The benchmark 10-year bond yield has steadily fallen since mid-February.

This may well reflect some angst about a slowdown in the economy, according to David Rosenberg, the chief economist at Gluskin Sheff.

Forecasting recessions is hard; a few months before the most recent one, the Fed said there was "scant evidence of negative spillovers from the ongoing housing correction to other sectors of the economy."

I find it interesting that since the yield on the 10-year Treasury note peaked in the third week of February, the S&P 500 has done diddly squat. The yield has come down nearly 15 basis points, while the stock market has not gone up and the volatility remains intense.

So this tells me that while the first leg down in late January and early February reflected in part the tensions from sharply higher bond yields, this latest round of angst may well reflect what is happening in the economy.

In barely more than six weeks, the Atlanta Fed has slashed its Q1 real GDP growth forecast to 1.9% from 5.4%. And just once in the fifteen instances since 1980 that growth came in south of 2% in the first quarter, did the real GDP trend for the entire year manage to come in above 3%. Some nice side bets can be made on that factoid, don’t you think?

The Atlanta Fed GDPNow tracker for Q1 was revised to 1.8% from 1.9% on Friday. Atlanta Fed

On average, years in which the first quarter failed to break above 2%, the average pace for the entire year is just 1.2%. Escape velocity, nine years into this cycle, is as elusive as ever, even with the easiest monetary and most accommodative fiscal policy in modern history. Too many aging people with shifting spending habits and too much debt acting as a pervasive constraint on aggregate demand.

If you noticed on Thursday, the S&P 500 did close just a smidge below the 50-day moving average (closing at 2,747 while the trendline is at 2,748). The next technical stop for a technically-driven market is 2,577 or 170 points away at the 200 day trendline. Interestingly, a test of the 50-day moving average on the 10-year T-note would mean 2.75%, or 6 more basis points away, and the 200-day moving average is 2.40% so keep that in mind.

The prospect for a radical short squeeze given the near-record overhang of negative speculative bets on the CBOT is rather considerable. I think we will have to clear out those massive shorts before the bond bears will be able to reassert themselves, if at all. Outside of my good pal Lacy Hunt (over at the legendary bond firm, Hoisington Investment Management), the sentiment on Treasurys at last week’s SIC event in San Diego (the famous “John Mauldin” conference) was universally negative. Though to be fair to the new Bond King, Jeff Gundlach, he did say his conviction level was only registering at a 6 out of 10.

What the bond market is saying

With all this in mind, why hasn’t the 10-year yield broken above 3%? Even with higher inflation readings as of late, these are lagging indicators.

10-year Treasury yield Markets Insider

What the bond market could be reflecting is this erosion we are seeing in the data, like real retail sales which sagged 0.2% in February and down at a 4.4% annual rate over the past three months. Take note that, in the past, when we posted anything close to a 300k nonfarm payroll print, the corresponding real retail sales number was +0.4%, not -0.2%! Alternatively, whenever we have seen a -0.2% reading in real retail sales, it coexisted with a +165k employment reading, half of what the BLS (maybe we should take the L out of that acronym) reported for last month. All the pundits claim that the believable number is payrolls and that sales are just plain "noisy" … classic case of fitting the narrative to your forecast.

But as we saw in Canada with blowout jobs numbers in November and December, which whipsawed the markets at the time, the jobs strength was a complete aberration. Even if the US employment data are believable, if the buoyancy is coupled with either weak productivity or a rising savings rate, aggregate demand growth, which is what GDP is, can remain soft. This indeed seems to be the case.

So as the tax relief comes in, it seems to be siphoned into things like interest charges as it is pay the piper time' from the credit card blowout in Q4; the gas tank as prices at the pump move higher; and into the utilities bill … and not just home heating, but water too!

It's hard to call a recession

As I highlighted in recent days, the VIX has so far averaged more than 50% above last year’s sleepy level, and the last and only time this has happened in the past was in 2008 (as we "celebrate" the decade anniversary of Bear Stearns’ demise). I also noticed that the 2's/5's yield curve has flattened to a mere 35 basis points, exactly where it was in November 9th, 2007. The recession that nobody (except a few…) saw coming was just a month away.

Markets Insider

In case you think that calling for a recession is that easy or apparent, even when it is staring you in the face, check out these excerpts from the minutes of the October 30-31st, 2007 FOMC meeting and draw your own conclusion.

