Scott Kahan: Discusses the Interest Rate Cliff

What happened to all the Recession Talk? 

The MIT Professor Paul Samuelson once quipped “the stock market has predicted nine of the last five recessions.” He said that in 1982 and the updated score is now 13 out of the last seven. The same goes for the talking heads you see on TV. Most of whom have gotten almost everything wrong for years. Yet the same networks bring them back to soberly predict the next turn in the road – as if there are no rear view mirrors in their minds. And that goes for some of the biggest names at some of the biggest banks.

The Recession Watch has been on throughout 2023 and as we have discussed in the past there were no signs of recession in the economy. So, don’t listen to the talking heads and stick to your models.

Why does the market over predict Recessions?

Because there’s always a recession ahead. Recessions are inevitable. The problem is we just don’t know when they are going to happen. It’s understandable that we had a recession watch while the Federal Reserve was aggressively raising rates to combat an inflation that reach 8% in 2022. Recessions often follow rate hikes as it famously did in 1980-82 when Paul Volcker raised rates to 20%.

What was different this time?

This time the labor market remained strong, and the consumer remained strong because of the unusual conflation of events during COVID that resulted in more money in consumer’s pockets, whether from Government stimulus, or cost savings for commuting office workers, and supply chain disruptions that resulted in more money chasing fewer goods.

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