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    Welcome to the Most Anticipated Recession in History

    After penning the “Growing Risk of Recession as Bread and Circuses Distract the Plebeians” Part 1 , 2 , and 3 (Twitter thread) since the end of March, one data point from the Fed’s officialdom has confirmed that the United States is in a technical recession and heading for a potential hard-landing. Jay Powell’s softish landing message is now in the collective rear view mirror as the Federal Reserve Bank of Atlanta published its 2Q22 real GDPNow estimate today of -1% (updated to -2.1% on July 1, 2022), real personal consumption collapsed to +0.8%, real gross private domestic investment plunged to -15.2%, and inflation running hot at +8.6% YoY is the highest since the late 1970s.

    GDPNow Update July 1, 2022 Revised Down to -2.1% vs -1.0% on June 30

     

    Fed chairman contradicts Biden, says Russia’s Ukraine invasion not the main inflation driver… “Chairman Powell has tried to reassure the public that the Fed will raise interest rates fast enough to bring down inflation without causing a recession.” – Fox Business, Jun. 22

    Yesterday, the Bureau of Economic Analysis (BEA) revised the 1Q22 real GDP down to -1.6% after a preliminary estimate of -1.5%. According to the National Bureau of Economic Research (NBER), two consecutive quarters of negative growth meets a technical data requirement for recession. How significant and long will the decline in economic activity have to be for the NBER to officially declare this recession?

    White House Press Secretary Says No U.S. Recession – GSO News, Jun, 21

     

    Here’s an excerpt and an article citation from May 29 in Part 3:

    “On Mar. 29, former FRBNY President Bill Dudley opined on Bloomberg that a soft-landing scenario was unlikely and tightening monetary policy in a weak economy is not helpful. During an interview in mid-May, Ben Bernanke criticized the Fed’s slow response to inflation and said it ‘was a mistake’ (aka policy error).”

     

    The Federal Reserve’s ‘Most Anticipated’ Recession In History May Be Coming… “For months, as the Federal Reserve steadily ratcheted up its war against inflation, Fed Chief Jerome Powell insisted that policymakers had everything under control. He stressed that no recession for the U.S. economy was in sight… Yet, suddenly, Powell no longer sounds so reassuring. ‘There could be some pain involved in restoring price stability,’ he said last week at The WSJ Future of Everything conference. He added that the unemployment rate may ‘move up a few ticks.’ Powell’s new message weaves in hopeful talk about plausible ‘pathways’ to a ‘softish’ economic landing. So, it may be possible to miss the big picture: He’s about as close as it gets to a Fed chair whispering ‘fire’ in a crowded theater.” – Investor’s Business Daily, May 27

    Let’s review a collection of data points since late May that clearly indicated a recession was on the horizon, and another Jim Cramer market call gone bad for good measure.

    “US ‘strong consumption’ growth came from consuming savings. 0.9% rise in personal spending in April looks good but look at the collapse in saving, with the personal saving rate falling from 8.7% in December to a 14-year low of only 4.4% in April.” – Daniel Lacalle, May 27

    U.S. Personal Savings 2007 - May 2022

    Savings Lowest Since Lehman Collapse – Chart Courtesy of ZH

     

    Disinflation is coming – Lance Roberts, May 31…

    Retail Inventories Ex Motor Vehicles

    Jamie Dimon says ‘brace yourself’ for an economic hurricane caused by the Fed and Ukraine war…  “‘Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this … that hurricane is right out there, down the road, coming our way.” – CNBC, Jun. 1

    Fed Feels Its Way Through Recession

    Judy Shelton: Fed Can Only ‘Kill the Economy’ With ‘Whatever It Takes’ Approach“I think it’s hard to say what will be the impact and what will be the timing of the impact of ratcheting up interest rates to the point where they choke off real economic activity… There’s a big difference in saying money that comes from speculating on money that can generate income, versus GDP growth that reflects an increase in the level of goods and services available… If the Fed is looking at pushing up the Fed funds rate to 2.4% or 2.5%, but inflation is running anything higher than let’s say 1%, then you’re still effectively having interest rates serving as a stimulus in the Keynesian sense… The Fed would have to get in front of that. I don’t think they would do that.” – Epoch Times, Jun. 2

     

