Home Economics Moneybeat: America’s slow, non-growing economy

Moneybeat: America’s slow, non-growing economy

Moneybeat: America's slow, non-growing economy

MARY REICARD, HOST: Coming soon to The World and Everything in It: The Monday Moneybeat!

NICK EICHER, HOST: It’s now time to discuss business markets and the economy with financial analyst and advisor David Bahnsen. David is the head of the asset management company, the Bahnsen Group. He’s here now. And David, good morning to you.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: Okay, let’s start with the big story of the week, the quarterly economic growth report, gross domestic product for Q1, that would be the first three months of this year. The year-over-year growth rate on that, just 1.1%. How do you read it, David? What should we know?

BAHNSEN: Yeah, I mean it was lower than expected. I don’t think, I think most people in the recession camp that we’re in a recession within a year would still say that the fourth quarter of this year and the first quarter of next year are more likely targets for when we’re will see that contraction in the economy. And even within this 1.1%, a fair bit of the “mutedness” of the numbers came from inventory declines, which won’t necessarily repeat in future quarters, consumer contribution to the numbers was still pretty high. I did not like the business investment, it remains much lower than I want. But I’ve been saying that for about 15 years. So I don’t think there were any surprises in there other than the total net came in a little bit lower than expected. No matter which camp you are in regarding the future, it is pretty much beyond dispute that we are not in a recession and we are not in an economy that is booming. It’s just a very muted, low, slow economy with no growth.

EICHER: Right. So even if we were to meet that kind of textbook definition of recession, that’s two consecutive quarters of contraction or economic growth below zero, and I realize it’s more advanced than just that, a necessary condition, but not sufficient in itself. But even if we have a recession, do you expect it to be mild given the pretty decent job market?

BAHNSEN: I don’t know, Nick, because I think if you end up having two quarters of negative GDP growth, let’s say Q4 and Q1, that probably won’t happen if the employment rate continues to be strong. So even that, there’s kind of a circularity to the argument here. I think unlike a year ago, or a little over a year ago if you remember, when we had this discussion about whether or not we were in a recession, and obviously we weren’t, in hindsight , I wrote an article for WORLD on where that two-quarter straight thing really came from. You know, the idea is that to be in a recession, you have to have the symptoms of a recession, of low unemployment, falling corporate profits, falling wages, and we didn’t have that. But I think as we go into two quarters in a row later, that’s going to come with those things, falling profits, falling wages and falling employment. But I don’t think we know if it will be serious or not. And that’s the question that I think seems to be the crux of the matter, I’ve been alluding to this recession a lot for maybe nine months now, if we have one similar to the 2002 recession that followed the.com collapse, the burst of the tech bubble, and then after 9/11, that the confluence of those events led to a very mild recession that most of the country didn’t even know we were in, but that led to significant job losses in Silicon Valley, and in certain industries. And it stayed pretty shallow and then rebounded pretty quickly. And that could be what we have here. And that is a completely different economic picture. It’s a different ramification for the stock market than if you had a more traditional recession permeating your entire economy.

EICHER: Right. So tomorrow the Fed will meet tomorrow and Wednesday for its policy meeting for the month of May. There’s always that question about interest rates. But what’s important for us to keep in mind is David, as those meetings take place over the next few days.

BAHNSEN: Yeah, they’ve been doing everything they can for the past three weeks to make sure that people are wired, that they’re going to raise rates another quarter point, and the market has priced all of that in, there’s something like an 84% chance on a quarter-point increase this week. And so let’s assume that’s going to happen, there’s also a significant increase in the likelihood that they’ll lower rates by the end of the year. And so the market is pricing in on the one hand. “Yes, they’re going to collect more,” but on the other hand, they’re also saying, “Yes, they’re going to have to cut back eventually because of that.”

And so, you know, it’s funny. If you look at the Fed Funds Futures market now, at the end of 2024, a year and a half from now, they charge a Fed Funds rate of 3.2%. It’s 5.2 now, they’re predicting that sort of cut in next year. That would really imply that we had probably entered a recession and the Fed had to catch up. And this is very much in a big theme of mine that I’ve talked about for a long time with WORLD listeners, and I’ve written about on dividendcafe.com For a long time, that the Fed is just in the extremes. They are too low for too long or too high for too long. And the idea of ​​some kind of moderate monetary policy that avoids these booms and busts just seems totally out of their playbook.

EICHER: Okay, so we have GDP, we have the Fed meeting. And before we go, I remember hearing you say last week, David, we’re in the middle of earnings season where the big public companies are reporting earnings, and those earnings reports should tell us a lot. What do you see so far?

BAHNSEN: Yeah, I mean last week’s Thursday and Friday in the stock market as we get ready to go into this new week where even more companies are releasing earnings. last week you had the market 800 points in two days, over 800 points in two days. And that happened while the news station was constantly telling you new problems with the banks and the whole First Republic saga and all that stuff, you know, how the hell does the stock market go up with a bad GDP number? You know, challenges in the banking system? And the answer is that earnings season has been going pretty well. There were really a lot of surprises on the upside, revenues haven’t fallen as much as expected, margins have held up, revenues aren’t growing year over year, but they’re not shrinking either. So again, that drop in corporate earnings that you would associate with a recession hasn’t happened yet. And it’s led to a pretty healthy earnings season so far. But we’re really in the middle of it right now. We are now at about 50%. And so there’s another week or two to go and I’ll have a better review. But I would say the earnings season has been a positive surprise for the markets so far.

EICHER: Okay, we’ve come to the end of our time. And you know, I promised listener questions, but let me tell you where we stand with that — just as happened several months ago, we’ve had an outage with this email address that I gave you. And I’m guessing you might be saying, “I wonder why my question hasn’t been answered or considered.” It’s because we’ve been having some trouble with that email address and we’re just not sure we can recover it. So let me give you a new email address. And it’s just this: editor@wng.org, editor@wng.org. And if, let’s say in the last three weeks, you’ve sent something, would you send it to that address again? Again, editor@wng.org. We will do our best to get it processed. So I hope we can resume listening questions soon. And let’s see if that new email address clears things up. Redactor@wng.org.

David Bahnsen is founder, managing partner and chief investment officer of the Bahnson Group. His personal website is bahnsen.com, you spell his last name BAHNSEN bahnsen.com. David, thank you, hope you have a great week.

BAHNSEN: Thank you so much Nick. Great to be with you.

WORLD Radio transcriptions are made on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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