A recession is coming in the U.S., and ‘a few rate cuts’ won’t prevent it, says strategist

[bongsaway]

Democrats ascribe Trump tax cuts to deficits. What they don’t say is revenues are up, but spending is up more! And then Covid showed up at the end of his term and Congress felt something needed to be done to keep the economy afloat. It’s apparent in hindsight that we spent too much, with a large chunk of it spent fraudulently. Biden has continued to spend like the pandemic never ended.

I would rather have our government send money to we the people during a pandemic rather than to corporate America which would not help we the people at all. Government isn't out to punish us, only Republicans feel that way.

 

[Ahlevah]

Car sales aren't a leading economic indicator. Wanna know why? One reason is that there's a decades-old trend towards keeping cars longer -- and that number doesn't spike during, or fall after, a recession.

Neither is your beloved GDP, but that wasn’t the point. The point is the the real economy may not be growing at the rate claimed for several reasons, which I’ve tried to lay out for you but which you can’t seem to grasp. One of them is while debt is not a factor in computing GDP, debt above a particular threshold begins to impede growth because, as Stanley pointed out, government borrowing begins to crowd out private investment.

As to declining home sales? First, that's primarily because we aren't building enough homes, which is causing home prices to rise.

If the demand were there builders would be building more homes. Booming, right? Sales dropped because people can’t afford pandemic-era home prices after mortgage rates almost tripled. The cost of insurance, property taxes, and maintenance/upkeep have also risen. Prices in some desirable markets are rising due to low inventories. But we are seeing rising inventories in others, which should lead to price declines once reality sets in to people who want to move but can’t because there are no buyers willing to pay their nosebleed asking prices. Anything will sell at the right price.

The US is building fewer homes than it did in 1960 -- despite the population nearly doubling in that time.

Next! The slowdown in sales was expected, if not intended, because interest rates went up. That was the Fed tapping on the brakes.

I haven’t noticed any shortage of apartments. These also compete for bodies.

Interest rates fell slightly over the past few weeks, which will undoubtedly lead to more sales. I'd expect a noticeable jump in sales if/when the Fed drops interest rates in September.

There may be some people who’ve been sitting on the fence. But rates would have to come down a lot to affect affordability, and inventories need to increase.

And I literally just explained to you how total government debt is NOT included in GDP figures.

I took one year’s worth of Econ in college. I got “A’s.” I know what GDP is.

 

[Ahlevah]

Again, that's why I mentioned real GDP.

Again, your real GDP figure is only as good as the deflator used to compute it. If government bureaucrats phone 1,500 people and then conclude prices only went up 2% when they actually went up 3% while nominal GDP increased 3%, you would say we had real growth of 1% while I would say the economy was stagnant. Please, not another lecture about how these surveys are accurate, especially right after the government just admitted it over-counted Joe’s jobs by 818,000, or 30%. We’ll just have to agree to disagree on that.

Not in Japan, it doesn't.

Japanese people are getting poorer, too. They want from being able to buy $1.00 for 80 yen a few years ago to 150 yen today. It’s even worse in terms of gold.

Back in reality, "rising living standards" has a wide variety of causes. The US is primarily a consumer economy, meaning that more spending causes economic growth, causing more demand, more production, employment, higher wages, and thus raises standards.

Rising living standards in the long run come from savings and investment. If we keep spending like we doing doing eventually the Fed will “print” more money to accommodate the added debt.

Consumer goods getting cheaper, or delivering more for less money, is another example. A base-level brand new car will come with things that were super expensive or unavailable in the past, such as anti-lock brakes, air bags, LCD displays, AC, and so on.

An increasing number of families can’t afford these vehicles. Stellantis just announced they’re closing a plant near Detroit that makes the entry-level Ram Classic pickup truck. Why? Who knows? Maybe it’s thanks to higher CAFE standards. The government wants them to produce fewer ICE vehicles, and they will, but in order to keep up revenues and profits they need to earn more money on each vehicle sold. They can do that by pitching vehicles with more expensive features and trim packages.

Providing medical coverage also raises living standards, and the ACA is the single largest expansion of coverage in a generation.

And so on.