    Goldman Sachs COO Waldron sees unprecedented shocks in economy. – Reuters , Jun. 2

     

    Probability of a U.S. recession (based on 2s10s yield curve) has risen to highest since Feb. 2007.” – Liz Ann Sonders CIS at Charles Schwab, Jun. 2

    Probability of Recession Based on 2s 10s Yield Curve - June 2, 2022

    US Consumer Sentiment Slumps to Record Low on Inflation Woes… “The University of Michigan’s preliminary June sentiment index fell to 50.2 from 58.4 in May, data released Friday showed. The figure was weaker than all estimates in a Bloomberg survey of economists which had a median forecast of 58.1… Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon,’ Joanne Hsu, director of the survey, said in a statement.” – BNN Bloomberg, Jun. 10

    Jim Cramer Twiiter Says No Chance of Recession June 10, 2022

     

    Jim Cramer Twitter June 10, 2022 Buy The Market

    Small Business Owners’ Expectations for the Future at 48-year Low… “The NFIB Optimism Index fell in May to 93.1, marking the fifth consecutive month below the 48-year average of 98. Owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the 48-year-old survey. Expectations for better business conditions have deteriorated every month since January.” – NFIB, Jun. 14

     

    NFIB Survey Rings Recession Alarm Bells… “The National Federation of Independent Business signals a recession is coming, again.” – Epoch Times, Jun. 14

    NFIB Survery - Firms Expecting Economic Improvement in Next 6 Months

    Opinion: The Federal Reserve can’t even get the direction of the economy right … “The central bank says the economy has ‘picked up,’ but that’s just not so. It’s slowing rapidly… If it doesn’t wake up to this new threat, a job-crushing recession is inevitable.” – MarketWatch, Jun.15

     

    The Fed’s latest rate hike will be a disaster for the economy… “History will not judge the Jerome Powell Federal Reserve kindly. First, it brought us multi-decade high inflation. Now, it is putting us well on the path to a hard economic landingOne reason to think that the Fed’s shift to a more hawkish policy stance could bring on a recession is that it has already caused the asset and credit market bubbles it created last year to burst… declines have resulted in trillions lost in household financial market wealth since the start of this year… a prospectively large decline in consumer spending is the last thing that an already slowing US economy needs. This is especially the case at a time when consumer spending is already being constrained by sky high gasoline and food prices.” – CNN Business Opinion, Jun.16

    Harry Enten: Biden is ‘worse than Jimmy Carter’ on inflation – CNN, Jun. 16

     

    Consumer Spending is Running Out of Steam and the Market Isn’t Ready for It… “That slowing growth, combined with weakening home sales and declines in wage growth, means that monetary tightening is already hitting the economy hard. The Fed may be able to tighten less aggressively in July, according to Barclays, which is forecasting just a half percentage point rate hike next month.” Bloomberg, Jun. 16

     

    US TREASURY SECRETARY YELLEN: “THE TRADITIONAL RECESSION INDICATOR OF TWO CONSECUTIVE QUARTERS OF NEGATIVE GROWTH ‘HAS TYPICALLY WORKED,’ BUT RECESSIONS ARE NOT ALL THE SAME.” – Jun. 21

     

    Fed’s Harker: ‘Starting to see some signs of demand softening’… “‘We are, again, starting to see some signs of demand softening, which is exactly what we want,’ Harker told Yahoo Finance’s Brian Cheung Wednesday morning. ‘We don’t want it to crash. We want to bring the economy into a safe position and in balance with supply and demand.’ Harker’s comments suggest the economy has already started to show signs of cooling following the Fed’s interest rate hikes unleashed so far this year, which has brought the Fed Funds rate to between 1.50% and 1.75%.” – Yahoo Finance, Jun. 22

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    Dudley: U.S. Economy Is Headed for Hard Landing – Bloomberg, Jun. 22

     

    “Today’s narrative is that stocks rose because inflation expectations dropped.  OK. What that ignores is inflation expectations dropped because there’s a recession coming that will crush earnings and sink stocks. The market will figure that out by next week.” – Jim Rickards, Jun. 24

     

    Consumer sentiment hits new record low, UMich survey finds…  “The University of Michigan’s gauge of consumer sentiment fell again to a final June reading of 50 from an initial reading of 50.2 earlier in the month and well below May’s level of 58.4. The June figure is the lowest reading on record, going back to the late 1970s.” – MarketWatch, Jun. 24

