TheGreatRecession.info

How grizzly is this bear?

Just a few days ago, Goldman Sachs was regarded as becoming the most bearish bank out there by forecasting — rather daintily now I think — we have a 35% chance of eventually seeing a recession in about a year! Deutsche Bank — the second-most bearish bank in the US right now — showed great boldness by prognosticating the US could go into recession in late 2023 — well over a year away!

These were the roughest guys on the block. Way to call it, guys! You only missed by a year or more. My only thought when I first heard each of these was, “You guys optimists!” I have felt like the lone voice (or very nearly so), saying over and over last quarter and this that we are already in a recession.

Take for example, this article in March: “Seeing It All Come Together: Months of Predictions Closing in on Quick Collapse” in which I reiterated my strong belief that recession was already happening.

I would put the probability of a recession starting in this quarter at 95% because the yield curve is inverting now. As I’ve already stated several times, we could expect the yield curve inversion to be the late arriver to the party this time, entering after recession already began

And you can see that in this article from back in early February: “The Next Recession is Here!” And there were other points during the winter quarter where I mentioned all along the way we were already in a recession. I have been neither shy nor hesitant to keep saying that, even after fourth-quarter GDP last year came in hot:

The next recession is smoking right outside your window. You’re lying in your bed at night. You can’t see the intruder, and you don’t think he’s in the house yet, but you know he’s there because you can smell his cigarette smoke through your bedroom window. That’s where we are right now. Fourth quarter GDP for 2021 is trying to make a fool out of me by coming in with a stellar glow at 6.9% growth….

Don’t believe it, I warned you, even though 4th quarter GDP said otherwise. Wake up and smell the smoke. The intruder is already on your doorstep. With less than two weeks of winter in by the end of the quarter being reported, recession was already, in my opinion, right on our doorstep, exactly as I had predicted in October:

What few of the gurus are telling you, which I will, is that we’ll be in a recession by sometime this winter.… The descent in GDP toward actual recession is happening quickly. The shortages talked about in my recent posts are spreading like a flood tide across a wide, shallow beach. People are not returning back to work in near the numbers some predicted they would (not I) when enhanced unemployment ended for the reasons I laid out months ago. Soaring inflation will now curtail spending and result in more businesses closing and rising unemployment. This is stagflation

“This is Stagflation, and Here is an Easy, Practical Idea to Prep for it“

I laid out for you the key to understanding how and why a cloaked recession would hit before anyone saw it coming: no one seemed to be realizing the Fed had the yield curve locked right where it wanted by the massive amounts of bonds it was purchasing. So, the yield curve could not price in a recession in advance. It was locked! However, it would, I said, price one in as soon as the Fed unlocked it by tapering out of QE. That was the key, and now we see that we were, in fact, already in a recession last quarter before the yield curve was freed to show a recession coming. The yield curve did, indeed, arrive late to the party.

(And how many pundits do you suppose still won’t get it because they cannot think for themselves, so they will parrot their old-school learning and claim we cannot possibly be in a true recession because the yield curve is supposed to invert, at least, nine months before the recession begins? Well, it couldn’t! The Fed had it locked down tight. As I kept saying, there was zero TRUE price discovery in the yield curve so long as the Fed was hosing up 50% of all new government bond issuances. That is why, in thinking it through, I said the yield curve would invert as quickly as the Fed took its fat foot of the curve’s throat, but it would only be showing investors what it would have shown months prior if not fully suppressed from doing so by the Fed. Too many supposedly smart people don’t think; they parrot. They stay with saying what all their smart colleagues are saying. They repeat the formulas they’ve learned without thinking through the current parameters. Even the Fed didn’t seem to realize it was shunting its own recession meter.)

I gave all my readers a key for understanding the events that would come at the start of 2022 (Patrons first, of course): realize that the Fed would inevitably be relinquishing all of that control over bond yields when it stopped its QE bond purchases, which would allow the bond vigilantes to price in the inflation that the yield curve had been incapable of showing for the past two years…. The key for you to see what was coming was to understand why the Fed’s favorite meter was broken, what it would take to fix it, and how quickly it would respond once fixed.

“Seeing It All Come Together: Months of Predictions Closing in on Quick Collapse“

I constantly held that course when the most bearish voices out there were claiming a more distant horizon at the earliest and when some were saying I was a moron to think this way because Father Fed knows best. Most of the “bearish” voices out there sounded like permabulls compared to me, because I didn’t say “this year.” I said “right now! We’re already in it!” while these others assured everyone they could relax for another full year.

It turns out the economy was already in recession while they were saying that. That is why it is not in the least bit extreme to say this 1.4% drop in GDP was certainly a “crash” compared to the 1% growth that was the averaged expectation. Not only is it 2.4 percentage points worse than what was expected, but it’s 8.3 points below the previous quarter!

With the exception of when we did the Pandemic Plunge, we have almost never seen a cliff-dive this steep in GDP.

Ironically, I even stated in that October article,

I foresee a winter at some times and places where you’ll feel for the first time in American life like you have slid down the rabbit hole and ended in a version of the USA that looks and feels more upside-down than the old USSR.

Now, even I didn’t think the winter quarter of 2022 would come in this bad, nor did I see the present war coming, so this GDP report is also a crash by my “doom and gloom” perspective, which was just based in realism, rather than blind optimism because I like to see what is coming at me, not live in pretend. I thought we’d just get a little nippy, just clinging to the bottom edge of zero. Almost all economists thought we’d only settle to a refreshingly crip levels somewhere above 1% positive growth. So, these sub-zero temps are even a bit worse than I thought. The number floating around in my head was -0.4% real GDP change, not -1.4%.

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