Wednesday, July 13, 2022

Kitten on a Mission - How Things Change


 Notice how a kitten will jump on anything and everything and is easily distracted. This applies to governmental officials, financial professionals and financial news organizations.

The National Bureau of Economic Research is a private organization responsible for calling the official timing of a recession. It states a recession “is a marked declined across the economy in a range of indicators, including the labor market, investment and spending.” Usually people tend to look for 2 quarters of downturn in several indicators including GDP growth (negative), employment (negative), consumption and spending and other financial measures such as an inverted yield curve. Many of these measures can be analyzed by month, which is 5 months shorter than the classical 2 quarter+ measurement of the official bureau. That is why we get the range of dates or even no date on recession estimations. The only one officially recognized to call a recession tends to use at least 2 quarters of historical data before they make a pronouncement.

                With that in mind let’s turn to some news stories. From June 6th, BNN Bloomberg (Canada), the headline reads “Powell says soft landing ‘very challenging,’ recession possible.” The article suggests that “Powell has given his most explicit acknowledgment to date that steep rates could tip the US economy into recession, saying one is possible and calling a soft landing ‘very challenging” ‘. Notice that the language is still couched and nuanced and leaves much room to wiggle. He still leaves a way for the Fed to claim that they are not forecasting a recession, yet. In spite of the hikes in the Fed Funds Rate and the reduction of the Fed balance sheet. The article discusses Powell’s reactions and actions to inflation reports. Republican have recently been blasting Powell for not jumping on inflation sooner by raising rates faster. Again we have the current bandwagon of thought. Watch as comments shifts back and forth. Powell didn’t do enough, Powell did too much. Remember, the Fed has a sledge hammer to deliver adjustments and the talking heads including Congress are reacting as if there is a precise tool. There isn’t and they (Fed) can’t use it that way (with precision). The Fed has fostered this thinking which is bringing the problem back to roost (as the saying goes) by their own past statements and actions. They act as if they can precisely control inflation and growth. They can’t. So when they get called out for not being able to steer the economy they have in large measure brought it on themselves by implying they can control. Again, they can’t. Expect to see more and harsher statements especially from Congress and talking heads.

                Moving to the 2nd article, from Politico of 7/04/2022. Tag line is “President Joe Biden says ‘there’s nothing inevitable’ about a recession in the U.S. Right…., and where is the rest of the statement the country asks? Many are saying the president is a lone voice in the noise of recession and he probably is at this point. This is pure politics. Since the president can’t (or shouldn’t) try to influence the Fed which is supposed to be independent by definition, the president can make calming public statements and call Powell privately in desperation. Several Democrats are on record as suggesting this recession thing is not a big problem, we just need to spend more.

                The 3rd article is from BNN Bloomberg of 7/07/2022. The tag line reads, “US recession is already here, according to Wells Fargo Investment Group”. Think back to our previous blog on economic / financial forecasts and notice that here we have the first news grabbers with a new story or new twist and trying to get out front of the news competition. We can see the progression of news stories as we went from no recession to possible recession to more likely recession to predicting recession in the future (from middle to end of 2023) to now we are in a recession. Pure news grabbing. Watch to see of others will jump on this bandwagon or if they suggest something else. Regardless they (the newsies) have a new and exciting twist to write about which generates copy (not necessarily good copy but copy).

                What to do. Slow and steady wins the race or in this situation slow and thoughtful keeps their sanity. You know the news articles and newsies are going to jump on everything just like our kitten does. Their attention is divided so many different direction (very much on purpose) because it generates pages to read. Again, there are few if any consequences in reporting so you have to be selective in what you read. Watch for things to settle out a bit and see. A good example is the recession. Since the first of the year the talking heads started as recession was not likely but a possibility to now a recession is likely and may be as early as next year. I don’t give much weight to the Wells Fargo comments about the recession has started because it is the first mention (a kitten pounced on something let’s all look). That makes it a new idea and someone was trying to get the jump on everyone else. If they are wrong it doesn’t matter to them. It’s news. Remember, slow and thoughtful helps you keep your financial sanity. You don’t have to react to every new thing. Paraphrasing what President Brigham Young was supposed to have said to the woman who came in for counseling, “Well sister, if your husband tells you to go to hell, well just don’t go.” If the newsies, financial pundits and governmental officials tell you we have to jump, well, just don’t jump (wait and see). Regardless of their screaming we will figure it out. Earplugs help. Enjoy family, friends and your favorite sport or book, take a walk, do something fun and relaxing. The screaming, finger pointing and loud noises will still be there when we get back and maybe, just maybe, there might be some calmer voices with some real, helpful information. We can always hope.

 

https://www.bnnbloomberg.ca/powell-says-soft-landing-very-challenging-recession-possible-1.1782346

https://www.politico.com/news/2022/07/04/recession-talk-surges-in-washington-00043818

https://www.bnnbloomberg.ca/us-recession-is-already-here-according-to-wells-fargo-investment-group-1.1789170

 

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