Makin’ a List

We are not in recession and are not close to going into recession.  Period.

December 2018

I think I heard some good news

OMG – there is even talk of making some selective buys at the dips now.  And, not just trader talk.  People are talking about what will be good for the next leg up after this consolidation resolves.  Who knows, maybe we are working through the mania.  The big moves are from statements some politician or their hack makes that have validity of hours.  The game is being seen and maybe we are seeing it be discounted a bit.  All this is potentially good news. 

I heard someone going through the positive then negative then positive then negative tweet/news by tweet/news today with the ups and downs of the market depending on what was just heard moving within the minute of the “news”.  Market (and algos) in total reaction mode.  Apparently also there are hedge funds and others trying to unload positions, both shorts and longs, so anytime the market goes down they unload shorts, and when it goes up they unload longs.  Because so much trading is being done with index baskets, the fundamentals of any one stock are being drown out by index trades.    

Meanwhile, also hearing some begin to talk about what to buy at this dip   !!!!!     And the suggestion that if you like something, buy ½ or ¼ of it, wait, buy some more, so you don’t beat yourself up because it went down on you 20 minutes after you bought it.

I’ll start making a list. 

We are not in recession and are not close to going into recession.  Period.   

There are one after another of opportunities for politics to throw cold water on investor emotions.   Government shutdown, Brexit, Dragie leaving ECB and probably loosening there ending, trade, impeachment, oil games, and by ½ way through the next year we will be beginning the election season.  It will probably be a doozy. 

By the way, none of this has anything to do with the FED.  So, lots of opportunities to screw things up.  The FED also knows the stats on inversion, so they aren’t going to do anything completely stupid.  They should be the least of any worries. 

Lots of independent analysts saying that while there are definitely countries in the world that are in recession right now, the U.S. is not one of them.  And, the measures, including the yield curve, would tell you that we probably won’t be in one for another year, maybe two. 

Expect the GDP number to be lower next quarter – it is about math, not the economy, so the hand wringing that will happen needs to be put in context.  For half a dozen quarters GDP was running around 2.1% and everyone thought that was GREAT – the market went up quarter after quarter.  It heated up in Q3 to above 3.4%, and Q4 should also be higher than 2%.  BUT, about somewhere between 1.5% and 2% of that was inventory build. The underlying economy was still in the 1.8% to 2.2% range.   Inventory build shows up when it is bought, but it won’t show up again later when it is finally sold.  So, there will be sales made from inventory next quarter that are not going to show up in GDP. So GDP will be lower.   And, we should still see GDP around 2% - which only months ago everyone thought was terrific.  2% growth is not negative, it is not a recession. 

Labor markets are not weakening.  When they start to do so, they will trend down for a few quarters, if history of the last 5 recessions repeats, before the red flag is waved, and then very soon – a quarter or two, we will probably be in recession.  But today, labor markets are strong and meaningful weakness is not beginning.   

An inverted yield curve needs to be about the 2’s and 10’s or 2’s and 20’s, and it needs to be inverted for months, not days, to count.  Once it inverts and stays there, THEN recessions have been 6 months to 20+ months away.  We are now not even close to inversion.

Oh, and a Merry Christmas!


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