Well, if I ever want free medical care I can always move to Cuba I suppose. Canadians, by the way, are getting poorer, too, and they have government-provided medical care as well.

Mind the Gap: Canada is Falling Behind the Standard-of-Living Curve

Mind the Gap: Canada is Falling Behind the Standard-of-Living Curve

economics.td.com

 

[Ahlevah]

Then either Druckenmiller is an idiot, or you're cherry-picking his claims.

Druckenmiller is far from an idiot. I mean, he must have had at least a partial brain to become a self-made billionaire with a net worth of $6 billion. And he has said we spend too much. He’s right. We do.

Deficits are not included in GDP calculations, and are not solely a result of spending. E.g. several hundred billions of dollars in today's deficits are a result of the Trump tax cut. That's why I specifically pointed out outlays-to-GDP ratio, because that is a direct component of GDP.

Again, high levels of debt will retard economic growth. Growth is measured in GDP.

https://scholar.harvard.edu/files/rogoff/files/growth_in_time_debt_aer.pdf

Yeah? How have Druckenmiller's investments done over time? He predicted a "hard landing" in 2023, saying: "I will be stunned if we don’t have recession in ’23. I don’t know the timing but certainly by the end of ’23. I will not be surprised if it’s not larger than the so called average garden variety."

https://www.cnbc.com/2022/09/28/stanley-druckenmiller-sees-hard-landing-in-2023-with-a-possible-deeper-recession-than-many-expect.html

Quite a few people, including market strategists at Deutsche Bank, Wells Fargo, and Morgan Stanley, thought a restrictive Fed monetary monetary policy would overshadow an accommodative fiscal policy and lead to recession last year. In a survey conducted by the WEC, two-thirds of chief economists predicted a recession last year. Some people have recently stated a belief that a recession commenced last fall, and recent revisions in economic data have tended to support that claim.

https://www.weforum.org/press/2023/01/chief-economists-say-global-recession-likely-in-2023-but-cost-of-living-crisis-close-to-peaking/

In December 2022, Jim Rogers predicted that the recent bump was "probably the last rally. The S&P 500 is up 38% since that day.

'Probably the last rally': Jim Rogers warns not to get too excited over the market's recent bump — these are the shockproof assets he likes best right now

Dead cat bounce? This legend certainly thinks so.

finance.yahoo.com

Soros was betting against the S&P 500 back in 2016. How'd that work out for him?

Don’t know. Remember, these guys ran a hedge fund. They know how to hedge losses or close out positions when they go against them. They’re also extremely patient. They will literally wait years waiting for the right moment to go for the jugular.

It's pretty clear that you're just listening to the people who are saying what you want to hear, which is cheerleading for doom and destruction. Nice.

I am well aware of confirmation bias. I’m also aware of another psychological trait called “recency bias”:

In behavioral economics, recency bias (also known as availability bias) is the tendency for people to overweight new information or events without considering the objective probabilities of those events over the long run.

Recency (Availability) Bias: What it is, How it Works

The recency bias, or availability bias, identified by behavioral economics, is when people overweight new information or recent events.

www.investopedia.com

There are a lot of untested people in these markets. They think they’ll be able to stay put and not panic. They won’t.

 

[VySky]

Let me guess, you're a conservative selling fear, doom and gloom to your fellow republicans.

lol.... Thats all the Democrats do is "sell doom and gloom"

This weeks DNC is a prime example.

 

[bongsaway]

lol.... Thats all the Democrats do is "sell doom and gloom"

This weeks DNC is a prime example.

Flailing. Very sad.

 

[Ahlevah]

I’m not the one declaring what my portfolio is made of and claiming to be beating the markets.

What makes you think I was directing my comments at you personally?

Making money with investments hasn’t exactly been a difficult task for the past year. One could have put their money in an index fund, put it on autopilot, and come out way ahead by following the market. Sometimes a little discipline, simple investing, and common sense about the world around you beats shuffling stocks and pulling the ripcord when you think doom and gloom is coming.

