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| Sword of Damocles by Richard Westall |
We start the new year with the sword of Damocles poised over the national and world financial markets. The articles are a smattering of comments, commentary and conjecture from market gurus (both national and world) and federal officials tasked with knowing what is going on. Much of the thinking is still relating to recession but a new term is being introduced into the discussion. Additionally, many are discussing just what and when a recession may or may not occur and Powell (Fed Chairman) is trying to keep the Fed focused on is core responsibility. A typical month in the life of the financial world with many pronouncements, much hand wringing and many loud protestations. So, let’s dive into the murky waters and see just what we can see (or not see).
A new
term is being floated to describe the current financial situation, “slowcession”.
Apparently the phrase was coined by Cristian deRitis and used by Moody’s
Analytics chief economist Mark Zandi. It means economic growth “comes to a near
standstill but never slips into reverse [recession].” Every economic downturn
and upturn for that matter, is a bit different and past historical data can
only give limited help in describing any current situation. We won’t know how
this recession or as noted above, slowcession, will look until after the fact.
It will probably have several differing characteristics from previous
recessions but will meet the basic definition of recession. Do we know how this
recession will play out, no. Are there some ideas, yes, many. Will any of the
ideas be correct. Maybe. Then again they may all be wrong or at least mostly
wrong. Then again, with all the possible ideas and conjectures floated over the
past 12 months there is likely to be a couple of the ideas that will hit close
to what actually happens. Remember, we have had so many possible scenarios described
from the death of the markets to no recession that all possible options have at
least been considered. Something has to hit, given enough shots taken. So, we
don’t really know but we have some ideas on a recession and its impacts.
The
Guardian (London) collected comments from a variety of international
economists and financial gurus and gives us a cross-section of thinking. They
suggest from their sources that we should “brace for another turbulent year in
the financial markets”. (Nothing new there.) Their comments suggest possible
improvement and likely fall of markets, particularly the US. The head of the
International Monetary Fund suggests that a third of the world’s economies are
in recession which is likely “because the three big economies – US, EU and
China – are all slowing down simultaneously”. Some are suggesting a global
recession this year. Much of the speculation is based on what economists and
other believe will be the response by central banks to the high inflation rate,
which will be raising governmental monies interest rates. An interesting side
comment, the article suggests that Russia’s economy is already in recession
caused in large part by Putin’s failure to find an easy way out of the war.
I have
selected 3 articles on recession comments. The Bond Buyer (1/24/23)
brings several analysts’ comments together suggesting recession is necessary.
Some economists are suggesting a modest recession (Wells Fargo Securities and
others) during 2023, others think more than modest. There is now discussion
about the impact of the recession on inflation. Remember, recessions are
supposed to kill inflation. Some are suggesting inflation will remain above the
Fed target of 2.0% and be in the range of 2.5% to 3.5% for at least a decade.
The solution to higher than target rates, the Fed can always move its target upward
and declare victory in the war on inflation. That wouldn’t surprise me.
Finally, there is some discussion that we will have a split year. Good for half
and bad for half. Don’t know which half first. BNN Bloomberg (1/5/23) is
a discussion by St. Louis Fed Reserve Bank President James Bullard that Fed
Funds Rates are getting closer to high enough to bring down inflation. The
thought by many from his comment is that the Fed still has some increases to
come. The question is will they be .25% or .50% increases. The market views a
slowing increase as positive at this point. Several Fed officials are still
concerned that inflation is to high or way to high. That points to bigger
increases. The 3rd article from Reuters (1/25/23) is about the
impact of all this to investors. The article warns that many “heavyweights
[are] warn[ing] of pain ahead despite market’s recent reprieve”. Even though
recent market movements have been positive or optimistic, most are warning that
recession is still likely. The article states, “correctly gauging the economy
is crucial for investors”. The statement is absolutely correct and impossible
to do. Remember that. Don’t try. No one can. Ever. Don’t do it. In spite of
what many say especially talk radio financial hosts and slick financial
advisors. And of course many believe they know more. Some very few will get
very lucky and be correct and you will hear about them and their phenomenal
good skills (luck is not a skill). The majority (most) will get it wrong
and there will never be any report on them or their numbers.
Stay
your course. Don’t panic or as the British war message stated “Keep Calm and Carry
On”. Keep your debts manageable / low. Don’t borrow without careful thought.
Save and above all….. enjoy life, friends, family and the beauties around us.
Be grateful. I am.
Articles used:
https://www.cnn.com/2023/01/03/economy/moodys-us-economy-slowcession/index.html
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