QUOTE OF THE WEEK
“On flag, one land, one heart, one hand, one nation, evermore!” – Oliver Wendell Holmes
TECH CORNER
I don’t have much to report this week. On Friday we will get the Unemployment numbers for June so I will wait to comment on that next week. Unemployment is really important.
There are two Coincidence Indicators confirming when we are in a recession, unemployment and credit spreads.
Rising unemployment is an obvious indicator. The higher unemployment goes the fewer people there are working, thus not drawing a salary. If you are unemployed, you cut back on spending. This means when there is less spending, there is less income for companies that produce whatever goods you would have previously purchased. That company then lays off workers and it turns into a vicious cycle of more and more layoffs.
A Credit Spread is the amount in interest a company has to pay to borrow money. The credit spread is normally figured by how much a company has to pay in interest over the interest rate on the risk free 10-year U.S. Treasury. The cost of borrowing going up is a negative for earnings leaving companies with two choices: either lay off workers or cut their hours leaving them less to spend.
When both of these indicators rise enough, we are in a recession which then feeds on itself.
As of now we are seeing unemployment rise but we haven’t seen an increase in credit spreads.
Friday‘s unemployment report should tell us a lot.
