors believe the economy is headed for a recession, they tend to buy higher quality corporate bonds.

But a strong economy may not be the only reason these bonds outperform. Government stimulus measures during the pandemic have left most businesses with more cash and less debt. And fewer transactions in the bond market than a decade ago (bankers say this is due to tighter regulations) can cause momentum transactions to last longer than they should. “The way BBB bonds traded made sense over the past year,” Seliger said. But if the economy is heading into a recession, the trend should have reversed for some time, he added.

That said, government bonds are economic warning signs. The Treasury yield curve, which measures the difference between short-term and long-term U.S. government debt rates, has flattened recently, which is usually a sign of a recession. Last week, Larry Summers, a former Treasury secretary who warned of the effects of rising inflation, tweeted that he was “not surprised that the shape of the yield curve is pointing more and more towards recession”.

Jamie Dimon urges President Biden to boost gas production in the United States. In a White House meeting with CEOs, the JPMorgan Chase chief called for a “Marshall Plan” to help wean America and Europe off Russian fuel, Axios reports. It’s unclear how responsive Biden officials will be, given their pledges to cut U.S. carbon emissions.

US and Britain roll back Trump-era tariffs. Under the terms of a deal struck yesterday, America will lift some taxes on British aluminum and steel, while Britain will lift tariffs on more than $500 million of goods like American whiskey and blue jeans.

A Starbucks store in its hometown of Seattle votes to unionize. The 9-0 vote makes the store the seventh US location to form a union, out of nearly 9,000. More than 100 stores in more than 25 states ran for union office; Company officials — including Howard Schultz, who returns as interim chief executive — have made moves to improve relations with workers.

BuzzFeed’s first earnings report as a public company is in the news. The publisher, which recently merged with a SPAC, reported departures from top publishers and warned of slower revenue growth and losses this year. CNBC reported that investors have urged the company to shut down its news operation, which has won numerous awards but is losing money.

No survivors were found in the China Eastern plane crash. Rescuers scoured the hill in southern China, where a Boeing 737 crashed on Monday, to no avail. They are increasingly focused on finding potential clues to what went wrong.


The war in Ukraine gave a new twist to the movement to ban congressional stock trading. As lawmakers call for military aid — with billions in support on the table — some might profit personally through investments in arms manufacturers, rekindling long-standing concerns about conflicts of interest in politicians’ personal wallets.

“Legislators should not vote on military spending while they own or trade defense industry stocks. Period,” Senator Elizabeth Warren, Democrat of Massachusetts, told DealBook. She is a member of the Armed Services Committee and is the sponsor of one of two bills circulating to limit the activity of congressional actions. Imposing restrictions on trade is “a key step in preventing lawmakers from abusing their position for profit”, she said.

Representative Marjorie Taylor Greene, Republican of Georgia, wrote on Twitter on the eve of Russia’s invasion of Ukraine, that “war and rumors of war” were “profitable and convenient” excuses for economic turmoil and rising inflation. The day before, she bought $1,000 to $15,000 worth of Lockheed Martin stock, Congress Trading reported. Greene is one of at least 19 members of Congress with direct personal investments in companies making weapons destined for Ukraine, according to Business Insider.

A House committee is considering changing the rules governing lawmakers’ professions. It revised the STOCK Act, which sets out reporting requirements for transactions. He is considering new rules and penalties “to create greater transparency and accountability in Congress,” said Rep. Zoe Lofgren, a California Democrat and chair of the House Administration Committee, recently. A hearing on the matter was scheduled for last week but was delayed because a member has Covid, a spokeswoman said.

The committee’s review was launched after Speaker Nancy Pelosi agreed to consider a ban on individual stock trading by members of Congress. She had previously championed the practice. Yesterday, Congress Trading noted that Pelosi’s husband, an active trader, reported a trade in Tesla options worth $1,000,000 to $5,000,000.

Senate aides also come under scrutiny. The rules prohibit them from investing in industries under the jurisdiction of the committees they work for, but the Campaign Legal Center sent a letter last week to the Senate Ethics Committee about a handful of aides who have actions that seem to break the rules.


– Edward Alden of the Council on Foreign Relations, on how the pandemic and the war in Ukraine are earth-shattering ideas about how stronger global economic ties would lead to greater stability.

For nearly 50 years, the Transamerica Pyramid – the 48-story quartz tower with its distinctive geometry – has been an integral part of the San Francisco skyline. Now its owner, property developer Shvo, is introducing a sweeping renovation meant to mark the return of chic offices.

The Transamerica campus is being redesigned by Foster and Partners, the architecture firm founded by Norman Foster. The design mandate, according to Shvo founder Michael Shvo, was luxurious: an outpost of Club Core, the private members-only club, will occupy one floor; a living room and a gym will be in the middle of the pyramid; and a private bar for tenants will sit at the top.

“By the time we complete the renovation, you’ll feel like you’re in a Four Seasons hotel,” Shvo told DealBook. The one-block site will also gain new office and retail space, and the half-acre Redwood Park at the base of the tower will be renovated.

It’s a safe bet that the business world will reclaim the office. Shvo’s company purchased the site from Transamerica in October 2020 with the aim of transforming the William Pereira-designed site into a luxury corporate campus. “Our role is to help our tenants bring their employees back to the office,” Shvo said. But Shvo’s costly gamble – buying the property cost $650m and renovating the area will cost around $400m – comes as many corporate workers appear in no rush to return to offices downtown.

Shvo has signed a variety of tenants, including technology companies, law firms and venture capitalists. Equally important, he said, the renovations allowed the developer to roughly double rents, which when purchased in 2020 were around $70 to $100 per square foot, defying recent trends. from San Francisco.

Offers

  • Berkshire Hathaway’s $11.6 billion takeover of Alleghany specifically excludes coverage for fees paid to the target company’s bankers at Goldman Sachs. (Bloomberg)

  • Elliott Management and Brookfield may increase their takeover bid for Nielsen. (Bloomberg)

  • Crypto-focused investor Katie Haun has raised $1.5 billion for two venture capital funds. (Axios)

  • Koch Industries’ latest bet: US battery companies. (WSJ)

Politics

  • In pandemic news: Virginia, the first state to impose Covid work rules, lifted them; Omicron’s BA.2 subvariant now accounts for many of the new cases in many parts of the United States, according to one estimate; and here is an overview of the countries that still require masks on planes. (NYT, WaPo)

  • Disney employees walked out yesterday to protest the company’s response to Florida’s anti-LGBTQ bill. (NYT)

  • Several 9/11 victim groups are close to reaching an agreement on how to distribute the $3.5 billion in Afghan central bank assets sought to pay off lawsuits against the Taliban. (NYT)

The best of the rest

  • Tesla has officially started making cars in Europe after opening a $7 billion plan outside of Berlin. (NYT)

  • “The pandemic has destroyed millions of careers. These 6 people have built new ones. (NYT)

  • MacKenzie Scott has donated $436 million to Habitat for Humanity. (NYT)

  • “Divorce is down in China, but so are marriages” (NYT)

  • The Lollapalooza music festival lineup includes Metallica, Dua Lipa, Green Day and… Goldman Sachs CEO David Solomon. (CNN)

Thanks for reading! Well see you tomorrow.

We would like your feedback. Please email your thoughts and suggestions to [email protected]

About Joel Simmons

Check Also

Is recession imminent or have the bears seized Wall Street?

Wall Street has been in free fall since the beginning of this year, with the …