By Alan Murray and Geoffrey Smith
July 12, 2017

Good morning.

Many years ago, as a graduate student at the London School of Economics, I was taught that economic expansions don’t die of old age. They die from policy mistakes. And the executioner is usually the Federal Reserve.

My professor at the time was Janet Yellen, who now holds the ax. She will testify today and tomorrow about her plans to keep the current expansion alive. She is in a tough position, fighting against two ghosts—inflation and recession—even though there is no economic evidence that either is imminent. Yet with the economic expansion now entering its ninth year, history suggests that, despite the economists’ adage, odds of recession may be growing.

My former colleague Greg Ip of The Wall Street Journal—who, for my money, is the best journalist writing about economics today—penned an interesting piece last week saying all the “preconditions for recession” are now in place—a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm. That last one is particularly interesting. Ip’s piece about “preconditions” suggests he believes recessions may die, at least in part, of natural causes, and one of those is that as the last recession fades into memory, people stop worrying. When that happens, excesses build up in the economy that lead to the next downturn.

That’s why I take some comfort from the swoon of Snap this week. The ephemeral photo app, which finds its strongest advocates among teenage girls, took a tumble Tuesday after Morgan Stanley, the lead underwriter for Snap’s March IPO, downgraded the stock. The IPO price was $17 but it jumped over $24 dollars on the first day of trading, giving the company a market capitalization of $33 billion dollars, on par with giants like Target and Marriott. Yesterday, the price fell to $15.50.

That’s bad news for boy wonder Evan Spiegel and the risk-loving souls who invested heavily in his stock. But it’s good news for the rest of us. It means the market hasn’t lost all sense of risk. It may be capable of curing some of its sillier imbalances without a full-blown recession.

More news below.

Alan Murray



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