    University of Michigan Index of Consumer Sentiment June 2022 Final

    Chart Courtesy of A Wealth of Common Sense – June 28

     

    Unemployment Rate Reversed vs. Consumer Confidence

    Chart Courtesy of ZH “Monster Recession on Deck” – June 26

    Ouch: June Dallas Fed at -17.7 vs. -6.5 est. & -7.3 in prior month; new orders fell to -7.3 and outlook sank to -20.2; shipments, production, wages, and capex all eased Liz Ann Sonders CIS at Charles Schwab, Jun. 27

    We see the environment for the oil industry becoming even worse than the previous months. Biden is promoting a very caustic attitude toward the oil industry, which doesn’t help the country in any way.” – Dallas Fed, Jun. 27

     

    “If history is a good guide, we should expect near 0% inflation by the Summer of 2024… Inflation is the cure for high inflation.” – Michael Lebowitz, Jun. 27

    Inflation Cycles 1948 to 2022-23

     

    Michael Burry from the film “The Big Short” and founder of Scion Asset Management, called out the “Bullwhip Effect” of skyrocketing inventory in the retail industry that will lead to the Fed reversing its interest rate increases and Quantitative Tightening policy, aka the #TaperCaper. Expect a lot of big sales in the retail space from July until Christmas to unload excess inventories.

    Micheal Bury of The Big Short Makes Deflation Call on Record Retail Inventories

    Just keep your returns: Stores weigh paying you not to bring back unwanted items… “The chaotic mix of record fuel prices and an unending supply chain crisis have retailers considering the unthinkable: Instead of returning your unwanted items, just keep them.” – CNN Business

    Retail Inventory to Sales Ratio June 2022

    Chart Courtesy of ZH

    The jaws of trade squeezing the supply chain…  “The jaws of the supply chain vise are squeezing trade so tight that the headache it is creating will be a whopper for logistics managers this peak season. Port congestion is growing again as a result of labor and equipment inefficiencies. Trade requires people, and what we see is the people component in trade is behind this latest squeeze. Shanghai is still in the process of reopening, and while there are more green lights on the screen, the supplying of drivers and people to move and make the product is slower than normal.” – American Shipper,  Jun.28

     

    Worst Housing Affordability” since 1991 excluding bubbleCalculated Risk, Jun. 29

    Housing Affordability 1976 to April 2022

     

    Total Existing Home Sales 2000 to June 2022

    Chart Courtesy of RBC Global Asset Mgmt – Jun. 24

     

    US stocks declined in which the S&P 500 closed off its worst H1 performance since 1970 as growth concerns were exacerbated after data showed weak consumer spending dynamics in May, which resulted in the Atlanta Fed GDPNow model tracking an economic contraction of 1.0% in 2Q22 and stoked recession fears.” – Newsquawk Asia, Jun. 30

     

    “Confidence indicators across major economies point to a synchronized global downturn… and potentially as a big as the Great Financial Crisis.” – Viraj Patel, Jun. 30

    Global Diffusion Index June 30, 2022

     

    Lastly, Dr. copper is now in a bear market, which has happened before each recession in the last 30 years. Another signal of economic downturn.

    A key economic bellwether just fell into a bear market – and it’s happened before every recession in the last 30 years… “It’s used in everything from electrics and electronics to construction, meaning it’s intertwined with the underlying global economy. The benchmark London Metal Exchange copper price has now fallen 24% from its peak above $10,700 a ton in May 2021 Friday to trade at $8,255 a ton. A fall of more than 20% from a previous peak is the technical definition of a bear market.” – Business Insider, Jun. 24

    Copper Bear Market June 2022

    I’ll close up shop tonight with a few words from Biden in Delaware where he fell off his bicycle, and a short clip from his NATO bread and circuses presser today. Have a safe and happy Fourth of July weekend. A world war is on the doorstep and everything could change in a heartbeat when you least expect it.

    Biden snaps at reporter over recession fear questions – Fox Business, Jun. 21

     

    Biden says drivers will pay high prices for gas for “as long as it takes” – Jun. 30

     

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    Welcome to the Most Anticipated Recession in History

    Welcome to the Most Anticipated Recession in History