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Economic Data Weakening

November 28, 2022
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For most of 2022 the economic numbers haven’t been so great. We had two consecutive quarters of declining GDP which is, by definition, a recession. Although we haven’t had the sort of slow down we had in 2020, many people have been at least somewhat hesitant to make big economic decisions because we keep hearing that a recession is right around the corner. Inflation is bad – no matter how it has come to pass – and the Federal Reserve has been raising rates to combat it. Strangely the negativity continues to be overdone and things have just not fallen into a serious recession. This is even with some international socio-economic stuff going that is positively wild.

Hopefully that is not about to change but economic numbers are coming in continually worse. Some of the highlights (lowlights) recently look like this…

Kansas City Fed Manufacturing Index was -7 in October and -6 in November. Industrial production was down in October and capacity utilization was down to 79.9 which is one of the worst numbers out there. The Philadelphia Fed number maybe challenges it, although coming in much lower than expected for the October numbers. All in all, things are looking tepid but not at all a trainwreck. One thing that does skew the numbers – especially on the retail sales side – is inflation. People are spending more money, but they aren’t getting more goods because of higher prices. That isn’t perfectly baked into the numbers and adds to the fact that things just aren’t that great.

Of course, the big remaining question is all about the Federal Reserve. What is the future of interest rate hikes? That is the most important question - and no one can answer it without a crystal ball. The inflation numbers still don’t look good, but all it takes is one comment from one of the Fed governors that is less-than-hawkish and the stock and bond markets rocket higher. Our guess is that the Fed will slow down – but the market is guessing that too.

One of the big indicators that we keep referring to that may turn into the catalyst for the world economy to really take a tumble is the value of the Japanese Yen. Take a look at a chart of the price action…

As you can see, the Yen is holding together reasonably well near a several month high after its beating earlier this year. So that is some good news, but now the bad news. The situation in China is always difficult to follow because of the CCPs control and manipulation of the information that hits news wires. Keep in mind that since the 2008 economic disaster, the Chinese have built a debt bubble that makes that of the west pale in comparison. With all of the debt they issued, the Chinese were a very large part of the economic growth in the world over the last decade. Now things on the social front appear to be breaking down to a degree. Of course, we are not predicting all out revolution, but the Chinese have some big problems on their hands. Remember, this is the second largest economy in the world, and we have to pay attention if their downturn accelerates.

 

From writer David Moser…

I've lived in China for 30 years, and I've never seen such a brazenly open and sustained expression of rage against the PRC govt. WeChat is exploding with protest videos and furious vitriol, and civil disobedience is becoming rampant. This is a serious test of CCP governance.

Stay tuned…

Regards and good investing!