Most of Wall Street was little better, believe me in November 2007. The Wall Street consensus forecast for real GDP growth for the ensuing four quarters was +2.5% and there was not one negative quarter, meanwhile what actually happened was a 2.7% GDP contraction and three of those four quarters were negative! To wit:

In their discussion of the economic outlook and situation, and in the projections that they had submitted for this meeting, participants noted that economic activity had expanded at a somewhat faster pace in the third quarter than previously anticipated and that there was scant evidence of negative spillovers from the ongoing housing correction to other sectors of the economy.

The slowing of growth was likely to produce a modest increase in the unemployment rate from its recent levels, leading to the emergence of a little slack in labor markets. Looking further ahead, participants noted that economic growth should increase gradually to around its trend rate by 2009 as weakness in the housing sector abated and stresses in financial markets subsided.

Participants generally agreed that the available data suggested that consumer spending had been well maintained over the past several months and that spillovers from the strains in the housing market had apparently been quite limited to date… participants envisioned that the most likely scenario was for consumer spending to continue to advance at a moderate rate in coming quarters, supported by the generally strong labor market and further gains in real personal income.

Data on economic growth outside the United States indicated that the global expansion, though likely to slow somewhat in coming quarters, was nevertheless on a firm footing.

Famous last words. Who would have thought that at the FOMC meeting just a year later, would contain these commentaries? This goes to show how quickly liquidity can dry up as is usually the case late in the cycle, and after a prolonged period of excessive monetary accommodation that prompts the central bank into mopping-up action. Recall that, back in the last cycle, the Fed also believed it was moving in measured steps when it carefully telegraphed every one of its moves at the time:

In their discussion of the economic situation and outlook, FOMC meeting participants indicated that the worsening financial situation, the slowdown in growth abroad, and incoming information on economic activity had led them to mark down significantly their outlook for growth. While economic activity had evidently already been slowing over the summer, the turmoil in recent weeks had apparently resulted in tighter financial conditions and greater uncertainty among businesses and households about economic prospects, further limiting their ability and willingness to make significant spending commitments. Recent measures of business and consumer sentiment had fallen to historical lows. Participants generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased.

Participants were concerned that the negative spiral in which financial strains lead to weaker spending, which in turn leads to higher loan losses and a further deterioration in financial conditions, could persist for a while longer.

Participants noted that the financial turmoil had increasingly become an international phenomenon, leading to a marked deterioration in global growth prospects. While advanced foreign economies had already shown signs of slowing, they had been significantly affected by the worsening of financial strains over the intermeeting period.

Former Fed Chairman Ben Bernanke Medill DC / Flickr

On bitcoin ...

I want to dial you back to something I sent out in this missive on March 12th — a reference to the op-ed WSJ column that former Fed governor Kevin Warsh wrote that day:

Bitcoin, despite its name, isn’t money. Its price volatility significantly diminishes its usefulness as a reliable unit of account or an effective means of payment. Bitcoin might, however, serve as a sustainable store of value, like gold. Even if you’re not buying crypto-assets, bitcoin’s boom-and-bust cycle is worth watching. It may foretell of heightened market volatility to come and significant imbalances across a broad swath of financial assets …

Bitcoin is particularly sensitive to new uncertainties in the conduct of economic policy. Bitcoin’s surge in volatility in December and January thus presaged the past month’s volatility in more traditional and consequential financial assets, including stocks, bonds, and credit. When the tide goes out, the excesses in other financial asset classes will be more apparent. And Bitcoin may have shown the way.

Remember — he was on the short list to head the Fed (and Powell is more like Warsh and Jeremy Stein than he is like Janet Yellen).

But this is important that Kevin Warsh is prescient on the idea that the first bubble to pop is generally not the last. Remember emerging markets in 1979, commercial real estate in 1989, the dotcoms in 2000 and mortgages back in 2007?

Markets Insider The cryptocurrencies for some reason are not making front-page news and my kids have stopped asking me why I don’t own any. But just in the past day, these "currencies" have plunged anywhere from 4% to 15% (talk about classic overcapacity — there are some 1,565 digital currencies today).

And that decline has slashed an estimated $50 billion from their combined market value and at $323 billion, is exactly half what it was at the peak in mid-December. A peak that eerily led the peak in the stock market by roughly six weeks.

This followed the 1,400% surge in Bitcoin, the poster child for this new and exciting "investment." But you see, this is what can happen in this arithmetic: an asset can go up 1,400% for ten years in a row, and guess what? The year it goes down 100% you are left with nothing … except a miserable experience.