2007 Redux

Virtually everyone has thrown in the towel on the recession call this year (not us), just as they did prematurely in 2007

The year 2023 has been a “soft landing” transition much like in 2007, when the consensus and many market participants mistakenly assumed the recession would never come, and failed to see that we were on a bridge morphing from the expansion phase of the business cycle to the contraction phase. People talk about the fact that there are no asset bubbles this time around but, in fact, both the housing and equity markets are more expensive today relative to incomes and profits than they were at the 2006-07 bubble peaks. Pundits claim that balance sheets are in terrific shape compared with 2007 but that begs the question as to why credit card and auto loan delinquencies are rising inexorably and in advance of any deterioration in the labor market. Yes, the banks are very well capitalized today, but the leverage is concentrated in the non-bank “shadow” finance market (as in private debt equity and leveraged loans).