Skip the Recession

So we are all getting inundated with market predictions for next year. I'm comparing my own research to the various reports and weighing the alternative views.

I think it is really important to consider alternative points of view, especially if they conflict with our own. And we need to do it with an open mind. Be objective and listen. Maybe after hearing it, you may change your mind. Maybe it will confirm what you thought all along. But be accepting and respectful of others. Wouldn't it be great if we could do this as a society?

Many of the predictions for next year are rooted in one simple question -

Will we have a recession or not?

The consensus opinion is that we will NOT have one. The consensus opinion at the start of 2023 was that we would have one. However, lingering Covid stimulus has supported consumer demand and add in some AI frenzy and markets basically did a 180 from expectations. Accordingly, fund company "analysts" flipped 180 this summer and began dismissing the recession all together.

Will we indeed skip the recession?

A number of data points, such as LEI, inverted yield curve, the Beige Book, etc., which go back decades, all suggest a recession should be coming. Indeed, it should have already come. But it hasn't. But will it?

The anomalous nature of this market should make us consider whether all of these very reliable predictors are in fact wrong this time. Is it possible? Yes. Is it probable? No.

If it is possible and we indeed skip the recession, I think we need to understand what that means for 2024 and beyond. Effectively, there is no more business cycle. Markets should go up regardless of the news, economic activity, or even earnings. Good news? Market up. Bad News? Print money, cut rates, market up.

And it's not a stretch to consider this. Think of all the economic destruction from the Covid shutdowns that was promptly ignored and never (adequately) priced.

Even though I remain in the "hard landing" camp and recession has only been delayed, I have to consider all possibilities.