Your Thoughts on the 'Recession Question'
Thanks for the responses... Long lines still stink... What makes a recession... 'Subconscious nihilism'... Trust your knower... Vacations versus cherries...
Today is dedicated to your thoughts on the economy...
At the end of yesterday's Digest, I (Corey McLaughlin) shared a pair of anecdotes suggesting a slowing economy and still-high inflation in the U.S. And I offered a data point about busy air travel over the Memorial Day weekend.
Then I posed a question based on it all...
Is the recession here... or is it not?
Plenty of responses have arrived in our inbox over the past 24 hours.
First off, thank you. We should say this more often: We wouldn't be doing any of this without you, our subscribers, and we always value your opinions. Secondly, this kind of thing can be a useful exercise for me and for everyone.
When you put the various views together, they paint a good picture of what's really happening in the economy... as opposed to what you might be hearing from talking heads on TV, nameless and faceless data, or anyone else.
First off, people don't seem to have a problem paying to travel...
As paid-up subscriber Cliff J. wrote...
In February I did my first ocean cruise in 20 years, and was surprised to see SOOO many ships SOOO full in the 3 ports we visited... and so many folks spending $$.
Also my singing group did a "restaurant crawl" singing songs for Valentine's day, and all the eateries were jammed-full (at a small metro area one hour east of Nashville).
My impression was that the economy was doing better than what the media mob proclaims.
I'm still buying growth stocks, and holding my value and "name-brand" stocks, although I'm severely down since Jan 2022. However, I AM terribly concerned about the [environmental, social, and governance ("ESG")] control over companies.
Stansberry Alliance member Clark C. has similar thoughts...
I am 60 years old and my last trip 30 days ago was nothing but standing in line. I have seen nothing like it. Maybe I am seeing a labor shortage and a ton of people traveling.
I get two quarters down is a recession, but if we are coming off the sugar high of all sugar highs, two quarters down does not get me a peaceful vacation.
Meanwhile, paid-up subscriber Jerry B. thinks we're in a recession, but one that's nowhere near what we saw during the financial crisis...
Great article, keep them coming. We need a clear voice amongst the "what if" scenarios. To answer your question, "So, are we in a Recession, or not?" The answer is yes, positively, yes! However, even though people may be slightly perturbed by the rising cost of gas, it isn't that bad. Rising cost of food, yes, but again there are still plenty of people going out to eat at the restaurants. Perhaps, being kept at bay due to COVID is a reason.
In my personal observation, it is not even close to what we experienced back in '08-'09. Back then, my wife & I made a trip to Fort Myers Beach where we stayed at the Outrigger Hotel, and let me tell you it was an "early" sensation walking along the beach wondering, where is everybody? It was a scene right out of the "Twilight Zone." Hotels were sorely booked, and we're talking prime real estate, right off of the beach & yet, it felt like a "Ghost Town."
Now THAT was a Recession!
In short, these reports about travel suggest the economy is not doing badly – yet – and align with the recent data from the airline industry about traffic over Memorial Day weekend returning to 2019's pre-pandemic levels.
Real estate is a little more complicated...
We've long talked about the fundamental forces supporting higher housing prices over the long term. Simply put, there aren't enough homes to meet demand. That might be what's playing out now even in a higher-interest-rate era because, as paid-up subscriber Barry C. told us...
We are a large home builder. Our sales increased significantly in May, even in the face of the higher interest rates.
If homebuilding isn't "broken" yet, it's going to be hard for inflation to get anywhere close to the Federal Reserve's erstwhile 2% goal. At the same time, though, paid-up subscriber Eric S. from New Hampshire is having problems with tenants not paying their bills...
I believe everywhere there is propaganda and distortions. Because I'm a landlord on "Main Street" I have record turnover, inflation, and evictions right now. It's a lie, we are already in a recession!
Now, about the term 'recession'...
Let's get into the meat of the discussion now. Paid-up subscriber Mel B. is questioning the government numbers (always a good idea, in my opinion)...
