Don't shoot the messenger, but I see a recession coming

NO one is going to thank me for writing this, but to be fair I’m not the first person to say it. I wrote a while ago asking if we were heading into a recession, and in my view things have worsened since.

I wrote the other day I’d like to see the FED only doing 25 basis points reduction in November, but I’m now of the view they will maybe do nothing where 50 would not be inappropriate.

What has got worse? Well, employment figures don’t seem to me to be telling either the whole truth or even some of the truth. Empirical observation implies things are much worse than is being stated, and that’s everywhere.

You only have to travel around to see that less is happening. Talk to taxi drivers. If you want to test the economic temperature in London, you can ask the best source of information there is - the driver of a black cab. Down on the south coast, it is the owner of the local fish and chip shop, but the tale is almost identical.

They are all gloomy!

Credit card debt and the buy now pay later mentality is slowly reducing us to the state of that great song, '16 tons and what do you get? Another day older and deeper in debt'. And the punchline – 'I owe my soul to the company store'. For sure, limits are being reached and recovery agents are proliferating, trying to get anything back, on any kind of basis. And what of the other side? Savings are at an all time low.

I’ve written before about the looming bomb of commercial real estate – especially in America and in China. The Americans will probably somehow make it work (several trillion of loans will almost certainly get written down by at least 75% with a concomitant crash in lending ability by banks) but the Chinese look as if they are going the Japanese route of too little too late.

Many years ago an extremely revered and ancient stock broker told me the best loss was always the first. He worked on the principle of pull the trigger first. Good way to win a gunfight. And despite early euphoria, there has been no follow through by the Chinese which resulted in falls on Chinese exchanges nearly as sharp as in the days of Covid.

Talking of Japan, the authorities there are busy trying to shore up an extremely weak currency. The interest rate hike recently has done little to ameliorate things, and arguably, because of perceptions, it has made things worse.

On to more esoteric things. M2 money continues to contract. You can’t keep taking money out of a system and expect it to thrive. Similarly, the infamous inverted yield curve (where three month money yields more than 10 year money ). We have had that for more than a year, and suddenly it has un-inverted. I can only suggest that the (literally) trillions of dollars the US is printing is keeping things at bay.

That in itself implies the stimulus is running out. Quite unequivocally it has to stop. The consequences for when it does are dire. All this feeds into a banking crisis, and I would bet that the two things keeping Mr Powell awake at night are the US Commercial property market and the ongoing increase in banks on his watch list, despite all his soothing comments.

And if all that wasn’t enough, Hollywood is going bust. Production is down 40% over the last two years and the studios are trying to figure out how to make a profit. If dreams are no longer working, life is hardly worth living.

Here in the UK there is talk of an exit tax for people leaving the country. The last administration that did such a thing was Nazi Germany, and look how that ended. The telegraphing of total Armageddon at the Budget at the end of October has already (dare I say it) crashed the economy. There’s nothing on the horizon that appears to be going to make things better. But you never know.

And what of Bitcoin, supposedly the antithesis to all bad things? Well, I have to say I told you so, that things felt different this time. And indeed they are.

In general terms BTC and the S&P 500 march arm-in-arm. Not this time. The S&P is hovering just below an all time high and Bitcoin is around 15% below that. Maybe we are seeing what Bitcoin will really become, for the first time. And please don’t ask me just yet what that is, I’m sure there’s much to spool out first.

So I’m sorry to be such a misery, but I’m afraid it’s all too true. It appears even the Sage has turned bearish. That being the case buy gold. Or a farm. At least then you will be able to eat. 

On the other side, in an event that gladdens the heart of an unreconstructed economist like me, President Milei of Argentina has privatised Aerolineas Argentinas.

It currently employs 1,204 pilots to fly 81 planes, or nearly 15 pilots per plane. It has burned through $8 billion in the last few years. Rather like the Greek Railways, it would be cheaper to put everyone in a taxi. Or buy a big chunk of Netjets (owned by the Sage, as it happens).