INVESTOR’S first read.com – Daily edge before the open
Friday September 13, 2019 9:09 a.m.
RECESSION – are we in one ?
We can’t really ask the National Bureau of Economic Research (NBER), the official “decider” of when a recession starts or ends, because that decision is announced 6 to 21 months after the fact.
Its decision is based on a host of factors over time, including production, employment, construction, income, trade and sentiment to mention a few.
The NBER does not accept the simplistic measure, of the beginning of a recession. – two consecutive quarters of declining GDP because there were too many false signals. With regards to the Great Recession of 2007 – 2009, GDP declined in the 1st, 3rd and 4th quarters, but none two back to back.
Be prepared on September 26th for the press to headline “RECESSION” if the growth of Q3’s GDP is less than 2.0%. That would be the 2rd straight decline in GDP following Q1’s +3.1% growth and Q2’s +2.0.
Based on the long lead time for NBER, a recession may have started months ago, since many key indicators are on the threshold of turning negative.
However, the best indicator for calling turns in the economy is the stock market, it tends to turn ahead of the end of expansions and recessions by 3 to 12 months.
July’s all-time high in the S&P 500 will likely be broken today, suggesting the beginning of a recession has not started, UNLESS the S&P 500 fails to make a new high.
If this attempt to break to new highs fails, July’s high of 3,027 could signal a recession has already started.
Yes, it acts like one. All the hype by the Administration on trade and the Fed on interest rates is driving stock and bond prices upward.
Currently this is the third probe by the market averages into this general area in a year. With its recent surge, the market has discounted a Fed cut in rates and progress in trade talks between the U.S. and China next month, so there is no room for disappointment in either.
Bubbles are orchestrated by outright greed and/or external events, in this case hype of a rate cut and progress in the trade talks. They are not representative of a rational conclusion of value. Once they burst, there is little time to sell.
The urge to buy is irresistible, money can be made quickly as long as the bubble is inflating.
The dot-com bubble burst in 2000 was followed by a 50% drop in the S&P 500 and a 78% drop in the Nasdaq Comp. CAREFUL !
This is classic “bubble” stuff. If the Fed does NOT cut rates on the 18th, and or, if the October trade negotiations break down or look like a ho-hummer, the bears will take over.
Odds of new highs are good, but NOT sustainable.
Minor Support: DJIA:27,126;S&P 500:3,004;Nasdaq Comp.:8,176
Minor Resistance: DJIA:27,271; S&P 500:3,018; Nasdaq Comp.:8,219
Thursday Sept 12 “Trump Urges Fed to Cut Rates to Zero or Lower – INSANITY !”
What could be more enticing for investors than expectations of another cut in the fed funds rate on the 18th and promises of progress in US/China trade talks next month ?
That’s what makes for an expanding Bubble in stock prices.
But, that’s what will eventually decimate portfolio values when the bubble bursts.
I don’t know. The Administration and Fed hype is relentless, driven by fear that 2020 will be a recession/bear market year, making Donald Trump a one-term president.
Yesterday, Trump urged the Fed to cut interest rates to zero or lower.
That is insane.
Negative interest rates have never proved they would stoke economic growth or stir inflationary pressures. Low interest rates punish savers and people who rely on some semblance of a return on their money. Many cannot afford to invest in the stock market. Low interest rates adversely impact Bank profitability and in turn, lending.
What is the message here ? Are we headed for a global depression ?
Is that why the Fed reversed its policy in January ?
The S&P 500 is attacking this area for the fourth time in a year, each within 2.6% to 3.0% of the July 31 peak.
Stocks are historically overvalued by anywhere from 25% to 45%. No wonder why the Administration and Fed are petrified at the prospect of a bear market.
But by these efforts to avert a recession/bear market, the Administration and Fed are setting investors up for a horrendous drubbing.
The actions of the Administration and Fed are simply inflating the bubble more and more at a time stocks are more overpriced than at any time in history, except the dot-com bubble burst in 2000 which led to a 50% drop in the S&P 500 and 78% drop in the Nasdaq Composite.
Wednesday, Sept. 11 “What a Bubble Looks Like”
This is what a bubble looks like. While it can burst at any time, it expands and expands in response to news items as frantic investors panic fearing they will miss out on making more and more money……..forever and ever.
