Several indicators are signaling an increase in the probability of a recession. Most of these indicators are variables that have shown to be statistically leading the recession but they cannot always be seen as the cause of one (for example, an inverted yield curve) In the search of a cause for a recession we typically look for imbalances. One that has mattered in the past is asset price bubbles. Standard valuation metrics of the stock market suggest that in the last quarters the market has gotten cheaper and moved further away from bubble territory. The Financial Times reports that US companies dividend yield is now larger than the interest rates on a 30 year government bond (see image below). This is not at all a new phenomenon in Europe where the dividend yield has been larger than the interest rate on bonds for years and is now reaching record levels. A good way to summarize the improvement in the valuation of stocks is to calculate the ex-ante risk premium. The image below shows t...