We’ve had three straight banner years for the Federal Reserve.
In 2021, they said there would be “transitory inflation.”
In 2022, they said we’d see no recession.
In 2023, they now say there isn’t a banking crisis – yet a panic is in play.
Against the backdrop of these swings and misses, we have a new chart from the New York Federal Reserve that should make Jerome Powell’s face turn ghost white.
The probability of recession, as predicted by the Treasury spread. As you can see… it puts the recession probability in April 2024 at 68.2%.
Pay closer attention, though – and you’ll see something even more distressing.
The odds are now the highest we’ve seen for a recession since 1982.
That was an especially NASTY period in history as the Federal Reserve raised interest rates well above the Consumer Price Index (CPI) to stamp out recession once-and-for-all.
Today, the Fed funds rate is still just in line with inflation – and Atlanta Fed Bank President, Raphael Bostic, says the Fed might not be done raising rates into the summer.
Inflation has backed the Fed into a corner. After the most aggressive interest rate hikes in 50 years – and a new debt ceiling debate that could cut some government spending (which is sorely needed), there’s a much higher probability of a downturn.
Feast your eyes on The Conference Board.
Government Spending and Trickery
Last year, the U.S. economy was in a technical recession – despite central bankers redefining the term to align with their political survival. They might get a pass in 2022.
But they’re not likely to get one in 2024.
The Conference Board is a nonprofit research firm with over 1,000 public and private corporations and other members. It was started in 1916, and has a terrific reputation for forecasting large macroeconomic events.
Today, the Conference Board has set the recession probability at 99%.
And it set that level before we were placed in a confirmed recession, something that didn’t happen back in 2008.
The reasons why we’re heading into a recession are simple.
On the macro-side, the yield spread (the first chart) is screaming of a recession, and it historically sees a recession follow when there is just a 40% chance from the New York Fed chart.
As we move into the summer, financial conditions will start to tighten, and the Fed’s balance sheet is still declining (part of their tightening policy to stamp out inflation.
Elsewhere, economic weakness will accelerate in the months ahead with interest rates elevated, banks cutting back on lending, and consumer prices being elevated (inflation is not “slowing down. The rate of inflation is slowing – which is a big difference)
Consumer spending is starting to hit a wall.
After 15 years of cheap interest rates, cheap money, and incredible debt expansion, all that spending doesn’t create a functioning, sustainable economy.
In fact, the Federal Reserve – which originated as a means to boom and bust cycles common in the late 19th century – has now become the primary cause of the boom and bust cycles of the 21st century.
Sentiment in the Market
The big difference today, compared to where the market lives right now, centers around the difference between equity performance and the state of the consumer economy.
Consumer sentiment remains weak, at levels we haven’t seen since 2011. But equity allocation remains quite high – and so too does the support-buying of algorithms around Artificial Intelligence (AI) stocks that are driving large-cap tech stocks higher.
Moving forward, however, this market will need to center its focus around great businesses with strong fiscal management, great cash flow, and real assets.
That’s been the move of the deep pullbacks of 1991, 2003, 2008, and 2020. Our strategy is to look out beyond a recession – and turn our focus to real products and real goods.
It all starts at Tactical Wealth Investor – which consists of deep value stocks with a long-term focus and great income-generating names to help you best inflation.
Sign up today… as I’ll be releasing my bi-monthly update on the economy and the portfolio this Wednesday, May 17.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Yellow
There is absolutely no trend in this market. Algorithms continue to halt any selloff, and meme stocks remain a favorite among day traders – and institutions like Bridgewater Associates and Renaissance Technologies. This morning, 13F filings showed that these institutions are actively buying and selling names like Gamestop (GME), AMC Entertainment (AMC), and Bed Bath & Beyond (BBBYQ). That is just insane to me.
