Recession?
The talk of the town lately has been about whether or not the US is in a recession. Many eyes and ears have been fixated on the White House…
The talk of the town lately has been about whether or not the US is in a recession. Many eyes and ears have been fixated on the White House and their “changing of the definition of recession.” However, there is absolutely no reason to pay any attention to that. Remember; this is the same administration that cannot define what a woman is.
We live in unprecedented times where people truly struggle to make sound decisions based on their own research. The ability to think for yourself is essential, and as a trader specifically, it is paramount. The crowd doesn’t do their own research because it’s much easier to regurgitate “experts” views. Always be cognizant of the “experts” intentions when releasing/discussing data. Let us not forget some of the narratives that the “experts” created in recent times, such as: transitory inflation, and inflation is good. Some are now stating that we are currently in a recession. While I myself am not an expert, I’m pretty sure it’s safe to say that all 3 of these narratives are false.
Let’s focus on the current false narrative that we are currently in a recession. Two important parts of the last GDP reading were inventory swings and trade deficits. Slower inventory accumulation subtracted 2 percentage points from output in the 2nd quarter. Combine this with a supply chain driven trade deficit that’s been occurring for several quarters, and you have your negative GDP reading.
We are not in a recession yet. The 2y-10y spread has already inverted, but the 3m-10y, which has proven to be more accurate in predicting recessions, has not inverted yet. The labor market is on fire and history shows us that the lowest level of unemployment at the start of a recession in the last 50 years was 4.7%. We currently have a 3.5% UR. That is not recessionary data, regardless of the reasons why the labor market is hot.
I do believe that we may dive headfirst into a recession with high inflation. After seeing headlines stating that the Nasdaq has entered a new bull market a few days ago, I figured it was time to be even more cognizant of the YC’s. While the bear market rally continues, stripping permabears of their money and sanity, the bond market is telling everyone to be cautious.
Recent behavior from the media concerning recessions honestly makes me lean more towards the outcome of a depression. They make sure the masses fixate on the definition of recession just before non-recessionary data is released. Now the average American is too focused on the definition of recession to recognize it when it actually arrives. And traders now have to make a “tough” decision. Is the recession off the table? Is this a new bull market?
In my view we are simply in a bear market rally. This rally’s purpose is to drive both bulls and bears insane. Until almost everyone is convinced that this is a new bull market, the rally looks like it will continue. Contrary to popular belief, the market can retrace more than 50% of the entire bear market decline and still reach new lows after. History shows us that this is a normal occurrence in a bear market.
Recessions, depressions, and bear markets are not only natural, but also inevitable. Your central bank manipulating prosperity, instead of allowing the business cycle to take its course, exacerbates each of these. While a decade of QE has done seemingly irreparable damage to trader/investor psychology, the aftermath of this bear market might just, albeit painfully, make everyone come to their senses.