TUB Assert: Recession Fears Are Overblown

It's been quite some time since my last article, but I'm excited to share that I've been working on a new collaboration which is currently in progress. I appreciate your patience, and I promise that the details will be revealed in due time.

In recent discussions with colleagues, the topic of recession has resurfaced. It can be challenging to express contrarian ideas, especially when working in the finance sector, as it's not always easy for people to believe alternative viewpoints. However, I firmly believe that we won't experience a recession on a global scale, similar to the one we faced in 2008/2009. I say this because I've personally experienced the depths of that economic downturn.

I've dedicated a significant amount of my writing to explain why I hold this perspective, and I want to take this opportunity to remind everyone of my opinions on why a recession is unlikely:

We are prepared: The fact that everyone is talking about a potential recession indicates that people are cautious and taking measures to prepare for it. However, history has shown that recessions tend to occur when we least expect them, during times of extreme bullishness.

Fed Overnight Reverse Repurchase Agreements: I've previously discussed the significance of these agreements, and they remain at a substantial level, surpassing US$1.794 trillion. The movement of these agreements directly opposes the shifts in the equity market. More agreements lead to a drop in the equity market as funds are kept aside. Conversely, fewer agreements indicate a rising equity market as funds are utilized for equity purchases.

Source: Fred Economic Data

Record cash reserves: Many companies currently hold substantial cash reserves, yet they are refraining from spending. In one of my upcoming collaboration pieces, I will delve into a company that exemplifies this trend. Stay tuned for that!

Increased US Treasury bond sales: The primary factor contributing to the decline in the US market can be attributed to the recent increase in the US Treasury's quarterly refunding of longer-term Treasuries, specifically from $96 billion to $102 billion. As a result of this adjustment, there is now a reduced availability of cash within the market. This shift in the financial landscape has prompted investors to reallocate their funds from equity investments to treasury bonds. Consequently, this movement of capital has played a significant role in the downward trajectory observed in the current equity markets.

Isolated issues: The recent US banking crisis and the ongoing China property issues are confined to specific sectors and countries, rather than being widespread. These isolated incidents do not indicate a broader global recession.

Strong economy with steady consumer spending: The economy remains relatively robust, as evidenced by the still relatively high supercore inflation rate. Consumers continue to spend, while also maintaining healthy savings.

In summary, while risks are present, the widespread expectation of a recession, coupled with the strong financial positions of companies, suggests that a recession may not materialize immediately, if at all. For now, the economy displays resilience. 

Stay Tuned for the next TUB Assert.