US Faces Deep Recession Cliff

The forces arraigned against the future outlook for the US economy could not have been made more clear than with the release of yesterday’s key data.

Two very different and historically speaking never really happening like this before events occurred. Durable Goods Orders hit every alarm button in town as they fell off a cliff down 5.2%.

US Durable Goods Orders

Meanwhile, Mortgage Rates hit a 22 year high on the very same day at 7.23%.

US Mortgage Rates

This is the quandary. This is what we have accurately foreseen and been warning of all these many months. The US economy is crumbling while there is only further interest rate stress to come. There will be no policy response.

What the Administration dismisses out of hand due to the -re-election pressures building, and what the Federal Reserve has not the ability to fathom, is that this economic dysfunction and deepening slow-down will not be easily resuscitated or softened. It is gathering un-stoppable speed.

The key point here that every trader and investor needs to be acutely aware of, is that the economic outlook for the USA is almost at stall speed, and the economy may not make it to that soft-landing airport still far off in the distance.

I am a little unsure I am clear in what I am saying here, so I will say it this way. The US economy has reached, now, the tipping point where the economic slow-down will become 'totally un-controllable’ by any policy initiatives or even interest rate cuts that may follow after this point.

The Federal Reserve and the Administration do not understand that this is an economic slow-down like none other in history, and it is occurring in a backdrop of China, Europe and the global economy all struggling simultaneously.

The loss of control that is about to take place here has no historic precedent. And still, the authorities are asleep at the wheel. Having no idea how quickly the pain across America on Main Street will juggernaut into all the asset classes of the wealthy too.

Have I scared you? I hope so. We all need to be very concerned. Fear can be a very powerful force for good when it is proportionately appropriate to true realities and generates a level of focus, motivation and action to adjust accordingly.

Personally, I have continued to advocate caution and defensive portfolio structures even through the recent rally. The economic writing has been on the Wall for a very long time. Most economists can only act out of past happenings and analysis. What is happening in the US economy now, from the hollowing out of San Francisco and other American cities, to the nationwide GFC style car finance delinquencies, is new. It is indeed a situation of a whole nation getting out of control.

In the GFC, China stayed strong and this acted as an anchor for other economies to recover. There are no anchors this time. The pain has spread too far and is nuanced, yet significant, in all three major economic regions.

Stocks just had a sharp down day as expected. This is the new trend, and represents significant opportunity for those prepared to “look out the window” and see the world as it truly is, right now.

Without such behaviour being apparent among US authorities, things are likely to get much worse before there is any kind of landing at all.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

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