It's not great, it's just not that bad.
When I present evidence every night that we are not going into a recession, I immediately get push back that if things are as good as I am claiming, then why shouldn't the Fed tighten? If I keep coming up with examples of "better than expected" then, if I am right, aren't we sowing the seeds of our own Fed rate-hike destruction, especially because Jay Powell has to defend himself from an increasingly irrational harangue by the president? Memo to President Trump, stop looking a Fed gift horse in the mouth, for heaven's sakes.
You know what? I am sick and tired of people reaching the false conclusion that if something's good, the Fed has to switch direction and start re-tightening. It is, in the end, an abundance of evidence that will force Jay Powell to start tightening again, my points aren't dispositive.
I am merely suggesting that an inverted yield curve as a harbinger of a recession may not be playing out the way the economists say, because there's way too many examples of things going well and no inflation. So, the Fed will stay on hold.
What makes me think that the positives I point out aren't making a strong case for tightening?
Let's go by industry.
1. Retail: You need to have value and convenience and have a great online site to succeed, unless you are offering prices through the floor, like Ollie's Bargain (OLLI) . If you do not have a value strategy, you aren't doing well and that includes almost every department store save Kohl's (KSS) . So don't get too agitated if you are the Fed because Dollar General (DG) or Kohl's have good quarters.
2. Banking: When you see the profits these companies are putting up, especially the $9.2 billion that JP Morgan (JPM) made, you start thinking that we have to be overheating. But the real gains come from digitization and rationalization -- machines save a lot of money over people. Their numbers are very good, but their loan growth is not inflationary and their profits also had more to do with the Fed raising rates, something that will slow down the economy even if the capital markets were good in March, as JP Morgan told us.
3. Tech. Most of what's good in tech revolves around the cloud, and while cloud business picks up, it isn't at all cyclical -- so the big numbers we continue to see at, say, a Cisco Systems (CSCO) or a Salesforce (CRM) , are all about companies saving money by going on the web. It's also anti-inflationary.
4. Transports. The transports aren't doing well, even though their stocks are. It is too early, without a trade deal, to know if the moves are correct.
5. Housing. I think we are beginning to realize that the home builders have managed to corner the market on the best real estate while really hurting their little-guy competition. Plus the zoning laws are so difficult that smaller builders often have to give up and sell good properties. So don't presume housing's on fire if the housing stocks are doing well.
6. Autos. Autos are a point prover -- there's been no pickup in sales, although I continue to like the mix that Ford's (F) putting together. Because autos are slow, so are many metal and plastics companies.
7. Overseas. Finally there's overseas. While China has had some stimulus that seems to be working of late, there's no getting around it: Europe is weaker than it was before Powell clocked the economy back on October 3.
To me we are pretty much in the middle of the road, where no tightening is needed but if things slip, we've got room for the Fed to cut. And that's still the more likely trajectory given how much damaged the Fed wrought going into Christmas time.
