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Items From the News Wire:

“The Kardashians Are Closing All DASH Stores”
“Ivanka Trump Is Shutting Down Her Fashion Brand”
“Toys R Us Shutters Its Doors in the U.S.”
“Tesla Announces Cutting 9% of Their Workforce”
“Banks After Tax Cuts: Loan Growth Slows & 3,200 Jobs Disappear”

What do these headlines have in common? Aside from the celebrity-centric themes of a couple of the items, there is a strong indication we are not far away from a recession. Let’s look at what we already know:

  • Government debt is at an all-time high. The household debt to income ratio is currently 130%, which means the federal government spends $1.30 for every $1.00 in revenue received. It’s impossible for regular people to maintain spending more than earning for more than a short period of time. Then again, regular people do not have the ability to print money like the federal government can. The problem with endlessly printing money is that if the larger investors (China and Japan, to name two) stop investing, the debt gravy train will crash.
  • Corporate tax revenue is quickly declining. We can debate whether the tax cuts have been effective in growing the economy, but declining tax revenue is a leading indicator of a recession. By the way, if tax cuts are supposed to incentivize spending which in turn creates more income for businesses, then why are tax receipts lower? Just asking.
  • Mortgage purchase applications are in decline. Building permits and new and existing home sales have declined over the past few months, according to Tom Slefinger at Balance Sheet Solutions. The primary cause for this decline is that home prices are unaffordable. To paraphrase Cher (played brilliantly by Alicia Silverstone) in the 1995 classic movie Clueless, “Duh.”
  • Inflation is rising, and workers are suffering. The I-word is rearing its ugly head. Mr. Slefinger observed that consumer prices are up 2.9% since last year, while wages for non-managerial workers are up 2.7%. Wages are not keeping up with consumer price increases; thus, the average worker is worse off than a year ago. If savings from the tax cuts are not going to the workers, where are they going? Answer: Stock dividends and buybacks, neither of which help workers.
  • There is slow economic growth internationally. Contrary to popular belief within the Washington Beltway, the U.S. does not exist in a vacuum. We are very much affected by the economies of the other 192 countries in the world. During a 1953 congressional hearing, Charles Wilson, CEO of General Motors allegedly was quoted as saying, “As GM goes, so goes the nation.” Today, that quote has been modified to “As (insert country here) goes, so goes (insert another country here).” Countries, big and small, are already experiencing economic slowdowns which are washing onto our shores.

What we don’t know is why what we know is happening. Depending on one’s political bent and which 24-hour news network they watch, we can blame the tax cuts, tariffs, higher interest rates, increased entitlement spending, or the New England Patriots. None of this matters. Recessions happen about every ten years, and we’re overdue. They occur when it’s most inconvenient, and many times the precursors are so subtle we don’t feel it until we are totally engulfed. The next one is coming to your town soon, so hang on, batten down the hatches, and, as my mom always says, “Wear a sweater.”

David M. Green
(925) 335-3802