Forsyth’s in top form this week …. :) Plus - Recession Approaching & 70s Style Inflation …

hank

Excerpt:

“It was a lot more fun to be in your 20s in the ’70s than to be in your 70s in the ’20s. Not that I would know personally (yet), but this wry baby boomer lament, making its rounds on the internet, hits uncomfortably close to home. I don't actually associate the 1970s with fun, but rather prices running ahead of my paycheck, of queuing in gasoline lines on odd or even days, of not having enough cash for the items in my shopping cart, and of living in Brooklyn because it was cheap long before it was chic.”

Forsyth’s general tone is that various economic indicators are signaling an approaching recession. He also sees many parallels between today and the inflationary 70s.

Here’s a bit more substance …

“By the calculations of J.P. Morgan's global quantitative and derivatives team, led by Nikolaos Panigirtzoglou, the U.S. equity market has priced in a recession probability of 50%, while the investment-grade bond market has discounted a 43% probability of a recession. The high-yield (aka junk) bond market has priced a relatively small 17% probability of recession.”


“Up & Down Wall Street: Two Headed Monster - Recession Rumbles Get Louder as Impact Of Stimulus Fades” - by Randall W. Forsyth - Barron’s March14, 2022

larryB

Doesn’t take a genius to notice that it is more fun to be 25 than 75.

Sven

Forsyth’s general tone is that various economic indicators are signaling an approaching recession.

JURRIEN TIMMER of Fidelity still think we are in a secular (long term) bull market. The article was posted on March 9th but it is tough to say if recession will materialize as the geopolitical situation worsen from week to week.
https://fidelity.com/learning-center/trading-investing/market-volatility-into-perspective

yogibearbull

I found JPM logic for recession too simplistic. Its strategist NP said that the average decline of SP500 in recessions has been 26%. Recently, SP500 was off 13% from peak, so the chance of recession is 100*13/26 or 50%. So, its formula for the chance of recession is 100X/26, where X = %drop of SP500 from recent peak, and no other considerations, economic or geopolitical. For bonds, similar formula were applied to spreads. I thought JPM had better brains than that.

hank

I just enjoy Forsyth. Didn’t mean to cite him as a predictive model. I suspect he is of a bearish inclination (as am I) and his articles often reference bearish views of various market observers.
If folks don’t want Forsyth’s columns referenced any more, let me know and I’ll cease.

One nice thing about the internet and financial commentary in general - You can find just about any point of view you want out there,

Sven

I welcome as many views as possible. It is the supporting data leading to the conclusion or probability to recession that would be informing for everyone here. I too subscribe to Barron’s and in my opinion, the comments section is where it get interesting with the subscriber’s feedback similar to MFO. The comment @Yogi made above made more sense from the market decline. Also the most recent GDP data and unemployment # looked quite good, except for 7.9% inflation. The unknown is the geopolitical risk we are facing today.

hank

Thanks @Sven

Forsyth’s more concerned with trying to draw wry and interesting parallels between today and 1974 than in building a substantive case. He notes early on that just as President Gerald Ford was becoming concerned enough to hold a high level conference on how to fight inflation in 1974 the economy was sliding into recession. But it took several more months for that to be confirmed. By inference, I think, he thinks the heightened efforts to control inflation now (mainly by hiking interest rates) will have the same effect that similar efforts to control inflation did in 1974. It is a sketchy case. He’s not into deep analysis.

He cites newsletter writer Stephanie Pomboy, who seems to me to be a perpetual bear. Pomboy maintains that high oil prices along with rising interest rates are a precursor to recession based on past cycles. He cites the JP Morgan data re the “probabilities” of recession based on how stocks, investment grade bonds and junk are trading. He calculates workers have lost 2.6% of buying power after wages / inflation are figured in. He cites declining consumer confidence sentiment and much higher inflation expectations as measured by U of M polling data. And he cites the Atlanta Fed’s forecast of an anemic 0.5% annual growth rate which he calls “just above stall speed.” Several of the preceding are bearish indicators. There’s more. But I can’t summarize the entire article here.

I would never invest based on Forsyth’s column (or any single mfo post). I realize a lot of people come here looking for answers on how to invest or for reassurance they’re on the right path. Nothing gleaned from the Forsyth column would satisfy that quest for answers.

Sven

@hank, hope all is well with you. Situation is quite different today than that of the 70’s. Today, the Fed is part of the market instead being the last resort of lending during the period of financial crisis. By keeping the interest rate low since 2008’s Great Recession is beyond unnecessary while distorting the market and its valuation. Now we are facing high inflation and there are few option except to raise rate for the next few years.

By the way, I come to this board to learn from others experience. Also MFO helped me to pick few great funds that I wouldn’t know about. As always the monthly commentary is first class.

A recent post from LizAnn Sounders (Schwab) may shed more insight on the current situation.
https://schwab.com/resource-center/insights/content/market-snapshot
Also there is transcript posted below the video. Enjoy.

hank

Thanks @Sven. All is well other than being perpetually mired in 15-30 degree temperatures with treacherous ice & snow still covering the landscape of northern Michigan. I’m of the view we who post regularly are an inquisitive and independent thinking bunch. ISTM, however, there are many “lurkers” who rarely if ever post and who are therefore more interested in seeking answers. You can get a rough idea by the number of “views” that appear next to each thread. So I try to be cognizant of a larger community, to be as accurate and circumspect as I can be, and to not mislead anyone.

Haven’t found a good way to link full Barron’s or WSJ. articles. Always best to get the info right from the source of course.. However, by Googling a few key words from a posted quotation, it is sometimes possible to pull up the entire article online with enough perseverance. What I have done in the past is clip passages on my Fire device from Kindle based WSJ / Barron’s subscriptions; than email them to myself; than do another cut and paste from my computer to the board. Actually a time consuming process involving two different devices.

Thanks for the link. Saunders is excellent. Remember her from the old Rukeyser show. Unlike me, she hasn’t aged much. I haven’t yet seen anything bad that Schwab puts out. Will view the linked video.

Regards

PS - @Sven said: “Also MFO helped me to pick few great funds that I wouldn’t know about.”

Yes. About half of my funds were first mentioned on either Fund Alarm or MFO over the couple decades I’ve participated in those forums. And a select handful I own were first mentioned at MFO within the last year. Very grateful.

Sven

Except the last part of the transcript,

Now, for shorter term, more call it tactically-oriented investors , volatility can actually breed opportunities, including the ability to use periodic rebalancing, to take advantage of market swings, frankly, in both directions. In the midst of all this volatility, there has also been a clear leadership trend, other than the obvious, maybe, the energy sector, and that leadership trend is high quality. I believe the days of the so-called low quality, high risk trade are mostly in the rear view mirror. Now ,for longer term, more strategically-oriented investors, we do believe it’s not a time to take on a high amount of risk but apply the long-term disciplines of not only rebalancing, but diversification.

March 16th is when the Fed meets to raise the rate by 0.25%. Let's see how the market reacts.