Written Monday, May 5th, 2008: Regular Weekly Overview:
Numerous economists are now saying the possibility of an US recession has passed. I think this change of viewpoint began about a week plus back when the Durable Goods Orders–Ex Transports for March rose +1.5%, better than the +0.5% expected. While on the same day, Thursday, April 24th , Initial Jobless Claims for the week ended April 19th rose less than expected. I think I read “the recession risk is over” the next day, from just which economist, sorry, I can’t remember. Whatever, now I’m hearing the risk of recession is over from numerous sources, including Larry Kudlow of CNBC (‘course he’s always bullish so take his views with a large grain of salt; interestingly, he essentially makes his living by being bullish). Anyway, I agree with economist Kudlow’s premise (which was highlighted by Alan Greenspan in 2007 book: The Age of Turbulence) if not his prediction. The premise that the US economy has become amazingly resilient. That the mighty US economy -- the strongest and by three times the largest economy in the world -- can easily weather a lot more problems, crises and body blows than in decades past. Likely one major reason behind this new resiliency is because inflation hasn’t been a problem for the last 25 years or since former Fed head Paul Volker broke the back of runaway inflation in the early 1980s. But as Greenspan goes on to predict in his book, and publicly as recently as this a.m. in a Bloomberg interview, this inflation buffer has now gone away. That, basically, I’m speaking now, we benefited greatly from non-existent inflation for the last 20 years or all during the commodity bear market running from 1980 through 2000 when we essentially had “too much of everything” to work off, a.k.a. the down phase of he larger Kondratieff Wave business cycle. But now we’re back in a commodity bull market and the beginnings of resurgent, problematic inflation. Usually major trend changes start with a dramatic burst in the opposite direction (before settling back to catch their breadth) and today’s remerging inflation problem has been no exception. No one can believe that oil is above $100 and food costs are soaring like they are, but the fact is they are. Goods coming in from China and elsewhere are on the price rise as well. It’s a new economic world or as Greenspan went on to say this morning, the economy is reverting back to the period when inflation was more problematic: “We’re going back to where we were before the end of the Cold War.”
Schwartz View: I continue to believe we are on the verge of a recession and a bear of one. But it could be pushed back and camouflaged as no one really can exactly time the lags involved with economics. For example, the tax rebate checks millions of Americans should start receiving any day now will obviously fuel consumer spending in the near term. History shows 30% to 40% will be spent right away. But I read in www.Comstockfunds.com Friday that the 90,000 job cut announcements the tracking firm Challenger Gray & Christmas reported this April is up 27% from a year ago. So I continue to see this slow motion economic slowdown progressing into recession. Maybe the recession will not arrive fully until next year as, remember, another theory of mine has long been that its only when our troops start arriving home from Iraq that we’ll have to worry about the economy, and providing them with jobs. Sort of the straw that breaks the economy’s back. For now all we can do is monitor the incoming data while playing cautiously.