US economy “less recession-prone”?

A CNBC article reports that Goldman Sachs is saying that the US economy is nearly recession-proof.

“Overall, the changes underlying the Great Moderation appear intact, and we see the economy as structurally less recession-prone today,” Goldman economists Jan Hatzius and David Mericle wrote.

The article did note that in late 2007, Goldman predicted double-digit percent gains for the stock market in 2008; instead, the S&P 500 tumbled 37 percent.

In contrast, the article reported that Philipp Carlsson-Szlezak, chief economist at AB Bernstein, said that “tight labor markets, easy policy, institutional risk tolerance, as well as potential further fiscal stimulus and certain debt growth” provide “fertile conditions for structural risks to build in the medium-term”.

The article suggested that investors “could be excused for getting a little nervous over such calls, as optimism also was heavy in late 2007, just as the economy was about to enter the worst of the financial crisis”.

Indeed, in his latest article, John Hussman, president of Hussman Investment Trust, reminded us that former US President Herbert Hoover had said in 1929 that “the fundamental business of the country is on a sound and prosperous basis” just before the Great Depression.

In contrast to the sanguine view of Goldman, Hussman thinks that with market valuations nearly three times historical levels, a market collapse is “baked in the cake”.