Heading Towards the Inevitable Recession
by JDH on April 22, 2023
While the NBER has not yet declared a recession, it is apparent to the “Person on the Street” that that’s where we are headed.
Inflation is easing, as expected, which is good, but why? Two reasons: reduced government stimulus and reduced consumer demand. “Reduced demand” is a code word for “imminent recession.”
Unemployment still looks excellent, but cracks are appearing. As I have said repeatedly, unemployment is a lagging indicator.
It’s difficult to hire employees. Employers have to find them and teach them the job. So, at the first sign of a slowdown, employers don’t fire everyone because they don’t know how long the slowdown will last, and they don’t want to go through the hassle of paying severance and then incurring the cost of hiring and training new employees. So employers hoard employees until it’s obvious they aren’t needed.
Then the layoffs start, but employees typically get some termination or severance, so they don’t immediately show up on the unemployment roles. That’s the time lag: no layoffs at the start of the slowdown, then the layoffs, then the unemployment insurance applications, which may not occur until 12 to 18 months after the slowdown has started.
So, I continue to expect that by the second half of 2023, we will be obviously in a recession, the stock market (and risk on assets like Bitcoin) will have bottomed, and we can deploy our capital for the next bull run.
But not yet.
Let’s chat again next week and see where we are at.
Heading Towards the Inevitable Recession
by JDH on April 22, 2023
While the NBER has not yet declared a recession, it is apparent to the “Person on the Street” that that’s where we are headed.
Inflation is easing, as expected, which is good, but why? Two reasons: reduced government stimulus and reduced consumer demand. “Reduced demand” is a code word for “imminent recession.”
Unemployment still looks excellent, but cracks are appearing. As I have said repeatedly, unemployment is a lagging indicator.
It’s difficult to hire employees. Employers have to find them and teach them the job. So, at the first sign of a slowdown, employers don’t fire everyone because they don’t know how long the slowdown will last, and they don’t want to go through the hassle of paying severance and then incurring the cost of hiring and training new employees. So employers hoard employees until it’s obvious they aren’t needed.
Then the layoffs start, but employees typically get some termination or severance, so they don’t immediately show up on the unemployment roles. That’s the time lag: no layoffs at the start of the slowdown, then the layoffs, then the unemployment insurance applications, which may not occur until 12 to 18 months after the slowdown has started.
So, I continue to expect that by the second half of 2023, we will be obviously in a recession, the stock market (and risk on assets like Bitcoin) will have bottomed, and we can deploy our capital for the next bull run.
But not yet.
Let’s chat again next week and see where we are at.