November 2019 – Stop The Narratives, Just The Facts Please
“Facts are stubborn things; and whatever may be our wishes, our inclinations or the dictates of our passion, they cannot alter the state of facts and evidence.” – President John Adams
Nowadays, it seems that everyone is becoming more and more convinced that our economy is slowing down. In fact, that idea has been around long enough, that many seem to believe that our economy is actually about to fall apart entirely. Many people that I hear seem to be so convinced that things are going wrong that they are failing to look around and realize that they we are actually doing pretty well. If I take the emotion out of it, and actually look at the facts, there are more positives than negatives in our country and in the U.S. economy and the future remains bright. But hey, that doesn’t sell newspapers or in 2019 vernacular, that doesn’t get clicks. Doom and gloom sells and preys on people’s rational and irrational fears.
I am the first to point out that we should be cautious and that now is the time to deleverage. We have been beating that drum for quite a while now. I am also not afraid to point out that the Federal Reserve is clearly commencing a new round of quantitative easing in 2019 and that they must be doing that for some reason. The global economy is having some major problems and many countries are likely already experiencing recession. The repo market has been displaying some curious behavior in 2019 and this flashes warning signals, for sure.
However here in the United States, while we certainly have our problems and there is reason for caution, the economic signals are not all negative. There are a few negative indicators, but what we see is a mixed bag, in terms of outlook for the remainder of 2019 and into 2020. There is no clear and obvious path into a recession. And as we often like to point out, the U.S. economy is such an enormous juggernaut, that it can sustain quite a punch without falling down.
The stock market just hit another new high, manufacturing sentiment just ticked back up and unemployment remains near all-time lows. There is weakness in other areas like housing, capex shipments, retail sales and exports. The trade war is having a negative affect on several industries. On the whole, we see a mixed bag and a murky outlook for the next 12 months.
Credit quality is trending slightly lower, but default rates are still relatively low and most lenders report health in their portfolios. We speak to very few CFO’s and CEO’s of U.S. companies that are reporting a slowdown in orders from their customers and very few are reporting that customers are telling them to expect lower sales volume next year in 2020. This can change at a moment’s notice and does change on a weekly basis. However, if you add this all up, we see reason for caution but no reason for abject panic.
The fiscal policies of many countries, including our own, many states and cities around the world seem completely unsustainable. There is another huge debt bubble that has formed almost everywhere we look and as far as the eye can see. The student loan crisis is a real long-term issue for our country. The numerous protests and social unrest around the globe are concerning.
In times of caution like this, we are reminded to focus on facts and not fall prey to a complicated narrative. Sometimes the questions seem so complicated, so it helps to stick to facts and hard evidence. And as always, we have to remind ourselves just how lucky we are and how good we have it. If the global economy was a city, then the U.S. is still the best game in town.