Posted on 11/03/2023 7:16:53 AM PDT by SeekAndFind
"You can't have a recession if everyone has a job and everyone is spending money," I told the audience in Las Vegas.
We hosted our annual Stansberry Conference last month. And I had the honor of sharing my most up-to-date thoughts on the markets and the economy.
Everyone is still on edge, waiting for a recession to take hold in the U.S. Many of our analysts at Stansberry Research are exploring the possibility, too.
It's good to be prepared. But you shouldn't lose sleep over this fear. The reason why is as simple as what I said in Vegas...
Consumer spending accounts for roughly two-thirds of the U.S. economy. So a major slowdown isn't likely if people have jobs and cash to spend.
Importantly, folks have more cash on hand right now than you probably realize. And until that changes, a recession is unlikely from here.
Let me explain...
Spending money is as American as baseball or apple pie. It keeps the economy humming... And folks simply won't stop spending until they're out of cash.
The pandemic stimulus pushed thousands of dollars into the average American's bank account. It's what kept us from falling into a much more painful and prolonged recession in 2020. But now, the narrative in the financial media is that most people have spent all their savings.
That couldn't be further from the truth.
We can see it by looking at checkable deposits. These represent the total cash held in checking, savings, and money-market accounts here in the U.S.
Specifically, we're looking at the personal-sector checkable deposits. This is money held by households, nonprofit organizations, and nonfinancial, noncorporate businesses. You can think of it as cash that individuals and small businesses have on hand.
If the economy were about to crash, we'd expect these folks to be hurting. But the numbers don't lie. And today, they tell us that Americans are holding a near-record amount of cash... trillions of dollars more than before the pandemic. Take a look...
This group had less than $2 trillion at their disposal before the pandemic. Today, that figure has soared to nearly $5 trillion.
Now, it is true that the figure has dropped by a few hundred billion from last year's high. But it still amounts to trillions of dollars in excess cash, versus just a few years ago. And that means consumers will keep spending... heading off a potential recession.
Another interesting detail is that it isn't just the wealthiest consumers holding that extra cash. The most well-off do have a majority of these savings. But even the less well-off are in a much better position than they were before the pandemic. Take a look...
This chart shows the checkable deposits for the bottom 50% in overall wealth. These folks have nearly $300 billion in cash available. That's a staggering amount – triple what they had before the pandemic began.
Both charts tell the same story... The average American has plenty of cash on hand right now. Consumers will be able to keep spending. And it's hard to have a recession if everyone is spending money.
Sure, that situation can't last forever. But it's the reality for now – and it isn't something that will change overnight. So while everyone is worried about an economic downturn, remember... it probably won't happen until this excess cash disappears.
Good investing
The world’s best recession indicator is starting to look like the “boy who cried wolf”...
This signal first flashed in October 2022. The murmurs of a recession had begun months before that. But once this warning sign appeared, it became the consensus bet.
That recession hasn’t materialized, though. Unemployment remains low... And consumer spending is hitting all-time highs.
Even so, this recession indicator has flashed every day since last October.
That’s the longest stretch in this signal’s history. So why hasn’t a recession shown up?
This indicator may have a powerful track record – but as you’ll see, it’s not the only thing that matters. In fact, we have good reason to think it won’t be right this time around.
The undisputed king of recession indicators is the inverted yield curve.
The “yield curve” is just the difference between long- and short-term interest rates... in this case, the 10-year and three-month U.S. Treasury yields, respectively.
Normally, long-term rates should be higher than short-term rates. That’s because folks should be “charged more” to lock their money up for longer. Because they’ll be compensated for their risk, it encourages long-term lending – which is good for growth.
The economy gets weird sometimes, though. When short-term rates rise above long-term rates, folks aren’t getting paid to take risk in longer-term bonds. The yield curve turns negative – or, in other words, it inverts.
When that happens, folks have less reason to invest in the future. So the economy slows. And that’s why the yield curve tends to invert ahead of recessions.
Well, thanks to the Federal Reserve’s rapid rate hikes starting last year, the yield curve inverted in October 2022. And it has stayed that way.
An inverted yield curve is a bad sign. But it does happen from time to time. What makes today’s situation so crazy is the severity.
The inversion nearly reached negative 2% earlier this year. As you can see, that’s by far the most negative reading of the past four decades.
Today’s inversion has even eclipsed the 217-day streak we saw in 2006 and 2007, before the worst recession of our lifetimes. And today’s streak is still going strong – with no signs of ending soon.
This setup has confused a lot of folks. An inverted yield curve has been a useful recession signal for decades. It’s widely regarded as one of the most reliable signs of trouble... But after nearly a year, it’s starting to look like the boy who cried wolf.
To me, the lesson here is that you can’t rely on a single indicator... no matter how strong its track record is.
Even the inverted yield curve has false positives in its history. No one expects one this time because the inversion is so extreme. But it’s possible.
For now, unemployment is low, corporate earnings are growing once again, and consumer spending is growing. That means the economy still looks strong... despite the craziness with the yield curve.
I’d almost believe this if I weren’t having to go to Walmart every other day to maybe catch the discount on near-expiring meats, etc. The only brighter side if you can call it that is our governor suspended the state gas tax, but that can’t be permanent or very long per state law.
People are spending because they are loading up for fears of runaway inflation. Everyone has a job? Everyone has 2 or 3 shitty jobs. These economic numbers are as fake as China’s.
EXACTLY!!!
📌
Households, nonprofit organizations, and nonfinancial, noncorporate businesses
Yeah, everything is rosy if you’re a lazy ass government employee and never built damn thing in your life.
Problem is, people are spending money they do not really have, by using their credit cards.
This data suggests that the numbers being sited in this article are less then accurate. If everyone has money to burn, why are they accumulating records level of personal debt?
Total Household Debt Reaches $17.06 Trillion in Q2 2023; Credit Card Debt Exceeds $1 Trillion
When real estate is no longer propped up by foreign investment — next year — it will not just collapse, it will implode with bank failures among the mid-majors, the same banks where Average Joe keeps his paycheck.
Yeah, it’s going to happen. People have been running up record credit card debt trying to keep up with rising expenses, and that cannot continue, so spending is going to fall. Companies are not about to give 50% raises to everyone to keep the economy going.
Credit card balances are rising sharply. They recently surpassed the $1 trillion level. Also, the Bank of America recently reported that more people are tapping their 401k’s under hardship withdrawals.
Rising costs are becoming a burden for the consumer as disposable income continues to shrink resulting from inflationary pressures. Its hard to find money for discretionary expenses and non-essentials when the cost food, energy, shelter, medical care, taxes, insurance, etc. keep going up.
Haven’t we already been in a recession for 1.5 years?
“These economic numbers are as fake as China’s.”
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They’re all cooked and seasoned. Just look at the non-farm payroll number that are constantly revised downward by significant amounts — after the numbers are juiced to look good for political advantage. Its all a game.
Good chart—the 2006-2007 yield inversion was a waving red flag—which the “experts” ignored.
“Problem is, people are spending money they do not really have, by using their credit cards.”
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Exactly! They keep spending because old habits die hard. Nobody wants to cut back on their lifestyle and so the buying (on credit) continues. Until it can’t.
The days of cheap money and cheap energy that propelled the economy are over.
As we become more of a third world country with a powerful central government the economy “splits” in two parts—the haves and the have nots.
The haves prosper from massive government expenditures—especially contracts with connected corporations.
The have nots in the private economy grind towards poverty.
That is why “total” economic data is confusing and misleading.
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