News Coverage for ‘Flation
Famous Stock Picker Says Economy is Already in Recession
New York Federal Reserve president John Williams recently said that the economy is slowing but an official recession may not be in the cards.
However, well-known money manager Cathie Wood of ARK Invest has taken a different stance.
This June 28 Marketwatch headline sums it up:
Cathie Wood warns U.S. is already in a recession
A recession is defined as two consecutive quarters of declining GDP. U.S. GDP declined by 1.6% in Q1 (yes, revised downward –again) and economic observers now await the official data for Q2.
Elliott Wave International looks to the stock market as the best economic indicator. In other words, the economy follows the stock market.
The stock market has been in a downtrend so a recession (or worse) would not be surprising.
This chart and commentary from Robert Prechter’s landmark book, The Socionomic Theory of Finance, provide insight:
As the stock market fell in Q1 1980 and again in 1981-1982, back-to-back recessions developed. As the stock market rose from 1982 to 1987, an economic boom occurred. After stock prices went sideways to down from 1987 to 1990, a recession developed. As stock prices resumed rising, the economy resumed expanding. As the stock market fell in 2000-2001, a recession developed. As the stock market recovered in 2002-2007, an economic expansion occurred. As the stock market fell in 2007-2009, a recession developed, and it was commensurate with the size of the drop: The largest stock market decline since 1929-1932 led to the deepest recession since 1929-1933. As the stock market has recovered since 2009, an economic expansion has developed. In all cases but one, the stock market either turned down before the recession began or turned up before the expansion began. The lone exception was in 2002, when the Dow made a new low after the official end of the recession in 2001. Data show that a setback in GDP growth into that later bottom just barely missed creating a recessionary quarter. (It is important to understand that socionomic causality does not predict that each stock market decline will produce an official recession as defined by the NBER; it predicts that stock market declines and advances will reliably lead rather than follow whatever official recessions and recoveries do occur.
An Update on the Deflation of Netflix
As revenue shrinks at Netflix, more heads have rolled at the subscription-based streaming service of movies and television shows.
A June 23 Variety headlines says:
Netflix Begins Second Round of Layoffs, 300 Positions Cut
About a month ago, around 150 employees were let go.
The layoffs are also occurring amid a deflation in the company’s stock price.
The May Elliott Wave Theorist provided this chart and eye-opening perspective:
Netflix is down 70% from its high. Many people think it can’t go lower. Is this an indication that stocks are near a major bottom?
[The chart] shows the stock’s price history. From its low at $0.35 in 2002, Netflix doubled eleven times in 19 years to reach 700.99. Since then, it has been cut in half twice. There is certainly room for more halvings. If you want to monitor the milestones, they are: 700.99, 350.50, 175.25, 87.62, 43.81, 21.91, 10.95, 5.48, 2.74, 1.37, 0.68 and 0.34.
Keep in mind that this is a picture of a stock that has been aggressively bid lower since November 2021. Many stocks are still near highs and have far more room to fall than Netflix.
Slow U.S. Car Sales Ominous for Economy
Many U.S. motorists are saying: “The car I have now will do just fine.”
Indeed, these motorists are keeping their cars longer than ever. S&P Global Mobility recently stated that the average U.S. vehicle hitting the highways is 12 years and 2 months old. That’s the highest number in the more than 20 years the data has been tracked.
Related, a June 14 Fox Business sub-headline says:
Total US vehicle sales projected for 13.1 million transactions in 2022, falling below 17 million average
As you might imagine, this does not bode well for the economy.
The monthly Elliott Wave Financial Forecast has been ahead of both developing stories – the U.S. car market and the economy.
Here’s a chart and commentary from the December 2021 issue:
The chart … shows buying conditions for vehicles from queries issued by the University of Michigan’s monthly consumer sentiment survey since the mid-1950s. Since the mid-1960s, a decline in consumers’ view of car buying conditions invariably preceded every economic contraction. The measure has never experienced a more dramatic plunge than in recent months. Economic headwinds are likely much closer than economists realize.
This warning about the economy was prescient. U.S. GDP contracted by 1.5% in Q1 2022.
U.S. Housing Market: “Worst Contraction Since 2006”
You probably recall the bursting of the U.S. housing bubble which occurred 16 years ago.
U.S. housing prices had topped in 2006 and that was followed by the subprime mortgage “meltdown” which shook the financial world to its core.
Here in 2022, there’s this headline (Markets Insider, June 10):
The US housing market is seeing its worst contraction since 2006 as mortgage applications crumble, says Freddie Mac economist
The Elliott Wave Financial Forecast pointed out reminders of the prior housing boom-and-bust back in April in a section titled “A True Fact: The Spirit of ’06 Is Thriving.”
Here’s a chart and commentary from that section:
The latest housing mania carries a “last chance to get in” vibe that even the boom of the mid-2000s failed to muster. Many experts say the price gains of recent months are just a beginning. Zillow’s latest housing price forecast is for year-over-year home price growth to increase to 22% by May. A Facebook post from a local real estate broker highlights a CNN Business story that the broker first posted in 2021. The story, about a house that drew 76 all-cash offers, is headlined “The Housing Madness Shows No Sign of Slowing.” Says the bullish broker, “I warned you then. Is it slowing this year? All arrows point to no.” We disagree. In fact, many of the arrows that matter most are now pointing down. In addition to the … over-the top bullish sentiment, there is now a clear trend reversal in the S&P Supercomposite Homebuilding Index, shown above. In September 2005, the Elliott Wave Financial Forecast pointed to a similar reversal in the same index and stated that home prices would eventually follow. Prices peaked in August 2006.
Government Spending and Debt Suggest “Calamity” Ahead
In October, the Dow Industrials were still climbing (the senior index later hit a high in January).
That same month (October), Robert Prechter mentioned several indications of an elevated social mood in his Elliott Wave Theorist, including this:
Governments feel rich and are spending like drunken sailors …
All that spending has racked up a lot of debt. And, as noted before in these pages, all major deflationary episodes have been preceded by unsustainable levels of debt.
With that in mind, on May 26, the Committee for a Responsible Federal Budget (a nonpartisan group) said that the federal debt is likely to reach 125% of gross domestic product in the next 10 years unless there’s a dramatic course correction.
On May 31, a Washington Examiner headline addressed the mounting federal debt:
New budget numbers show US careening toward calamity
And a “calamity” may be the only thing which will force governments to curtail spending in any meaningful way.
As Robert Prechter’s must-read Last Chance to Conquer the Crash says:
Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis.
That crisis will likely be accompanied by a big bear market in stocks.
Think about the 2007-2009 bear market. The financial crisis which unfolded in conjunction with that stock market downturn was the worst since the Great Depression.
Indeed, the Great Depression followed the downturn in stocks which began in 1929.
Be aware that here in 2022, the Elliott wave model suggests that the next bear market may rival that of 1929-1932.
Let’s conclude with this quote from the May 2022 Elliott Wave Theorist:
There has never been a Grand Supercycle-degree top in U.S. stocks, because the last peak of that degree occurred in 1720, when there were no American stocks. Only the record of British stock prices reveals it. So, recent issues of EWT have looked to the Supercycle-degree top of 1929 for guidance on how a Grand Supercycle top might form.