Here's the Deal with the Economy- November 24, 2024

Economy: In Slowdown

Market Cycle: Bullish

_{Week 47 of 52 for 2024: 90.4% of the way through 2024}

Weekly Note:

Contrary to popular opinion, there is much to be thankful for when it comes to the current state of the economy.

Sure, it’s easy to get caught up in the negatives. But if we pause to consider what the world has been through the last five years, there’s actually a lot to be thankful for. Here me out, as things could have been so much worse.

Imagine this scenario: At the end of 2019, someone tells you that in the next five years:

• A global pandemic will claim millions of lives.

• Governments will shut down economies, causing massive supply chain disruptions.

• Trillions of dollars will be printed, fueling spending to the point where people start paying millions for digital real estate and 8-bit images of cartoon monkeys.

• Two major wars will break out.

• Inflation will surge to 8%.

• Political divisions will grow more extreme.

• Donald Trump would lose and later regain the presidency.

Given all this chaos, you might assume the economy would spiral into a prolonged crisis, right? Yet here we are, and the reality has been far more stable than expected:

• The only recession was a brief one in early 2020. (Reality is a recession was coming. COVID or no COVID.)

• Unemployment is low, hovering around 4%.

• Job opportunities remain plentiful and at the same level they were in 2019, which were historical highs at that point.

• GDP growth averages around 2.5%.

• Housing prices throughout most of the US are at all-time highs.

• Stock markets are at all-time highs.

If you were asked back in 2019 whether this outcome, given the challenges, would be a good one, wouldn’t you say yes? I know I would. This recovery, despite its flaws, is far better than the fallout from the Great Financial Crisis in 2008. It’s a reminder that, sometimes, resilience can surpass even our best predictions.

Life feels hard today because we’re facing the unknown, and uncertainty always makes things more challenging. But here’s the truth: it’s always hard. Today just feels tougher because you’re living through it right now.

When you think about the past, it seems easier, but that’s because you’ve already made it through. The unknowns of yesterday have been resolved, so they don’t feel threatening anymore. But that can trick us into idealizing the past, forgetting just how tough it was at the time.

That’s why focusing too much on the past can be dangerous, as it’s often a blurry memory and not the full picture. It’s important to learn from the past but keep our focus on the present and the future, where real growth and action happen.

Things could always be much worse. At least that is something to be thankful for this week.

As for the current condition of the economy, we received more confirmation that the US is not in a recession or at risk of falling into one in the next few months. With 95% of S&P 500 companies having reported, profit margins remain elevated at 12.2%. Initial jobless claims also hit their lowest level since April. Plus, someone just paid $6.2M for a banana duct-taped to a wall. Not exactly the characteristics of an economy screaming towards an imminent recession.

But if news of yet another terrible quarter for the formerly great Target has you nervous, rest assure that their competitors continue to deliver better than expected as was the case with Walmart. Whose earnings this week also suggests that holiday shopping is off to a strong start as holiday spending looks strong this year.

We are also now beginning to get confirmation of my call a few weeks ago that the severe recession for the pre-owned residential real estate market could be bottoming as existing home sales continue to improve. While at the same time, it is now expected that rent inflation won’t ebb until 2026, according to the Cleveland Fed Model. Unfortunately, this ties into the growing risk of inflation making a comeback during this credit cycle.

Remember this the next time your nutty friend who has been calling a real estate crash AND deflation for the past decade continues to prove that they put their feelings over actual research. But let’s be honest, it’s more than likely their political beliefs clouding good judgement and thought.

So, things are great and the economy will continue to expand for the next four or five years? Right?

Well, not exactly as the earlier stages of Economic Slowdowns tend to mask themselves as another wave higher. Which may be happening now. On the surface, the economy is sending "all clear" signals, but beneath it, the patterns that often show up before recessions continue to quietly unfold.

New red flags have begun to pop up recently. Such as the increase in companies offering lower guidance in the coming months. Of the S&P 500 companies which have offered guidance the last few weeks, 64% were lower for next quarter. This is above both the 5-year and 10-year averages. While 47% issued negative guidance for the current fiscal year.

The thing to watch moving forward is profit margins. While they remain elevated here at 12.2%, a drop below ~10% would more than likely begin to lead to layoffs and thus a higher unemployment rate, which will in turn lead to the recession.

It certainly doesn’t help that continuing unemployment claims remain elevated at this point.

But I’m not that worried at this time, as I’ll explain in the 2025 Forecast when it is posted the end of the year.

