On Sunday, in addition to numerous charts we have shown previously we used the latest Ray Dalio “in defense of risk parity” letter, we showed “what does Fed know that we don’t”
, which was a simple one-word answer: recession. Specifically, Dalio looked at the performance of the All Weather fund which is highly correlated with 6 month forward world growth…

Click on picture to enlarge

… and concluded that the recent weak performance would suggest global growth six months from now will be running nearly 2% below its already reduced potential. In other words a global economic contraction, something Citi recently made its base case for 2016.

However, while we have been chronicling the US economy’s slide into contraction for the better part of the past year mostly on the back of the collapse in the US energy sector, what is odd is that the Fed only now admitted that not all is well in the land of central planning.

In fact, as SocGen’s Andrew Lapthorne writes this morning, “that the US Federal Reserve is only now declaring itself worried about global economic growth is perhaps the only real surprise of last week. After all, global earnings momentum (the ratio of analyst upgrades to estimate changes) has plummeted from a respectable 47% in May this year to a recessionary 32% last week. Even once the weak Energy sector is excluded, global EPS momentum has still dropped to 35%, also from around 47% in May.”

But while in our previous post on this topic we focused extensively on what the economy itself is signalling, here is another reminder that the real life blood of the US economy, corporate earnings, are about as bad as they were… in 2009. In fact as SocGen confirms,  “US profits growth has never been this weak outside of a recession.”

From SocGen:

The chart below shows the annual change in 12-month forward S&P 500 EPS expectations. This series is based on forward consensus expectations and therefore excludes many of the write-downs and exceptional items that are currently pushing down actual reported profits. It is more akin to operational profits and has never been this negative outside of a recession!