Anyone who needs inspiration need look no further than Ronald Read, a janitor and gas station attendant who saved diligently over several decades. By the time of his death in 2015 he had acquired an $8 million fortune investing in blue chip stocks. He ended up donating most of it to his local library and hospital.

https://www.cnbc.com/2016/08/29/janitor-secretly-amassed-an-8-million-fortune.html

 

[Ahlevah]

I would rather have our government send money to we the people during a pandemic rather than to corporate America which would not help we the people at all. Government isn't out to punish us, only Republicans feel that way.

I’d rather have our government just live within its means.

 

[bongsaway]

I’d rather have our government just live within its means.

I think most of us would agree there is however a difference between good and bad debt. I just don't see how our government investing in our country and the well being of its people is a bad investment? The better educated a population, the more productive, healthier, happier and on and on with the benefits for all, why do so many fight that idea?

 

[Ahlevah]

I think most of us would agree there is however a difference between good and bad debt.

By the time you get to the thirty-fifth trillion, don’t you think there is some bad debt there?

I just don't see how our government investing in our country and the well being of its people is a bad investment? The better educated a population, the more productive, healthier, happier and on and on with the benefits for all, why do so many fight that idea?

Investments are great, but do I want to pay for someone else’s gender studies degree? Not particularly. How will that benefit society more than, say, expanding a port or improving the electrical grid? And we need to at least make the attempt to live within our means. For most of our country’s history—until we chucked the gold standard—we did just that. But once a nation’s debt gets above a certain threshold it begins to negatively impact economic growth. We are now past that point.

https://seekingalpha.com/article/3747286-illustrated-timeline-of-gold-standard-in-u-s

 

[notquiteright]

You still claiming the economy is booming? We’ve had two instances since 1960 in which your scenario worked out under current circumstances involving an inverted yield curve. The last one was thirty years ago.

Simple answer to your question. Post Pandemic economy. Another indicator of doom is the Sahm rule. There have been two such downturns but even Claudia Salm says that doesn't mean what the hand wringers think it means. In the Post Pandemic economy, the downturn has more to do with the major storms, floods and tornadoes literally wiping out places of employment. Look it up for yourself.
Now the constant drumbeat of runaway government spending. One day that will come home to roost, however it doesn't hurt the economy short term as the government spending money tax revenue doesn't cover actually helps the economy by creating jobs. Every highway project, bridge rebuild, school spending, and so on creates jobs, many good paying. The government spending has industry to work as well.
We are entering the same phase as middle Spanish Empire; the nation came to be a net consumer as the New World gold flooded the country. Inflation was growing and the government got an ever-decreasing part of the hoard. The nation stopped producing anything of real substance and imported a great deal of what it consumed.
There will come a day when those of wealth will have to decide- another aircraft carrier or placating the growing mass of disenfranchised citizens. Another tax cut or keeping the social safety net in place to keep the masses away from the mega mansions and estates...

 

[Ahlevah]

Simple answer to your question. Post Pandemic economy. Another indicator of doom is the Sahm rule. There have been two such downturns but even Claudia Salm says that doesn't mean what the hand wringers think it means. In the Post Pandemic economy, the downturn has more to do with the major storms, floods and tornadoes literally wiping out places of employment. Look it up for yourself.
Now the constant drumbeat of runaway government spending. One day that will come home to roost, however it doesn't hurt the economy short term as the government spending money tax revenue doesn't cover actually helps the economy by creating jobs. Every highway project, bridge rebuild, school spending, and so on creates jobs, many good paying. The government spending has industry to work as well.
We are entering the same phase as middle Spanish Empire; the nation came to be a net consumer as the New World gold flooded the country. Inflation was growing and the government got an ever-decreasing part of the hoard. The nation stopped producing anything of real substance and imported a great deal of what it consumed.
There will come a day when those of wealth will have to decide- another aircraft carrier or placating the growing mass of disenfranchised citizens. Another tax cut or keeping the social safety net in place to keep the masses away from the mega mansions and estates...

The “disenfranchised citizens” are barking up the wrong tree. It’s not the billionaires who are making them poor, but the guys with the printing press. And they keep electing these morons. We saw it on full display this week in Chicago, and twelve years ago at Occupy Wall Street.

 

[notquiteright]

The “disenfranchised citizens” are barking up the wrong tree. It’s not the billionaires who are making them poor, but the guys with the printing press. And they keep electing these morons. We saw it on full display this week in Chicago, and twelve years ago at Occupy Wall Street.