It’s just human nature to get overwhelmed with greed. The higher the market runs the greater the drive to make more money even though markets driven by greed are hitting new highs and becoming more and more overvalued.
Odds favor the market hitting new highs in coming days in anticipation of another Fed rate cut and Administration hype about a trade deal in October.
All this will give be a field day for the press, with news headlines sparking even more urgency by investors to jump in with both feet with every cent they can scrape up. With interest rates low and going lower, many investors will borrow in order to leverage their stock buys.
Signs of recession are popping up all over the place, yet the lemmings continue their panicked march to ruin.
This has been a Fed-stoked bull market and the 25% surge since December has been all about Fed hype about interest rates capped off by one rate cut last month and another hoped for on the 18th.
When this bubble bursts, the pop will be heard world wide, the result nothing short of horrendous – straight down initially 12% – 18% as much of Wall Street bails out at the same time.
Tuesday Sept 10 “Street Marches to Tweet Hype”
Right now, it’s all about managing news flow, from the Administration and the Fed. At year-end we saw Fed Chief Jerome Powell turn a plunging market around with an about face on Fed policy and rhetoric about the possibility of lower interest rates if the economy needed it. Down 20.2% in Q4, the S&P 500 surged 25.7% in four months.
At every turn, President Trump has used his tweet power on trade to stabilize markets that appeared to be on the verge of selling off.
His tweet power is highlighted by a JP Morgan study concluding that Trump’s tweet on markets increasingly moved markets.
Together, Trump and the Fed have managed to prop up an overvalued stock market and delay the inevitable – a recession/ bear market.
The two know that if this market becomes unhinged, it will decline 35% -45% as all the Street’s algos are reprogrammed to raise cash.
One of the cruel characteristics of bear markets is that stocks get pummeled by a relentless string of unexpected negatives and an increasingly gloomy outlook to the future.
Eventually, one or several selling climaxes over-discount these negatives and you have a bear market bottom, a time when no one wants to buy stocks.
That scenario is impossible for most to envision now since the Street’s investment policy is on automatic pilot – BUY.
For many months I have warned of a recession and bear market with expected results – disbelief. That’s what happens at bull market tops.
But it is also that investors don’t want the party to end, they’re making money, sometimes easily and want that to continue.
It is obvious why the Administration and Fed are desperately trying to hold the stock market up. For one, when this one breaks down, the plunge will be brutal. Then too, a recession/bear market in 2020 would sink Trump’s chances of reelection.
Monday Sept, 9 “Street Wish List – Rate Cut, Good trade news – October”
The market has attracted buyers who are hoping for a Fed rate cut on the 18th and positive developments in October coming out of the US/China trade talks.
Fed Chief Jerome Powell said Friday that the US economy “remains strong”…. “Labor market is in a good place” …..that “the labor market is in a good place.”
If so, why is the Fed cutting its fed funds rate ?
Why would it encourage more borrowing when Politico reports “
High Debt Levels Are Weighing on Economies, adding “Debt Owed by governments, businesses and households around the globe is up nearly 50% since before the financial crisis [2007-2009] to $246.6 trillion.”
If stock prices bear any correlation to earnings, it is worth pointing out that FactSet now projects a decline of 0.4% in S&P 500’s Q2 earnings and a decline of 3.5% in Q3. For CY 2019, it sees earnings rising only 1.9%. What’s more, projections for 2020 have dropped from double digits to earnings growth of 8%, as of this day.
August’s Consumer Sentiment Index dropped below 90, the first time since 2012.
The ISM Manufacturing Index has dropped below the expansion level .
Why then is Fed Chief Powell saying the economy remains strong ?
Why not tell the truth – the economy is sucking wind ?
Granted the market would be going down not up, buy at least investors would not be so quick to rush in at all-time highs.
When will these guys start to tell the truth.
It’s all about preventing a recession/bear market in 2020, a presidential election year. The problem here is, when a recession does hit, the Fed won’t have any means to counter it. That can only mean one thing – an extended recession/bear market.
What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 122 months, the longest in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months. The unemployment rate is 3.6% which was hit in May. Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is reached by the Nat’l Bureau of Economic Research (NBER) and they consider host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months. The current bull market at 126 months is 4.2 times the average of the last 15 bulls going back to 1957
>Nine out of the last 10 recessions have occurred with a Republican in the White House.
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.