I think we have been in a recession for the last couple of quarters. It is mild but will continue with a slow but steady decline towards worse conditions.
The unemployment and inflation numbers are big "baloney" today and the Fed could continue to make things even worse.
I'm in a quite defensive position with my portfolio.
Stansberry Alliance member William B. gets into some nuance about how he'd break down Americans into different quintiles of economic success. He starts with a "charity" group that relies on assistance programs, followed by the working poor and the folks who are relying on credit cards to sustain their standards of living. Then he says the top two quintiles "are spending on 'Experience' like there is no tomorrow."
William expects a credit crisis that will spark massive job losses... "a recession of the worst kind" that will push today's poor into the "charity" quintile.
Paid-up subscriber Austin C. is in a similar camp...
Hello Corey, All of this & then some. We're in a recession. It's just that most people don't know it yet. The way I see it, mainstream awareness is simply being deferred by our modern "bread & circuses" (sports, media, etc.).
Sure, American consumers are still spending, but much like their own government, with household consumer credit at an all-time high, they're spending money that they simply don't have. Call it subconscious nihilism.
I wouldn't be shocked if we see a consumer credit bubble burst in the next 12-18 months & with it, another round of bank failures for those left holding the associated distressed assets.
I find myself agreeing with all of that, Austin. It seems like paid-up subscriber John C. is of a similar mind... And he also notes the role of a devalued dollar in all of this. He says...
Recessions are rarely an all-in economic downturn. Some cracks, crevices and corners of the economy always run the other way.
Recession is here for about 70% of the population and about 60% of the businesses. You've flagged all the variables but the data used is still suspect. Real inflationary pressure is far greater than reported. That, in and of itself, will further slow a deteriorating economy. Bankruptcies will further impact banking and liquidity. Money circulation is slowing. Many consumers are already broke.
Credit is tighter than underwear three sizes too small. The markets (stock & bonds) are still overpriced. Commodities are underpriced but demand for most is wilting. The U.S. dollar is losing credibility monthly, even when it rises against other currencies. No matter which way the Fed turns, more problems than solutions will arise.
Trust in the government is almost nonexistent, which will drive fear. The political scene is like a play where all the current cast members are losing audience appreciation. Food is priced out of reach.
In closing, the recession will get worse as we break into summer. Soon it will be a bad year to graduate from college. Profits will trump employee hiring.
Government spending is the worst & the most expensive war America faces, and we're losing because our leaders are out of touch with America.
Paid-up subscriber Steve W. breaks it down in simple terms... He points out that whether or not you feel a recession depends on where you are, what you're doing, and what might be happening to you...
It goes like this, and we have all heard it before: Recession is when your friends get laid off... depression is when you get laid off. Many of my younger friends, especially in tech, have been laid off. My older friends, who know how to show up on time and put in the full day of work, are hanging in there but they are not techies. While I am technically retired... actually just tired, it still takes hustle to get by...
With a nod to Richard Cantillon, the 18th century economist, we see movement of Federal money toward those with money, via the big banks and market segment selection by the Fed. This results in the ruin of any shred of value in the debased currency we call the Dollar and given the Weimaresque policies of the swamp, I do not see an easy return to sanity. Assuming there ever was any sanity at the Fed or in Foggy Bottom.
Given the internal issues inside China's economy and demographics... war seems an easy choice for "leadership" to distract the populace. This has played out many times in the last 2,000 years. In modern times it benefits both sides to the dispute...
Paid-up subscriber Jeremiah O. agrees with Steve, but he wants everyone to chill out and remember an important lesson...
Recession is when you get a cut in pay & depression is when you lose your job. It's different for each person (family). Stay calm & don't let FOMO win the day! Listen to what you Know Down in Your Knower.
And about those cherries...
I ended yesterday's essay in part by sharing a personal inflation story... that my wife recently decided to leave a $14.99 container of cherries at the checkout counter of a local grocery store. Turns out, she isn't the only one who has done the same lately. Terry G. said...
