It’s funny sometimes how the mainstream financial media tries to push narratives that are completely at odds with reality. With business activity already slowing in the US, China, and elsewhere, and with the onset of the coronavirus seriously upsetting global supply chains, anyone could tell that 2020 is going to be a rough year for the economy. Yet the financial media as late as last week were still trying to push the narrative that the odds for a recession this year are low and declining.
One of the major reasons for that was the unexpectedly sunny result from the latest Philadelphia Fed business activity reading, one of the best reports ever over the past several decades. Of the firms surveyed, 56% expected an increase in business activity, while only 10% expected declines. That’s somewhat unusual, given how global supply chains will be disrupted by the impact of the coronavirus in China.
But that just goes to show how important business cycle research still is, that businessmen are so totally disconnected from the real workings of the economy because of the faulty signals they’re getting from the Fed’s loose monetary policy that they think that the economy is still going strong. They’re seeing high-flying stock markets, low unemployment rates, and the Fed jumping in to keep markets flush with money and they think everything will just continue to get better.
Even firms that supposedly have research teams tracking the economy think that things are going well. JPMorgan’s analysis supposedly shows less than a 1/3 chance of the economy falling into recession this year. And more incoming anecdotal reports such as the New York Fed’s business conditions index have led the firm to believe that 2020 will see an uptick in production and business activity.
What these analysts don’t understand is that both households and businesses are swimming in debt, and the ability to service that debt is diminishing every day. That’s just the domestic side of things, while the international side of things is complicated by the coronavirus. With the world’s second-largest economy all but shut down due to the virus, global supply chains will be messed up for months. And if the coronavirus spreads in the US, all bets are off.
All the positive spin emanating from the financial press is reminiscent of 2007 and 2008, when we were assured that the US economy was strong. Remember this Ben Bernanke quote from May 2007: “We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” And in February 2008, both Bernanke and Treasury Secretary Paulson both stated that they believed the US economy wouldn’t fall into recession in 2008, even though the recession actually began in December 2007.
If you’re an investor, you should be very worried about your retirement assets and how they’re going to perform in the coming months. Many investors have already lost 6-10% of their assets just in the past two days. If you don’t protect your investment portfolio today, you may not have much time left.