I had to laugh just a little. The need for a printing press would be greatly reduced if the endless tax cuts for billionaires were reversed. It is very telling that now that nameless dark money can be pumped into elections the cost for a seat in Congress is beyond comprehension....
I'm not re-electing these morons, those in Congress from my state never got one vote from me.
But that is the same old copout and way off topic from the OP about 'more and more economists' that is the focus. Fact is a minority of economists are predicting a chance of recession. Even Claudia says her rule doesn't apply post pandemic....
So try and stick to the topic YOU brought in....

 

[Lord Tammerlain]

The economy is chugging along, healthy, no matter what lies you lot chose to believe.
If a recession happens it won't be until spring. Won't that be fun if your Dear Leader wins?

It is chugging along but it is not healthy.

Government borrowing is making the economy seem healthy and strong. The US federal government debt is increasing by around $1 trillion every 100 days or over 3 trillion a year. Equal to around 9% of GDP if I recall correctly.

That is debt spending typically not even seen in deep recessions, all occurring during " good" economic times. What level of government spending will be required during an official recession?

Now as a Canadian I appreciate the US government spending as it is keeping the world economy chugging along. It of course can continue for quite a bit longer, which just makes the correction worse

 

[Ahlevah]

I had to laugh just a little. The need for a printing press would be greatly reduced if the endless tax cuts for billionaires were reversed. It is very telling that now that nameless dark money can be pumped into elections the cost for a seat in Congress is beyond comprehension....

No, it wouldn’t. The total net worth of every billionaire in the United States comes to about $4.5 trillion. Meanwhile, our on-balance sheet national debt currently stands at more than $35 trillion on its way to $54 trillion in ten years, according to the CBO.

I'm not re-electing these morons, those in Congress from my state never got one vote from me.
But that is the same old copout and way off topic from the OP about 'more and more economists' that is the focus.

Okay, in last year’s Wall Street Journal Economic Forecasting Survey, 61% of economists predicted a recession for 2024. They may have been were wrong, depending on what happens with the final revisions. In the most recent survey, only 28% said they thought we’d have a recession next year. So maybe that means we’ll have one. I know former Merrill Lynch and Gluskin Sheff Chief Economist David Rosenberg, who runs his own shop now, is one who’s stuck to his guns, and he was one of the last holdouts on the GFC back when everyone was predicting Goldilocks back in 2007.

Fact is a minority of economists are predicting a chance of recession. Even Claudia says her rule doesn't apply post pandemic....
So try and stick to the topic YOU brought in....

I’m not aware that Sahm said her rule doesn’t apply in the current circumstances. She’s said that while she doesn’t think we’re in a recession now, “the increases in the unemployment rate and the softening in the labor market is worrisome.” The economy may end up in recession at some point within the next few months:

Sahm: So it's, the Sahm rule is actually one of a whole series of our kind of tools that have, you know, had a rough time. Does that mean that? The tools should be ignored or thrown aside. No. It just means you should be really careful with them. / I would never just look at one rule, even if it had my name on it, in trying to give advice on, uh, the economy in terms of big picture

Gura: Claudia says that in the big picture, even if the U-S economy isn’t in a recession, there are warning signs.

Sahm: We might not be in a bad place right now, but the direction is not good. So then it's like, well, okay. You know, all is not lost. There are things to do. But I think, you know, first it's recognizing, diagnosing the problem appropriately, and then figuring out what's. But yeah, my take on the Sahm rule is, it is, there is a message there. There is something that we need to be paying close attention to.

The Sahm Rule, Explained (By Claudia Sahm)

Earlier this month, the Sahm rule was triggered – meaning the US economy is in a recession. Or is it?

www.bnnbloomberg.ca

Claudia Sahm: 'Very concerned' about recession in 3, 6 months

The July jobs report fell short of expectations, with the US economy adding only 114,000 jobs compared to the forecasted 175,000. The unemployed rate also increased to 4.3%, which is the highest level in about three years. Yahoo Finance anchor Madison Mills explains that the Sahm rule "says that...

finance.yahoo.com