Ditto on the Cherries priced at $14.99. I put them back on the shelf.
Yet paid-up subscriber Russ F., from nearby Delaware, questioned our shopping habits...
The Giant store here and all of DC, MD, Va had the cherries on sale for $2.88 [per pound] with a $25 purchase which is easily done. You must be shopping at Publix, Whole Foods, or Fresh Market! Love your work.
This observation allows me to fulfill a request from my better half... always a good thing.
After I told her yesterday that I mentioned what she did with the cherries, she wanted me to point out that this was at an average grocery chain – equivalent to a Giant. So this wasn't a case of going to a high-end store and complaining about high prices.
In any case, Bob R. has another idea...
Go to Costco!
That might be on the to-do list this weekend. There's also something to be said for that sentiment – and for owning shares of businesses like Costco Wholesale (COST)... because bargain hunting is in again, and it might stay that way for a while.
Here are my two favorite takeaways on the cherry issue...
Put these two final thoughts together and you'll get the best take on the economy, the business climate, and continued inflation. Here's business owner Kevin L. from Florida...
Great story at the end of Monday's column about the conflicting signals on the economy. I think that the difference is that the food inflation, reflected in the high price for the cherries is indicative of the current environment while the funding issues will have an impact on the economy down the road, and maybe not too far down the road.
In our chemical business, our sales are definitely down. However, in our ice cream business, sales are up 23% this year. But that is due to so many people moving to Naples, plus the fact that we're only in our third year of operation. Keep up the great work.
Similarly, paid-up subscriber Larry C., who lives in Oregon but travels all over the place, says...
Inflation is where you are. I'm in Western Europe this month, and prices are all over the place depending upon the country and the product. Especially when it comes to cherries. In Spain, yesterday, cherries were sky high, but that is because it's so early in the cherry season. Wait a few weeks and cherries will be on sale in their normal price range.
London hotel rates were very high a few weeks ago, but our recent stay in The Hague, Netherlands was very reasonable. Back in the USA, our local organic grocery has had tremendous price inflation as well as higher labor costs, but at the same time, local, seasonal produce is settling down in price and there are some good sale items like locally grown mushrooms. The biggest impact on fresh produce prices today is likely the extreme weather in California.
Perhaps folks are choosing to spend their money on travel instead of high priced cherries.
I think they are, Larry. And I don't think we can end this report better than how you said it. People are still spending... on "experiences" like travel or vacations... and "needs" like housing and food... but maybe are increasingly being more selective about what and how much they buy as inflation sticks.
Is that a recession? I don't know. But with all these factors to consider... how much does the terminology matter? More importantly, think about your goals and what you might need to do to achieve them in conditions like these.
'Attackers and Defenders' Make a Strong Portfolio
Alfonso "Alf" Peccatiello of the Macro Compass joins the Stansberry Investor Hour this week to share his thoughts on the U.S. debt, the global economy, and more... Plus, Dan Ferris and I talk about Nvidia and the possibility of higher interest rates soon...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 5/30/23): Apple (AAPL), Applied Materials (AMAT), Salesforce (CRM), Meta Platforms (META), Palo Alto Networks (PANW), ProShares Ultra QQQ (QLD), ProShares Ultra Technology (ROM), iShares 0-3 Month Treasury Bond Fund (SGOV), and VMware (VMW).
We shared a lot of your feedback above, but we did get some other thoughts on our analysis of market breadth in yesterday's Digest, too... As always, keep your comments and questions coming to feedback@stansberryresearch.com.
"Great insight on breadth! For those that remember the Dotcom crash, why do I feel like we are staring over the edge of a cliff in the Nasdaq? For example, Nvidia is cruising towards a 50 [price-to-earnings ratio], while even [Cathie Wood] is proclaiming it is overpriced. Perhaps we have a new canary in the coal mine." – Paid-up subscriber Hoyt C.
All the best,
Corey McLaughlin
Baltimore, Maryland
May 31, 2023