Intrade market indicates a 67% chance of recession in 2008

Trading on the Intrade Prediction Market indicates a 67.0% chance (down from 70.8% last week) of a U.S. recession in 2008. That is not a significant change, but does suggest that negative sentiment may have peaked in the face of a big Fed rate cut and progress on the fiscal stimulus plan.

People are not only quite worried that a recession is possible, but they consider it to solidly be the likely scenario. Nonetheless, conviction is still only "medium."

Personally, I do not feel any different about the chances of recession and put them down around 25% (1 in 4.) Actually, I think that any fiscal stimulus (any amount at any time) is likely to further reduce the chance of recession. It looks like the Fed rate cuts are stimulating a lot of mortgage refinancing which will stimulate some amount of consumer spending.

The so-called weakness in the economy is simply not profound enough to suggest an outright recession. For example, the weekly initial unemployment claims number has remained well below 400,000 even recently and even decline for the past four consecutive weeks, while traditionally that number tends to spike well above that 400,000 in recessionary times.

Nonetheless, the Intrade indication is probably a good proxy for overall market sentiment.

FWIW, Intrade trading currently (shortly after CNN projected Barack to win in the South Carolina primary) pegs Hillary at about 64% chance of being the Democratic presidential nominee (up from 57% last week) and Barack has a 36% chance (down from 41% last week.) OTOH, Intrade showed Barack having a 67% chance of winning going into the New Hampshire primary, so that just illustrates how tentative and subject to change these number really are. And I would suggest the same for the recession trading.

So, relax and try to think about creative ways to spend your rebate check and maybe even spend it before it arrives!

-- Jack Krupansky