A recession by any other name is just as real
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
The interplay of macroeconomics and political agendas, whether we like it or not, is an inextricable relationship. Ahead of Thursday’s second consecutive negative GDP print, the White House scrambled to assert that the long-held commonplace definition of recession simply no longer applies. It’s curious to note that these pained assertions have come to the fore ahead of November’s US midterm elections – did someone say "optics"?
Brought to you by the same people who called inflation “transitory”
All news remains bullish
It says a lot about the state of the markets that both equities and crypto rallied following the Fed’s announcement of a second consecutive 75bps rate hike on Friday – meant to rein in spending and risk-on behaviour. This could likely be the result of market participants’ relief that the potential 100bps following the latest 9.1% CPI print hasn’t come to fruition. However, the question remains as to whether 75bps, while high, is sufficient to curb a global economy in dire straits. Following the Fed’s announcement, BTC rallied ~8% on the day, while the Nasdaq recorded a 4% single day gain – its largest since April 2020.
SPX, DJI, and NDX continue to run high while BTC maintains tight correlation
Regulations
Macros aside, it’s been a wild week for crypto firms, with both Coinbase ($COIN) and Kraken coming under increased regulatory scrutiny. Coinbase’s recent track record of listing incredibly obscure tokens has thus far seen one senior manager indicted on charges of insider trading, with the SEC now investigating recent listings as potential securities. COIN shares are currently scraping All-Time Lows at $56, after listing at an IPO valuation of $430 in April last year. Cathie Wood’s ARKK Investment firm began offloading their COIN holdings early this week.
Meanwhile, Kraken has come under the microscope for allegedly violating sanctions by allowing Iranians to trade on the US-based Tier 1 exchange.
Final thoughts
Many Fed evangelists continue to point to “low” unemployment rates as an indicator that we aren’t in fact in a recession. Upon closer inspection, however, this premise falls apart. If one excludes second jobs undertaken by individuals desperate to make ends meet, recent employment figures flip negative. Further, it’s important to consider the reduction in workforce size due to long-term disabilities and deaths in the wake of Covid. Additionally, the slew of cross-sector hiring freezes and layoffs this year has only continued to gain momentum.
Gaining a holistic picture of the global climate, in this writer’s mind, requires critical thinking and deep interrogation of cognitive biases, rather than religious adherence to textbooks and the statements of the same actors who created this situation – both through inaction and objectively terrible policy enactment.
It’s a brave new world, and we’ve much to learn from the events currently unfolding. Paying close attention (in a balanced, healthy manner) has the potential to provide an education in how our current paradigm actually works, and the steps needed to build a better future for all.
History may not always repeat itself, but it certainly does rhyme, and it’s our job to break the oppressive, cyclical cadence that has given rise to decades of widespread instability and ever-widening gulfs of wealth inequality.
