Let me just say right off the bat that this post has everything I despise, which means I didn’t want to write it, which in turn means it will be short (or what passes for “short” by my standards).
Specifically, this one checks at least two irritant boxes for me: 1) the “analysis” attempts to predict recessions based on the spread between two sub-indexes of a survey, and 2) Jeff Gundlach is involved.
It also likely checks a third irritant box, where that’s 3) it was used as click bait fodder on Tuesday. I can’t be sure on that, though, because after all, if I were sure that box was checked, it would mean I clicked around to find out and I’m not about to perpetuate doomsday click-baiting. Or maybe I am, because here I am writing a post about the same chart – but at least I expressed my palpable disdain towards the entire endeavor.
Ok, so with that out of the way, the chart in question is in the bottom pane below.
(Bloomberg)
What you’re looking at in the top pane is the The Conference Board’s Present Situation Index in white and the Expectations gauge in blue. In the bottom pane is the spread which, as you can see, is now a whopping 82.3.
That’s the widest chasm since March of 2001 and the gap has only been wider on a handful of occasions – ever. The implication (obviously) is that the economy might be about to take a swan dive (note the red recession indicators in the bottom pane).
“The Present Situation Index was virtually unchanged [in January], suggesting economic conditions remain favorable”, Lynn Franco, Senior Director of Economic Indicators at The Conference Board said Tuesday, before describing the deterioration in the Expectations index as follows:
Expectations, however, declined sharply as financial market volatility and the government shutdown appear to have impacted consumers. Shock events such as government shutdowns (i.e. 2013) tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months.
Right. But don’t tell that to bond “king” (and man who reminded us just how crazy he really is earlier this month when he convinced himself that someone had hacked his Twitter account only to declare a false alarm 48 hours later after an internal investigation revealed that “certain potentially suspicious activity was in fact innocuous”) Jeff Gundlach, who tweeted this gem on Tuesday afternoon:
The most recessionary signal at present is consumer future expectations relative to current conditions. It’s one of the worst readings ever.
The most recessionary signal at present is consumer future expectations relative to current conditions. It’s one of the worst readings ever.
— Jeffrey Gundlach (@TruthGundlach) January 29, 2019
He wasn’t the only one to suggest that the chart you see above is a bad omen. This narrative proliferated on finance Twitter, as these things are wont to do.
And look, you guys, I don’t want to suggest that this isn’t notable. It may well be. And sure, we may all look up a year from now and find ourselves pointing at that chart as the definitive recession canary for this cycle.
But nobody knows that for sure. Of all the things there are to talk about on Tuesday (e.g., the Fed meeting, Apple’s earnings – which turned out to be benign -, the trade talks, etc.) we’re supposed to believe that the spread between two sub-indexes from The Conference Board is what matters? Give me a break.
It’s worth noting (I guess) that Jeff talked about consumer expectations on his latest webcast. Maybe he’ll show up on CNBC (assuming he’s not still beefin’ with Cramer) tomorrow and jawbone us to another midday swoon.
Read more
Jeff Gundlach Gets Loose, Tells CNBC We’re In A Bear Market, Says Your SPY Is Crap
For what it’s worth, here’s something on this from Bespoke, which I’ll present without further comment because as you can tell, I’m not wholly amused with this story.
The stock market decline in December followed by the government shutdown undoubtedly had a negative impact on consumer sentiment in January, so the big gap in sentiment towards the present and future doesn’t guarantee that the US economy is on the cusp of a recession, but it does serve as a reminder that the economy is a lot slower now than it was a year ago. Therefore, the cushion to absorb any further weakness has worn thinner.
click
Agreed, doomsday sucks.