Many economists are forecasting a recession for next year. However, a few notable investors and financial experts surmise that the U.S. is already in one. We will all know for sure when the second quarter GDP growth is reported in the middle of this month. If it is another negative one after the first quarter’s -1.5% was reported, then we are in a recession. (Remember, two negative quarters in a row satisfies the definition for a recession.)

That we are in one would not surprise the Bull and his partners. The economy has clearly cooled. Inventories are up at many retailers as well as in many supply chains. Consumers may be satiated, after splurging on many goods during the pandemic years. They were then helped by government largess, and with easy and cheap money. They have now shifted to services, especially vacations, but higher prices may already be cooling that down too. Look at commodity prices; many of these are also declining.

Before automated inventory control systems, the U.S. used to have inventory recessions about every five years. Over production would lead to cutbacks, layoffs, liquidations, and contraction in the economy. After that washed through, a new cycle would begin again. Better inventory management changed that, but the pandemic’s shutdowns and broken supply chains did away with inventory control. Seeking to catch back up, many businesses may have over ordered and overproduced.

The Federal Reserve stepping in to slow down demand may have simply exacerbated the downtrend that was already underway. However, if we are in an inventory correction and slowdown, it should not be all that serious. Inflation should subside allowing the Fed to not be as aggressive in its tightening policies. The bond market is already signaling that interest rates may not be going nearly as high as some investors have feared. If a recession is already underway, then it may be concluded sooner rather than later. The stock market will anticipate that and begin building in recovery to its expectations. Stay steady my friends.

The Lonely Bull