Stock markets are looking like hard work for the day ahead, thanks largely to escalating tensions between the U.S. and Iran.

Investors, who are awaiting this week’s G-20 get together between President Donald Trump and China’s leader, are now juggling a tense war of words between Tehran and D.C. Just words, we hope.

We could use a bit of good news right about now. Enter our call of the day, from economist Gary Shilling, known for predicting bubbles like the housing debacle of 2008. Shilling talks about another worry for investors -- a big bad recession - in an interview with digital financial media group Real Vision.

“I think we’re probably already in a recession, but I think [it will] probably be a run of the mill affair, which means real GDP would decline 1.5% to 2%, not to 3.5% to 4%, you had in the very serious [past] recessions,” said the president of money manager A. Gary Shilling & Co. He also lays claim to having forecast a global inventory glut that led to the 1973 to 1975 U.S. downturn.

Shilling says some of the biggest potential drivers for an economic pullback — heavy corporate borrowing, a strong dollar that’s pinching emerging markets, and trade wars — are fairly small potatoes versus the problems of the past.

Shilling says stocks probably wouldn’t fall under that GDP scenario. If they did, he predicted a fall akin to the average drop during the last three recessions — 22% from the peak. That scenario, he said would roughly take the S&P a couple hundred points below the Christmas Eve low of 2,416.62.

He also predicts the 10-year Treasury yield will drop to 1%, if that type of recession is borne out along with lower inflation. The yield on the 30-year T-bond would drop to 2%. “Actually, if that happens on a 30-year coupon bond, you make about 20% on your money,” he said.

Shilling is referring to 30-year zero coupon Treasurys. Investors can buy these type of bonds at a discount, but redeem them at face value in the future, allowing for a profit. They work well in low-interest rate environments, but are less good in rising ones. Hence the risk. Read that whole interview here.

Read:U.S., China trade negotiators have been in contact ahead of G-20 summit

The markets

Futures on the Dow YM00, -0.41% , S&P ES00, -0.28% and Nasdaq NQ00, +0.17% are dipping. Gold US:GCQ19 is higher, the dollar DXY, +0.21% is down, notably against the yen USDJPY, +0.06% and the yield on the 10-year U.S. bond TMUBMUSD10Y, 0.659% is back under 2%.

Oil US:CLN19 US:CLN19 is also down, along with Europe stocks SXXP, -0.55% and Asian ADOW, +0.48% equities, which finished weaker.

Opinion: These 3 high-wire European risks could send the U.S. economy into recession

Bitcoin BTCUSD, +0.00% continues to cruise past $11,000.

The chart

While the Dow inches closer to a record, some have noted weakness for the small-cap Russell 2000 index RUT, +0.02% and the Dow Jones Transportation Average DJT, +0.20% , which makes airlines, package delivery and railways, for example. Weakness for domestically driven smaller companies and those transport firms, seen as indicators for an economy, can spell trouble.

Read:Dow transports tumbles while Dow industrials gain, for third time this month

Our chart of the day stacks up the performances of the Russell and transport stocks relative to the S&P 500. The lines moving lower means both indexes are rising a lot less than the S&P.

FacetSet/MarketWatch

The economy

Case-Shiller home prices and a consumer confidence index are coming our way, along with new home sales. but we’ll also get a crop of Federal Reserve officials speaking. Fed Chairman Jerome Powell will speak on the economy and monetary policy at 1 p.m. Eastern Time. Ahead of him, we’ll hear from these Fed presidents: New York’s John Williams and Atlanta’s Raphael Bostic, then St Louis’s James Bullard later.

The buzz

Iran’s ambassador to the U.S. has warned of a “very dangerous” situation is brewing in the Persian Gulf, saying his country won’t be bullied by intimidation after Trump slapped sanctions on the country’s Supreme Leader Ali Khamenei and others, with plans to target more officials. President Hassan Rouhani, meanwhile, threw a familiar insult at the White House.

Meanwhile, Trump says he could fire Fed Chairman Jerome Powell “if I wanted to,” but that he has no current plans to do so.

FedEx FDX, +1.16% is suing the U.S. government over a crackdown on Huawei, saying it can’t police every package that comes through.

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