Tuesday, August 2, 2022, Baltimore, Maryland


The Economy & Investing

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The Recession of 2022: How Bad and Long Will It Get

It’s official. The US is in a recession. According to a report issued last week by the Bureau of Economic Analysis, the real GDP (gross domestic product) decreased in the second quarter of the year by 0.9%. It decreased in the first quarter by 1.6%. (The Bureau of Economic Analysis, an agency of the US Department of Commerce, has been the government’s official tracker of GDP and other economic indicators since 1972.)

You can read the report here.

Biden officials and most of the mainstream economic experts, including Treasury Secretary Janet Yellen, have been telling us for six months that there wasn’t going to be a recession, and that the spike of inflation we saw earlier this year was only temporary. They were wrong. But they were also wrong about the Great Recession that followed the 2007/2008 real estate meltdown. And every other economic downturn, big and small, for the last 50 years.

This should not surprise you. High profile and highly paid economists, whether they work for the mainstream media, Wall Street, Big Tech, or big government, are essentially paid to ignore or deny bad economic news – to promote optimism and push federal spending, in hopes of pumping up the economy and thus keeping incumbents in office and encouraging business borrowing, consumer and business spending, and sales.

Right now, in a desperate attempt to keep the American working- and middle-classes from despairing our country’s economic future, they are denying the fact that we are in a recession by redefining the term.

Until now, economists agreed on a simple criterion. Two consecutive quarters of negative GDP growth = a recession. And that, as I said above, is what we have had this year. I won’t bother you with their argument. It’s laughably wrong. And it’s not fooling anybody – at least not anyone that has noticed the rising cost of milk, bread, dishwashers, cars, diapers, and gasoline. Or anyone that works in manufacturing, housing, or construction that has noticed that iron and steel and shingles and plywood are more expensive than they’ve ever been. They are fooling only the portion of the population that is too wealthy to be affected by these 10% to 30% price increases. Including the mainstream media pundits that repeat their talking points. (And also including RF, my brother-in-law, who has bet me that the recession will be over in a matter of months.)

I’m going with the Bureau of Economic Analysis’s 50-year-old definition of recession. And my prediction is that it will get worse, and stay worse, for at least the next few years.

One reason I feel that way is based on my personal experience in my current business. That business – publishing information and advice about investing – has traditionally been a bellwether of economic trends. Months before folks pull back on buying cars and TVs because of economic uncertainty, they pull back on buying investment advice. This has happened prior to every recession, big and small, since I’ve been in this business. That’s 40 years. And something like 16 quarterly downturns and a half dozen serious recessions.

About 18 months ago, we began to see a slowdown in our industry. Prospective customers and even existing customers were reluctant to buy more investment services. Since the beginning of the year, our sales are down by more than a third. That means cutbacks and layoffs and, most importantly, reduced spending on recruiting new readers and subscribers.

The principal talking point of those that are predicting a quick return to positive growth has been the unemployment statistics, which were at all-time lows a few months ago. You couldn’t find a restaurant or grocery store that didn’t have a help-wanted sign in their window. But if our industry is once again indicative of the future economy, we’ll be seeing unemployment surging in the next six to 12 months.

It will happen because of the “wage-price spiral” I mentioned in Saturday’s issue. The higher wages that companies are paying now will become more difficult to support as inflation ratchets up every other cost of business. That means thousands, maybe tens of thousands, of businesses, large and small, will be laying off employees and, in some cases, shutting down.

So, that’s what I’m going to be looking at in the coming months. In the meantime, I’m recommending significant cutbacks to the companies I own and/or consult with. Fewer products, simpler systems, and fewer (but better) employees.

I’m also making a few changes in my investment portfolio. (More on that in a coming issue.)

 

This Doesn’t Bode Well for My Brother-in-Law 

The Bureau of Economic Analysis’s bad news about the GDP (above) came a day after the Federal Reserve raised interest rates by 0.75 percentage points, the fourth raise this year. The goal, of course, is to try to stop any further inflation, which is, at 9.1%, at a 40-year high. (You can check out our annual inflation rate here.)

What does this mean? It means that it will cost businesses and consumers more to borrow more. There will be deflation in some areas of the economy – industries that sell optional products for middle- and working-class people. But inflation for everything else. And “everything else” is the lion’s share of the economy. That’s not good.

 

And It’s Not Just Here… 

I’ve been reporting on America’s economic troubles regularly. Inflation, runaway government spending, and the Cold War with Russia have significantly curtailed US GDP and made middle-class Americans poorer. But things are just as bad for China and Russia and most of our European allies. It’s no surprise, then, that the International Monetary Fund lowered its growth projections for the world economy to 3.2% for this year and going down to 2.9% next year.

Click here.

 

Need a Low Paying Job? Walmart Wants You!

Because of the particular nature of the economy today, the general rise in unemployment that I’m predicting is likely to hit hardest among the higher paying jobs. But if you are willing to work for minimum-wage (or thereabouts), there will be opportunities. Walmart, for example, is looking to hire. Click here.

 

Notes From My Journal

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A Short History of the Devolution of Air Travel 

Air travel today is considerably worse than it was before the pandemic, when I was on a plane at least once every six weeks. I did that for 30 years. And a third of it was international travel – i.e., flights of 8 and 12 and 18 hours.

Back then, flights departed and arrived on schedule. And when there were delays, it was usually an hour or three. Cancellations were rare. So rare that I cannot remember one in those 30 years.

These days, delays are de rigueur and cancellations are to be expected. Now, whenever I travel by air, Gio makes two or three consecutive reservations for me. And I am frequently forced to take advantage of this extra precaution.

