On April 11, Janet Yellen gave herself and her colleagues a gold star and said: “I’ve not really seen evidence at this stage suggesting a contraction in credit, although that is a possibility,” Yellen said at a press conference Tuesday ahead of the spring World Bank meetings. “I believe our banking system remains strong and resilient; it has solid capital and liquidity.” She added that the “US economy is obviously performing exceptionally well,” noting solid job creation, moderating inflation and robust consumer spending. “So I’m not anticipating a downturn in the economy, although of course that remains a risk,” she said. The global economy remains in a better place than many have expected, she said.
She went on to say, “Rey Descalso is overreacting.” Just kidding, she didn’t say that. But I feel like Janet and I have a toxic relationship. I complain and she just gaslights me and says, “This is fine, everything is fine.” Like that dog drinking coffee in a burning house meme.
Over the weekend I heard that the Empire State Manufacturing Survey came out. The Empire State Manufacturing Survey is a bellweather for conditions across the country. The experts were hoping for a composite score of 9.1. Instead the got a -31. It’s the biggest drop ever outside of the Covid shutdown. Also keep in mind that in the darkest days of the 2008 Great Recession we hit a -34.3 in February of 2009. And we aren’t even in a recession yet. Or are we? Everything dropped. Capital expenditures are basically zero. Meaning companies are not interested in expansion. Employee hires are down and the work week is shortening. This tends to mean layoffs are coming. These are the worst readings since 2008 and 2008 was bad. Looks like a banking collapse is not our only concern. A manufacturing collapse is also a possibility. Also, how did the expected and actual survey results vary so wildly?
Actually, there are some Negative Nancy’s like me over at Deutsche Bank. The effervescent Teutons are calling for a 100% chance of recession this year. Furthermore, they are saying it’s going to be worse than expected. Like me, they are shocked that so many talking heads are calling for a soft landing. The fact is that “soft-landings” that Powell cites as examples of Federal Reserve Fairy Dust occurred because inflation never got that bad to begin with.
In the meantime, I’m not invited to a lot of parties. I’m always Chicken Little or the Boy who Cried Wolf. On August 13, it will be Janet’s birthday. I don’t think I’ll be invited to her party this year. I haven’t been to any of her other parties either, but that’s not the point I’m making. The bright side is that if Janet’s wrong and Deutsche Bank is correct we are closer than ever to the buying opportunity of a lifetime. If you'd like to invite me to your birthday party, click here.