“A rose is a rose is a rose.” So said Gertrude Stein commenting that, whatever one chooses to use as a labeling description, the choice of nomenclature has no impact on what a thing may actually be. Funnily enough, the phrase is a bit of a misquote, the original being “Rose is a rose is a rose.” The first ‘Rose’ is a woman’s name, the next refers to a flower. The subsequent circularity is likely just paronomasia. Such wordplay annoys some people. You probably know someone who thinks the phrase “It is what it is.” is the linguistic equivalent of fingernails on a chalkboard.
Why do I bring this up? Glad you asked. It is simply because we always search for relevance in our weekly missive to you. And the big word in the news this week is ‘recession’. That’s recession as in are we having one, going to have one, or have we just had one? And, what makes a recession anyway?
Most of the media has been tossing around the word as if it is some sort of harbinger – a forecast of the end of the world as we know it. A lot of this is more political propaganda than it is useful stuff. And…since Recession is the big evil some pundits (and news-people) have leapt to the conclusion that 1) we are having one and 2) it’s Biden’s fault. The Whitehouse has responded by saying 1) We are not having a recession and 2) things are rosier than is popularly believed. Here’s the underlying truth that makes the discussion complicated — and why it has become political fodder.
The popular belief is that, by definition, a recession comes into existence when you have two consecutive calendar quarters of negative growth. In reality, that is only part of the equation. That this reduced version of the definition has become the de facto standard is likely due to the laziness of the media and political types. And this is where we get tripped up. Einstein famously quipped that “You should explain things in the simplest of terms, but no simpler.”
The ‘Official’ arbiter of identifying recessions is the National Bureau of Economic Research. This is not a government agency and they decided among themselves to be in charge of naming some stuff. Their website describes the NBER this way:
The National Bureau of Economic Research is governed by a Board of Directors consisting of 51 members from leading North American research universities, economics professional organizations, and the business and labor communities.
The NBER seems to do a very good job of what they do, so no one takes issue with their findings. We’re good with that too. Interestingly here is how they actually define the condition of recession:
“…a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Noteworthy is the bureau’s economists, in fact, profess not even to use gross domestic product, the broadest measure of activity, as a primary barometer.
To close our commentary for today, we shall turn to Dean Baker, co-founder of the Center for Economic and Policy Research. Dean says “The NBER would be laughingstocks if they said we had a recession when we were creating 400,000 jobs a month.” It’s hard to challenge Dean on that.
Ron’s Market Minute: More Rays of Sunshine
I know you’ve been looking for something positive in our Friday commentaries, and today we have some positive comments. Hooray! Let’s skip right to the chart of the S&P500 Index.
Before we get TOO positive, note that the overall trend of the markets is still down, so that’s our longer-term concern. In addition, although the trend has turned UP (note the recent blue bars indicating a stronger uptrend (! Finally!), markets are running into strong ‘overhead’ at the higher values of the market in June. There were rather a lot of buyers near the high point in June, and some of them will be anxious to get back out having recovered from the more recent downtrend. This overhead will be an important point, as it will be negative if too many people get out, and markets will turn back down OR it will be very positive if the current buying continues.
Another concern (no chart for this one) is that there are a lot of dollars flowing into Utilities currently. That indicates that there are many buyers/investors that likely will want to get more conservative in case of another market downturn.
OK, now for some positives. The TNX indicator which shows interest rates on the 10-year treasury, has been trending down. This is good news: It means that the high interest rates which have been knocking stocks, are getting a bit lower, and the natural reaction for stocks is to go UP. Go back to the chart above. Those dark blue bars showing in the past several days indicate that investors have been buying stocks — enough to print those blue bars. That is showing a stronger uptrend. Also not shown is that oil prices have come down a bit, which reduces another headwind for stocks.
Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
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