Bottom line, we have a lot to be thankful for at this time. It remains to be the most amazing time in the history of human civilization to be alive. The majority of people in this country live much better and more comfortably than John D. Rockefeller ever did.

Could things be better? Sure. Could they be a whole lot worse? Absolutely. If you can’t find anything worth being thankful for, then you probably want to reassess. At the very least, be thankful things aren’t a whole lot worse. It’s a good way to start the process of being less pessimistic and increasing your ability to see opportunities.

More Top Economic Stories of the Week:

Wall Street's Elites Are Piling Into a Massive AI Gamble

Why it matters: More info on the importance of AI data centers and what is going to be needed to keep up with demand.

“Analysis by Bloomberg News estimates at least $1 trillion of spending is needed for the data centers, electricity supplies and communications networks that will power the attempt to deliver on AI’s promise to transform everything from medicine to customer service. Others reckon the total cost could be double that.”

Things Are Quiet in Consumer Credit. Too Quiet.

Why it matters: Credit typically begins to tighten in an Economic Slowdown. It is one of the drivers for growth and contractions in the economy. While it is more typical that credit tightening comes from banks tightening their standards as opposed to people’s lack of desire to add debt, it fits in with much of the current cycles unconventional characteristics. Which makes sense in the fact that the current cycle, which began in March 2020, has been highly unconventional.

Big Cities Take Up Fight Against Algorithm-Based Rents

Why it matters: This isn’t going to help rent prices. Instead it’s an attempt by local governments to mask that their policies have helped lead to the current housing shortage crisis.

Makers of Weight-Loss Drugs Want Your Employer to Pay for Them

Why it matters: Garbage like this is why it seems harder to get ahead, not The Fed. If successful, all this will do is limit your take home pay whether you use these drugs or not. The real answer to health is an easy one, but often hated because it takes an effort. The answer is to take in fewer calories than you burn and think of eating as a source of fuel for your body and goals. Also be sure to read the labels of the food you consume and stay away from high fructose corn syrup, dyes, and seed oils. Most are simply food waste which food manufacturers have packaged as food ingredients. Out of all the things to go au naturale on, this is the one. Nothing wrong with some cheating on your diet from time to time, or eating whatever is available when ultra busy. However, properly managing this one thing will make everything in your life much more easier and leave more time for the decisions in which will help you attain your goals.

Super Micro’s New Auditor Needs Its Own Turnaround. Why the Partnership Is Full of Risk.

Why it matters: The saga at SMCI continues as it was able to find a new auditor. Yet, it appears to be the case of water seeking its own level. Then again, maybe this is the perfect partnership for both to turn things around. Or, maybe we just get another lesson in leopards not changing their spots. Nonetheless, it’s an interesting story to watch from the sidelines.

“Human … please die”: A chatbot’s unsettling message raises alarms - CBS News

Why it matters: Yikes. Much like all innovations, AI can be used as a tool for good or for bad. The question is, is this outcome more of a reflection of AI or human behavior?

DirecTV to Scrap Merger With Rival Dish

Why it matters: One merger off the table. “DirecTV informed Dish owner, EchoStar, it plans to scrap the deal at 11:59 p.m. ET Friday. The decision came after a rebuke from bondholders representing about $10.7 billion of debt in Dish and its DBS subsidiary. The broader tie-up depended on the creditors’ approval.”

Discount Airline Spirit Files for Bankruptcy

Why it matters: Two mergers off the table. It’s a shame that the FTC decided to get involved with the merger between Spirit and Frontier. Spirit going under is absolutely not in the best interest of airline customers, Spirits employees, or investors. This seems as though it was an unforced error due to bad policy.

Ken Griffin Says He’s ‘Very Anxious’ About Trump’s Tariff Policy

Why it matters: “The Citadel founder called tariffs — a central tenet of Trump’s economic agenda — a “long, slippery slope” that can be profitable in the short run but damaging to US companies’ ability to compete globally in the long run.” Love him or hate him, it’s obvious that few people understand how markets operate better than Ken Griffin. Best to pay attention when he offers his thoughts.

““I do not know how to do that as either a humanitarian justification or economic justification,” Griffin said of mass deportations. When it comes to “the people who have come to our country who are gainfully employed, who are contributing to our economy” and trying to establish roots in the US, “I do not understand” how the government could deport those people, he said.”

Reminder that Griffin is a staunch Republican, both in deeds and words.

Most Important Data Drops from the Past Week:

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