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Moneybeat: America’s slow no growth economy


WORLD Radio - Moneybeat: America’s slow no growth economy

Plus, the Fed’s ongoing policy of extremes and the positive surprise of corporate earnings thus far

A Mediterranean Shipping Company container ship docked at the Conley Terminal, Friday, March 17, 2023, in Boston. Associated Press Photo and Michael Dwyer

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat!

NICK EICHER, HOST: It's time now to talk business markets and the economy with financial analyst and advisor David Bahnsen. David is head of the wealth management firm, the Bahnsen group. He is here now. And David, good morning to you.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: All right, let's begin with the big story of the week, the quarterly report on economic growth, gross domestic product for Q1, that would be the first three months of this year. The annualized growth rate on that, just 1.1%. How do you read it, David? What do we need to know?

BAHNSEN: Yeah, I mean, it was lower than had been expected. I don't, I think most people in the recession camp that we'll be into a recession within a year, would still say that the fourth quarter of this year and the first quarter of next year are more likely targets for when we'll see that contraction in the economy. And then even within this 1.1%, a fair amount of the ‘mutedness’ of the number came from inventory decline, which is not necessarily going to repeat itself in future quarters, the consumer's contribution to the number was still pretty high. I didn't like the business investment, it continues to be much lower than I want. But I've pretty much been saying that for about 15 years now. So I don't think that there were any surprises in it other than the total number net adding up to something a little lower than had been expected. No matter what camp one's in about the future, it's pretty much indisputable about the present, that we are not in a recession, and that we are not in an economy that is growing very much. It's just a very muted, low, slow, no growth economy.

EICHER: Right. So even if we were to meet that sort of textbook definition of recession, that being two consecutive quarters of contraction or below zero economic growth, and I do realize it's more sophisticated than just that a necessary condition, but not sufficient by itself. But even if we have a recession, you're expecting it to be mild, given the pretty decent labor market?

BAHNSEN: I don't know about that, Nick, because I think that if you do end up getting two quarters of negative GDP growth, let's say Q4, and Q1, that that's unlikely to happen if the employment number stays this strong. So even that, there's sort of a circularity to the argument here. I think unlike a year ago, or a little over a year ago, if you recall, when we had this discussion about whether or not we were in recession, and we clearly weren't, in hindsight, I wrote an article for WORLD at the time about where that two quarter in a row thing really came from. You know, the idea is that to be in a recession, you have to have the symptoms of a recession, of low unemployment, declining corporate profits, declining wages, and we didn't have any of those things. But I think that if we do go into two quarters in a row later, that it will come with those things, declining profits, declining wages, and and declining employment. But I don't think that we know if it will be severe or not. And that's the question that seems to me to be at the heart of the matter, is, I've been alluding a lot for maybe nine months now about this recession, if we have one looking like the 2002 recession that followed after bust, the tech bubble bursting, and then after 9/11, that the confluence of those events led to a very mild recession that most of the country didn't really even know we were in, but that it did it lead to significant job losses in Silicon Valley, and in particular sectors. And it stayed pretty shallow and then rebounded rather quickly. And that could end up being what we have here. And that's a very different economic picture. It's a different ramification for the stock market, than if you have a more traditional recession that permeates all of your economy.

EICHER: Right. So tomorrow, the Fed meets tomorrow and Wednesday for its policy meeting for the month of May. There's always that question about interest rates. But what's important for us, David to keep in mind, as those meetings are going on in the next couple of days.

BAHNSEN: Yeah, they've spent about the last three weeks doing everything they can to make sure people are telegraphed, that they're gonna raise rates another quarter of a point, and the market has priced all that in, there's something like an 84% chance of a quarter point hike this week. And so let's assume that that is going to happen, there's also a significant pickup in the chance that they'll be cutting rates by the end of the year. And so on one hand, the market is pricing in. “Yep, they're gonna raise more,” but on the other hand, they're also saying, “Yep they're gonna end up having to cut because of that.”

And so, you know, it's funny. If you look at the Fed Funds Futures market right now, at the end of 2024, a year and a half from now, they're pricing in Fed funds rate of 3.2%. It's 5.2 now, they're predicting that kind of cuts into next year. That would really imply that we probably had gone into a recession, and the Fed was having to play catch up. And this is very much in a big theme of mine that I've talked about with WORLD listeners for a long time, and I've written about at For a long time, that the Fed just seems to only stay in the extremes. They're either too low for too long or too high for too long. And the idea of some sort of moderated monetary policy that avoids these booms and busts just seems to be totally outside of their playbook.

EICHER: Alright, so we've got GDP, we've got the Fed meeting. And before we go, I remember hearing you say last week, David, we're in the thick of earnings season where the big public corporations are reporting profits, and those profit reports should tell us a lot. What are you seeing thus far?

BAHNSEN: Yeah, I mean, the Thursday and Friday of last week in the stock market, as we get ready to go into this new week, where there's even more companies releasing earnings. last week, you had the market up 800 points in two days, over 800 points in two days. And that was happening as the newswire was constantly telling you new problems with the banks and the whole First Republic saga and all that stuff, you know, how in the world is the stock market going up with a bad GDP number? You know, challenges in the banking system? And the answer is that the earnings season has gone quite well, quite well. There really has been a lot of surprises to the upside, revenues have not dropped as much as expected, margins have hung in there, earnings are not growing year over year, but they're not shrinking. So again, that decline in corporate profits that you would associate with a recession has not yet happened. And it's led to a pretty healthy earnings season so far. But we really are kind of in the middle of it right now. We've now gotten to about 50%. And so there's still another week or two to go and I'll have a better assessment. But I would say so far, the earnings season has been a positive surprise for the markets.

EICHER: Alright, well, we've come to the end of our time. And you know, I've been promising listener questions, but let me tell you where we are with that - just as happened several months ago, we've had a glitch with this email address that I've given you. And I'm guessing, you might be saying, “I wonder why my question wasn't responded to or considered.” Well, it is because we've had some trouble with that email address, and we're just not confident that we'll be able to recover. So let me give you a new email address. And it's simply this:, And if, let's say over the past three weeks, you've sent something in, would you mind resending to that address? Again, We will do our best to get those processed. So I hope we're able to resume listener questions real soon. And let's see if that new email address clears things up.

David Bahnsen is founder, managing partner and chief investment officer of the Bahnson group. His personal website is you spell his last name B-A-H-N-S-E-N David, thank you, hope you have a great week.

BAHNSEN: Thanks so much Nick. Great to be with you.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.


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