The problems extend to virtually everything to do with air travel. That’s odd, because it is a relatively modern technology. You’d think that, like air conditioners, heart surgery, and car travel, for that matter, it would have gradually improved.

But it has gotten demonstrably worse.

Back in the 1950s, before any of those reading this were alive or, if so, could afford to travel by plane, the experience was first class, with free booze and cigar smoking and long-legged flight attendants. (I think they had a different name back then.)

In the 1980s, when deregulation took place, air travel became a vehicle for the average bobo, and a new class of flying – they called it coach – was invented. Coach got you to your destination in the same amount of time, but with considerably less dignity. Your seating space was more limited. The seats themselves were fabric, not leather. And the meals were hospital-level cuisine served on plastic plates with paper napkins.

Then the airlines unionized, and they were forced to economize. That led to economy class, which consisted of seating so restricted you had to practically pry yourself into an upright position, your knees pressing against the seat of the traveler in front of you. Smoking became a criminal offense and the flight attendants aged rapidly, almost from flight to flight.

Most domestic airlines converted first class to business class, and some offered only economy seating. As the price wars continued, service got even worse – even in business class. Free cognac in crystal goblets was replaced by pay-for alcohol in plastic cups. And meals became little packages of stale chips or pretzels thrown at you by linebacker-sized attendants as they rolled their clanking carts by.

Comfortable, commodious seating? Gone. Leg space? Gone. Assistance with your luggage? Gone. Deferential service of any kind was replaced by prison guards that would be happy to have you dragged off and put behind bars if you violated any of a hundred new rules of traveler decorum.

And this is to say nothing about the frustration of waiting hours online to book a flight or the endless lines within the airport and the humiliation of going through security, etc.

To be fair, there are still a few exceptions. Mint class in JetBlue for domestic flights, for example, and almost any of the Asian airlines for international travel. But to travel with them, you must be willing to pay five to 10 times the rate of the economy traveler. And you still must put up with the screaming brat that is sitting two rows behind you.

Worth Considering

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Debunking the Myth of the Lost Cause: a Lie Embedded in American History

I first read about the “lost cause” theory of the Civil War many years ago. Maybe 20. It’s the argument that the war was not about slavery per se, but about states’ rights, which is constitutionally guaranteed.

I have always been attracted to contrarian ideas. And the decentralization of power has always made sense to me. So, without knowing anything about it, I was predisposed to the lost cause idea. Normally, when I run into contrarian ideas that rub against the grain, I adopt them unthinkingly. But in this case, the subject matter – slavery – was too serious, even for me, to deal with cavalierly. So I spent a few months reading (well, skimming) every book and essay I could find on the subject. And I found very little to support it. I did, though, find loads of evidence that the Civil War was, as I was taught, fundamentally about slavery.

Here’s a little video clip from TED Talks that makes that point succinctly and pins the lost cause theory chiefly on Southern women. Click here.

Notes From My Journal

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What I Believe: About What Matters Most to the Human Animal

If you want to know the truth about government and big company activities, instead of believing what you read in the government- and big company-influenced press, you must “follow the money.”

That’s what they say. By “they,” I mean those that believe that world politics – including geopolitical relations and even war – is controlled by a small group of very rich individuals. And there is no doubt that many wealthy people use their wealth to try to influence political and social outcomes.

But if you want to know what really shapes the world, in the larger context, it’s not the money. It’s something much bigger, much stronger, and much less easy to understand. I’m talking about culture.

Some people will lie and steal for money, but very few will commit murder for it. However, every person that feels they are a good person (even down deep) will be happy to kill and die to preserve their culture.

Fun and/or Interesting

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I’ve told you about these videos from “The Wine Explorers Letter.” (Disclosure: I have a small interest in the company that publishes it: the Bonner Private Wine Partnership.)

I enjoy them immensely. They are designed perfectly for the amateur wine drinker like me. And they are very helpful for learning the essentials of what makes wine drinking an activity that is unique and uniquely pleasurable.

Here’s a recent example – a quick introduction to California wines. Click here.

Fun and/or Interesting

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Leonard Bernstein was, without a doubt, the most famous American conductor in the second half of the 20th century. In addition to conducting the New York Philharmonic, he was a composer, a pianist, a Harvard lecturer, and an author. He won seven Emmys, two Tonys, and 16 Grammys. In this clip, he gives his opinion of an up-and-coming rock ’n’ roll group, The Beatles. Click here.

Arts & Letters

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Long before Girl With a Pearl Earring, I was a huge fan of Johannes Vermeer. Here is a short lesson about him from an art historian, with a few comments about why his art was so great. Click here.

Worth Quoting

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“Face reality as it is, not as it was or as you wish it to be.” – Jack Welch

A Word to the Wise

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Fricative – from the Latin for “to rub” – refers to a hissing or buzzing sound produced by forcing air through a narrow space. In phonetics, a fricative is a consonant sound made by directing a stream of air with the tongue towards the teeth – e.g., the Z in zoo and the S in said. As used by Elizabeth McCracken in her short story Property: “[She] was a short, slightly creased, ponytailed blond woman in a baseball cap and a gleaming, fricative black tracksuit that suggested somewhere a husband dressed in the exact same outfit.”

Readers Write

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“One hour speaking to you is worth a year of reading books!” – TD

 

RS sent me this little video. It’s a touching story, if I do say so myself. He said, “Not sure if you remember this.” (I didn’t. But it I’m not going to forget it now.) Click here.

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