Inflation Will Be Transitory, the Recession Hard to Notice, and the Market Won’t Crash...Unless

Republicans might consider dialing back their mockery of the White House’s recession denial [Gilder's Daily Prophecy] August 09, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Crash Warning: SHOCKING CHART: You Could Lose Everything In the first half of the year, stocks sustained their worst decline in 52 years, and there's nothing the Fed can do to stop it. If you hold stocks or exchange-traded funds, history tells us you could lose anywhere from half your money to almost all your money. That's why I've just released a special video, Collapse of 2022: How to Protect Your Money and Wealth Swiftly. I'll show you six simple steps to protect your money immediately and profit directly from market declines. [Click here to watch my urgent briefing now](. Inflation Will Be Transitory, the Recession Hard to Notice, and the Market Won’t Crash…Unless [Richard Vigilante] RICHARD VIGILANTE Dear Reader, Republicans might consider dialing back their mockery of the White House’s recession denial. The Biden folks have a pretty good case, just as they have a pretty good case that inflation will be transitory. On the other hand, if the administration succeeds in getting their agenda enacted we likely will have stagflation out to the horizon, so you should still vote Republican in the fall. The most common definition of a recession is two quarters of negative GDP growth. That’s a problem from the get-go because GDP is a crummy statistic. Yes, real GDP shrinkage does tend to correlate with the other things recession-like: increasing unemployment and decreasing corporate profits. And we are already seeing some of both, which is not great. Still, considering the very small numbers we are looking at here—1.6% shrinkage in Q1 and 0.9& in Q2—it’s worth looking at the data behind the headlines. For the second quarter, the lead factor in the 0.9% backslide was “decreases in private inventory investment.” Inventory investment is the measure of how much inventory of product or materials a company holds. Typically, a rise in inventory investment indicates companies have a positive view of the future; inventory shrinkage is considered a bad sign. And there was a significant drop in Q2 (See graph 1) [chart] The current situation, however, is far from typical. Looking at absolute levels, after dropping precipitously in the early months of the pandemic, inventories soared to record highs through the beginning of this year. (See Graph 2) Holding inventory is expensive. Low interest rates slashed the cost of operating capital post 2008 which likely helped drive up inventory levels before the pandemic. Supply chain fears since then have probably encouraged a certain amount of hoarding. Still, inventory levels were due to come down; the modest circa $100 billion drop we’ve seen so far—it barely shows on the next graph--doesn’t seem as much like a recession indicator as it might otherwise. [chart] Selling Faster is Good Meanwhile, the inventory to sales ratio—a measure of the efficiency with which businesses manage their stock—has crept up to its highest level in more than 15 years by mid-last decade. High is bad; the recent drop down to circa 1.3, is good news assuming it does not expose companies to supply chain woes. [chart] It’s not clear that the current inventory draw-downs—the number one factor the BEA is counting in the GDP shrinkage—suggests any ongoing weakening in the economy. The number two ranked factor was “residential fixed investment”, home building essentially. I’ll buy this one as a negative indicator but, in this case, not an especially powerful one. Housing starts fell to 1.59 million in May and 1.55 million in June but that was from 1.81 million in April, the highest level since May of 2006. Rising mortgage rates could make things worse, quickly, but today’s building activity looks robust compared to even five years ago. Still, down is worse than up. US Dollar Replaced By “Biden Bucks”? [Click here to learn more]( A former advisor to the CIA and Pentagon now believes President Biden plans to retire the US dollar we know. And replace it with what he calls “Biden Bucks”. It is underway. On March 9, Biden signed Executive Order 14067, which could pave the way for Biden Bucks. [Click to see how to save your investment and retirement accounts](. U.S. Housing Stats [chart] Source: Macrotrends The number three ranked factor was a decrease in Federal government spending. Counting decreases in government spending as an indicator of a weakening economy is always perverse, but this time especially so. In the BEA’s own words “the decrease in nondefense spending reflected the sale of crude oil from the Strategic Petroleum Reserve, which results in a corresponding decrease in consumption expenditures.” Then they go on to say this was netted out because the oil went into inventory. So, it wasn’t a factor at all? The other notable factors included were a decrease in state and local government spending, and an increase in imports which are always counted as a subtraction from GDP. In this case, however, the increase in imports was dominated by an increase in Americans traveling abroad, making up for expeditions postponed for the pandemic. That does not strike me as an indicator of economic weakness. So technically a recession? Maybe just barely. A recession worth writing home about? probably not. In the 13 U.S. recessions from 1945 through 2020, peak unemployment averaged 7.6%. Just how recessionary are we going feel if unemployment soars from the current 3.6% to say 5%? Bye, Bye Business Cycle The biggest reason I don’t believe in the recession is structural. During the Reagan era, with taxes almost unrecognizably lower than in the 1950s, ‘60s and ‘70s, business cycle recessions have almost disappeared. In the forty years since 1982, we’ve had exactly two: one starting in July 1990 the other in March of 2001. At eight months duration, both were shorter than average. Total GDP shrinkage for the two combined was less than 2%. The other two recessions of the Reagan era both had special causes that don’t threaten currently. Both were directly attributable to awful government policy. The Great Recession of 2007-2009 happened only because the U.S. government all but forced American mortgage makers to adopt suicidal credit standards. The Pandemic recession, which brought the largest decline in GDP since 1929 was carried out on direct orders of the federal and state governments. Even counting those two made-in-Washington-catastrophes, recessions post-Reagan have been rare and on average mild. From 1945 through 1981, we had nine recessions, with an average gap between them of just three and a half years. Since 1983 (the real start of the Reagan era as the tax cuts took hold) the gap between recessions has been more than eight and a half years. Unless the Biden administration deconstructs the Reagan economic regime, now heading into its 40th year, the recession, if we are in one, will be almost unnoticeable. That means in turn that inflation will be transitory and the stock market is unlikely to fall much further. Make no mistake though. What Biden and the Democrats want to do, and what the Republicans seem bizarrely uninterested in opposing (other than by floor votes which they will lose) could harm the economy badly. Even the stripped-down BBB is bad, bad, bad. Some conservatives are consoling themselves with the pledge to accelerate permits for petroleum drilling if the bill passes. But how enthusiastically will the oil companies drill for a country that remains committed to driving them out of business? Regards, [Richard Vigilante] Richard Vigilante Don’t Buy Any Crypto Until You Read This New Book! [Click here to learn more]( Do not… I repeat… [Do NOT buy a single cryptocurrency until you read this new book](. This could be the biggest opportunity of your life, but only if you act now. [Click here to see how to claim a copy of The Big Book of Crypto](. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( Gilder's Daily Prophecy is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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