Everywhere I go, I get the same question: Are we going to have a recession? I get it from people who want to buy real estate. I get it from people who come to the bar. I get it from people who are debating starting new businesses. It's in the air. Everywhere.
And then I get a second whisper. It goes like this: The Fed feels the need to raise rates and it's just a question of time if they move in March.
Who do I get the latter from? These Fed governors who love to grab a mike and tell us how good things are.
Funny, these two conversations should be combined so they can sound like this: "We are going to have a recession and the Fed is going to raise rates right into it." Or if you want to get really cynical: "We are going to have a recession because of the Fed."
Like this morning, there was an astounding piece of research out of Morgan Stanley (MS) telling you to sell General Motors (GM) because the profits are more at risk than people realize in a recession.
I read the piece and said, hmm, I guess we are going into a recession or the research analyst wouldn't have spent a huge chunk of the piece outlining the coming recession's impact on General Motors.
Then I started thinking about the conversation I had with Ford (F) CEO Mark Fields not long ago when we were in San Francisco, where he basically said he felt we could talk ourselves into a recession, and in fact that's his biggest fear. Given that his stocks sells at 5x earnings and yields more than 6%, if you include its special dividend, it's pretty obvious I am not the only one who fears recession. (Ford is part of TheStreet's Dividend Stock Advisor portfolio.)
We all know that if autos are at a peak rate and are coming down, that's a principal driver of the economy and it could be a real reason why we could have a recession.
Then there's housing. We heard some terrific stuff about household formation yesterday from Home Depot (HD), the undisputed kind of everything inside a home. Target (TGT) also talked about inside-the-home sales being strong. (Target is part of TheStreet's Action Alerts PLUS portfolio.)
But how about homes themselves? New home purchases for January announced this morning were simply awful, well below expectation with a particularly negative report from out west. Home sales fell to 494,000 when economists were looking for 520,000. The homebuilding stocks have been horrendous since the rate hike, with some of them losing 25% to 35% of their value. That's like the auto stocks. That's saying something.
And then there's oil. We know oil's been in a bear market for ages. It can bounce as it did today, but the companies that labor in the oil patch, both the oil service and the exploration and production companies, can't make money unless oil's over $35 a barrel. I know there aren't that many people in the oil business and it really only impacts nine states negatively and not even net negatively, but recessions are about confidence and when you read the stories about the woes of the oil companies and those that lend to them, you don't feel confidence-inspired.
And let's not forget the political landscape. The Republicans try to outdo each other about how poorly we are doing as a nation. They kind of have to. After all, they are running against a Democrat and the Democrats own the White House. You hear them talk every day because there is a horse race going on, even if it is for second place. But if you watch putative nominee Donald Trump, it's like listening to Ronald Reagan talk about how badly the country's doing under Jimmy Carter. It's like half the people think that unless Trump gets in, our country's about to sink into a recession, and the other half thinks that if he wins, things will very quickly spin out of control.
You know the media want to resurrect the candidacy of Bernie Sanders after they just buried him last weekend, and with good reason, he's still raising money. But if you are wealthier, you are nervous about his candidacy because of the studies showing what some would call a Robin Hood effect. You may love Sanders, but, hey, that's one of the reasons you love him. Masochistic stock jocks love him, too, I guess.
Now, layer all that on top of the vast majority of Fed speakers this week who seem pretty anxious about raising rates in March because things are so good and you can see how you have a bit of an unsettling moment developing. We would all feel better if there was something positive happening overseas, maybe in Japan or Europe or perhaps China, maybe Korea or Canada or Brazil or Argentina?
But there isn't, and we know it will only get worse the more the Fed hikes rates because it will send the dollar higher and cause companies that have to pay debt in U.S. dollars to pay more. None of this is helped by this discussion in the United Kingdom about maybe leaving the European Union. That just puts more downward pressure on the Euro vs. the dollar.
The decline in interest rates we have had is also signaling a recession. How in heck can the 10-year Treasury be all the way down to 1.7%, absurdly low, if things are so hot? In case you want to follow the Treasury action, all you have to do is monitor what's known as the TLT, which tracks the return of bonds with maturities of 20 years or more. This sucker was supposed to be going down as things got more robust; that's always been the pattern. Nope. It's going the other way.
Against all of this, I mean all of it, is the chatter from Fed governors who are so chipper and so obviously oblivious to all the discussions that I know I have. I almost think, do they live in a vacuum? Who are they talking to? Don't they at least have some buddies who are concerned about a recession? Don't they know some people who are pulling back from investing?
Hmm, maybe they just live in a real positive world where all they can think of is that it's a good sign that they can raise rates because it shows that things must be better off. No one, not one, seems to be articulating the obvious, which is, wow, with so many people thinking of a recession, maybe we just say, "We are done talking about rate hikes for the moment."
As long as these Fed governors remain as upbeat as they are about the fabulous notion of being in a position to raise rates, we are going to have a lot more days where the market goes down, not up.
I don't want to blame them. Maybe cars simply aren't selling because we all have them. Maybe homes are selling because we don't need them. Maybe interest rates are going lower because we don't like to borrow money anymore. Maybe we are back in 1939, where a considerable number of very smart people thought the problems overseas had nothing to do with us.
Or maybe, just maybe, those who are really bullish on the Fed are just plain wrong.
Somehow, I think the latter's the more compelling case.