‘Recession? OK, When?’ A Skeptic Entertains The Doomsayers

‘Recession? OK, When?’ A Skeptic Entertains The Doomsayers

Two weeks ago, one equities strategist asked if US downturn worries were "more fear than fact." It was a fair question then and it's still a fair question, even as Q1's "surprise" contraction pushed the world's largest economy to the brink of a technical recession. Q1's GDP headline was impacted by trade and inventories, prompting some to call it a false optic. I tend to think that even if you're inclined to look past the numbers, the outlook is increasingly bleak considering deeply negative r
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2 thoughts on “‘Recession? OK, When?’ A Skeptic Entertains The Doomsayers

  1. Consumption in 1Q was okay, and could be a little better in 2Q if Covid doesn’t interfere, but comps are tough again in 2Q so betting on better than okay seems a stretch. Inventories ran up a lot in 2H21, and with consumption shifting to service and travel, more inventory burn seems possible in 2Q. Investment is, I cheerily think, likely to stay solid, because even if SP500 profit margins are softening they are still historically very high. Trade balance seems iffy, what with King Dollar, European recession, and the China zero-Common Sense policy.

    Given that, I don’t see why “recession starting in 3Q” is overtly unreasonable. Unless the argument is that recession started in 1Q.

    However, we need to think about what kind of recession it will be. I think it may hit harder at asset prices and corporate growth, than at the low-income population. Sure, wage growth 3% vs inflation 6% is negative wage growth, but the hot job market means lots of people can get jobs and keep those jobs, and real wage -3% is better than -100%. If so, this could be a pretty mild recession.

    All this macro cogitating is, however, way above my pay grade. My main takeaway: is lots and lots of cash, defensive exposure, overweight inflation-beneficiaries and value (which no longer completely rules out tech, by the way), look for buyable bond yield levels and washed out stock prices to spend that cash. Maybe in 3Q.

  2. Either demand destruction is occurring or people have changed their routine shopping schedule at the local wally world. The weekly gathering seems acutely thinner to me, especially for this time of year.

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