John Taylor, CEO of FX Concepts, a currency trading firm with $8 billion under management says "We'll be in a recession by the end of the year. Three reasons: QE2 will end, Republicans are running the House, and the price of gas is heading up."

Video

Taylor also takes a look at global currency programs in foreign exchanges and he also discusses the problems facing the ECB.

Eurozone Interest Rates

Taylor thinks interest rates should be 5% in Germany and 0% in Greece but that is impossible. I don't know where they should be because rates should be set by the free market not a bunch of central planners. Moreover, it was government bureaucrats not the free market that created an EU currency union with no fiscal controls on individual countries..

I believe there is no correct solution as to where rates should be. Some countries will be on the short end of the stick regardless of what the ECB does.

Recession Odds Depend on Definition

If one defines a recession as measured by 2 consecutive quarters of negative GDP it is possible but highly unlikely. Taylor does think we see two consecutive quarters of negative growth. On that I disagree.

However, the NBER, the official arbiter of recessions, does not define recessions that way. The NBER looks at a range of factors and pegged the last recession as starting in November 2007, well before there were two quarters of negative growth.

Regardless, I think a significant global slowdown is coming and a reasonable chance we see a recession in 2012 heading smack into the next presidential election.

Those waiting for a fully inverted yield curve signal or even a 2-year treasury inversion with the 10-year treasury will not get a signal because the Fed has the short-end of the curve artificially pegged at zero percent while the long-end of the curve is pressured by huge budget deficits.

However, we could see inversion on parts of the curve. For example 2-year treasuries could invert with 3-year treasuries, 5-year treasuries with 7-year treasuries, or 7-year treasuries with 10-year treasuries. The current spreads are 53 basis points, 32 basis points, and 61 basis points respectively. The one to watch closely is the 5-year to 7-year spread.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.