You know the saying: There are two kinds of people in this world, glass-half-full people and glass-half-empty people. Of course it is the same glass holding the same amount of liquid, but depending on his point of view one is either happy about it or grumpy about it. At the moment, Mr. Market is in a glass-half-empty mood.
The market started this correction supposedly because the economy was so good that interest rates were going to keep rising. Then it was blamed on trade tensions. Now the half-empty crowd is saying that the economy must slow and may even go into a recession in 2019. What is the data backing this up? According to the doom-and-gloomers, it is simply time. This good news can’t go one forever.
Now they are pointing overseas. Japan is the first major economy to post a quarter of negative growth. There is no doubt China is slowing and Europe seems to be losing momentum as well. Does that mean a recession here at home? Not necessarily. Unemployment is at an incredibly low 3.7 percent right now, meaning that 96.3 percent of people looking for work have found it, and perhaps more importantly, wages are growing at 3 percent, which is faster than inflation. We have not seen an employment situation this good sine the 1980’s and 90’s. Forgive me if it is hard to see that leading to a recession.
Corporate earnings were really good this quarter and it has not seemed to matter. Any company that has hinted at weakness, or even just at slowing of growth, has been punished unmercifully…which brings us to what, in our opinion, is really our greatest threat: the mood.
We keep hearing how our economy is “late in the cycle,” which is a more sophisticated-sounding way of saying that I know there is no data to back up my melancholy, but I’m in a bad mood anyway. The truth is that no one knows when the cycle changes until the cycle has already changed, so there is really no way of knowing if we are “late in the cycle.” One thing we do know is that economics can often be self-fulfilling. If enough people start to see the glass as half empty and start acting like we are in a recession, then they could make it happen.
This is what happened is 1992. We talked ourselves into having a recession. It could happen again if we are not careful.
~ I’m thankful that the real economy is doing very well, even if Wall Street refuses to see it.
~ I’m thankful for real wage growth in America.
~ I’m thankful for my children.
~ I’m thankful for my family, immediate and extended.
~ I am thankful for all of my friends.
~ Once again, I’m always thankful for Mama’s pumpkin cheesecake and my loose-fitting pants, which make enjoyment of said cheesecake possible, and are a little looser than last year.
~ Finally, I am thankful for you, our clients and friends. Your trust in Iron Capital is our greatest asset and we value it every day of the year.
Chuck Osborne, CFA