The world’s largest economy by GDP measurement is in a recession denial.
The Federal Reserve economists touted the view last month, November, that the odds of a recession in 2023 have risen by 50%, but they are in a recession denial.
The US economy is currently in a recession, bearing in mind that the conventional benchmark of a recession comprises two consecutive quarters of negative GDP growth.
“The Federal Reserve economists touted the view last month, November, that the odds of a recession in 2023 have risen by 50%, but they are in a recession denial”
Fact check versus recession denial
The first half of 2022 posted declining GDP as the economy contracted 1.6% in the first quarter, and it shrank again by 0.6%, in the second quarter.
So the conditions which satisfy the conventional benchmark of a recession have been met.
Talk of recession odds of 50% next year is a fallacy with a recession currently on deck.
Moreover, these contractionary trends, lower inventory spending, cuts in housing investments, and federal and state government spending have accelerated.
The economy nose dives as the Fed heads and their economists are in the Goldilocks period of recession denial
The US is facing an unprecedented manufacturing slowdown, a housing market sales collapse, and a contracting GDP with expanding poverty, homelessness, and crime rates.
This is not a soft landing, or even a hard landing, as economic data is being thrust towards the cockpit windshield with G forces of Fed tightening felt throughout the economy.
The current trajectory indicates an economic crash, an economic depression of historic proportions if there is no change in restrictive monetary policy.
“Talk of recession odds of 50% next year is a fallacy with a recession currently on deck”
ISM Purchasing Managers Index (PMI), a gauge of US manufacturing, is in sharp contraction with a decline of 49 in November 2022 from 50.2 in October. New orders and backlog deliveries are nosediving as businesses prepare for a crash landing.
Recession denial will trigger a worse housing bust than 2008 on the Fed tightening cards
By joining the data points today, you can develop a mind’s-eye into the future and predict future headlines. By the time an investor reads it in the mainstream, it is too late, as those in the know have already made money.
In a piece entitled, Real Estate Crash, dated July 2022, Darren Winters wrote, “the last shoe to fall could be a real estate crash, which now seems highly likely as the Fed tightening continues into a recession.”
That call was a future prediction of mainstream headlines today.
Real Estate is the most highly leveraged asset making it extremely sensitive to changes in mortgage rates influenced by central bank monetary policy.
“The $13 billion of financing related to Elon Musk’s acquisition of Twitter is being dumped at a deep discount” – Win Investing
Recession denial and banks are dumping bonds
“Banks are offloading the so-called hung debt, even at steep discounts,” according to the Bloomberg piece.
Bonds with the highest risk, junk bonds, and being sold in a firesale deep discounts. So banks would not cut their huge losses in junk bonds if they were optimistic about the economy.
Are the banks adjusting to a tsunami of loan defaults as the current recession deepens into a depression?
The $13 billion of financing related to Elon Musk’s acquisition of Twitter is being dumped at a deep discount.
So the banks are dumping these debts because they believe these bonds are worthless with no interest payments and a default.
Nearly every financial and economic crisis starts in the bond market as conservative investors see trouble ahead and dump bonds.
So even the banks got it wrong by loading up on bonds, not seeing inflation and interest rate rising, and believing the Fed would keep buying bonds.
“The longer the recession denial continues the greater the melt up when the Fed eventually chooses inflation over a depression” – Win Investing
Recession denial and the Fed knows they cannot continue to tighten without causing a financial calamity and a depression.
Further tightening in 2023, we could see debt defaults in sovereign and corporate, and private debts that would make the 2008 subprime mortgage crisis look like a picnic.
So unless you believe Fed chair Powell wants to be at the helm preceding a Great Depression, the Great pivot comes next.
The longer the recession denial continues the greater the melt up when the Fed eventually chooses inflation over a depression.
Recession denial, the great pivot, and a view for a kill
One man’s misery is another man’s fortune.
Perhaps the club knows this and is buying junk bonds on the dollar anticipating a new round of central bank bond buying. Tomorrow’s headlines, Junk bond billionaires?
Bad news is good news.