Inflation, Recession & Dwayne Wade’s Political Tell – Top 3 Takeaways – April 28th, 2023
- Higher Inflation, Slower Economy, Rising Risk of Recession. Those were the key takeaways from the 1st quarter GDP Report which showed that yet again economists are still generally so bad at what they do that they couldn’t hit water if they fell out of a boat. First quarter economic growth, which came in at a paltry 1.1%, was half of the forecasted economic growth rate. Importantly it’s a level which places the US economy within imminent risk of reentering a recession. In the but wait there’s more category, inflation also rose a half percent higher during the first quarter than was previously expected. So yeah, that’s fun, higher inflation and a much slower economy. Yes, the stock market responded positively, yes, that was also a head fake. Here’s what’s really happening and what you need to know to ensure you’re minding your own personal store. Economists had already estimated that there’s a 65% chance of a recession this year. Given their success at projecting economic growth, that means we’re probably already in one. And I’m not just being facetious. That probably is the case. The 1.1% growth was the average of the first three months of the year. All monthly data has shown the economy getting weaker from one month to the next. The odds are we entered negative economic growth, a la the onset of a recession, in March. Yesterday’s stock market rally was a relief rally on the belief that due to the imminent risk of recession, the Federal Reserve will be less likely to raise interest rates. Not a sign that the economy is ok. The rally is unlikely to last, and the economy is most likely in a recession. As I said at the onset of the banking crisis in March – The last thing I want to do is to be an alarmist about what’s happening economically in the country right now. But the last thing I want to do is to see what’s happening, say nothing, and have you caught off guard and unaware until it’s too late. During and after the Great Recession brought about by the financial crisis, I routinely heard from and worked with listeners who were desperately attempting to afford to stay in their homes, find work and a path forward after having lost most of what they had. If I see the potential for a crisis, or at a minimum another recession, as I accurately predicted we’d enter to start the year last year; I’m going to error on the side of providing you with a heads up. And here we are.
- The good news in South Florida is that we’re likely to have a far better economy than the country as a whole. The bad news is that we’re almost certainly in the early stages of a recession right now. And as I also pointed out in mid-March specific to the banking crisis... There’s another shoe to drop? And I’m not throwing that out there as some theoretical question. Yesterday, one of the big three credit rating agencies, Moody’s, not only suggested its possible. They named seven potential shoes which could drop. Quoting Moody’s, We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY. And as for the seven shoes which could next drop? Moody’s identified First Republic, Intrust Financial, UMB, Zions Bancorp, Western Alliance and Comerica as banks under review for potential ratings downgrades. Well, the first of those additional shoes, First Republic, could be about to drop. The bank reentered a free fall this week after reporting deposits had declined by 40% at the bank since March – which included a $30 billion bailout by big banks. They’re yet again, just over a month later, seeking another bailout by the big banks. As I mentioned at the onset of the banking crisis in March. It started there. It didn’t end there. Just as in the 2008 banking crisis, which saw Bear Stearns first fail in March, we didn’t have another big bank failure until June. The dominoes don’t all fall at once. The weakest ones fall first, and the other slightly less weak ones lean until eventually toppling over. Be prepared for the banking crisis and economy to get worse before it gets better and be glad we live in South Florida. For economic reasons, not just because it’s awesome.
- Dwanye Wade’s decision and Florida’s politics. Florida’s political evolution from a swing state to a red state has been nothing if not dramatic. From nail biting in 2018 to historic wins for the GOP last year I’d previously hypothesized that there was more than just freedom seeking people fleeing other states. Consider for example that in a state that adds about a thousand people a day there are over 460,000 fewer registered Democrats than three years ago. Have some become converts? Yes. Have some died? Yes (not tying to be morbid – it's just reality). However, have some said see ya to Florida in the name of politics? Yes. March 16th of last year I brought you the story: Are Democrats Moving Out of Florida as Republicans Move In? I said this: According to Redfin, a minimum of 1 in 7 voters won’t move to a state that doesn’t align with their values. We’ve long talked about blue states and red states, but the pandemic obviously took political considerations at the state level to a whole new level. While surveys have shown, and state voter registration information backs up, a reality that what Redfin depicted has indeed brought a disproportionate number of Republicans and Independents into Florida over the past couple of years...it appears to also be the case that Democrats have been more likely than Republicans and Independents to move away from Florida. Enter Dwyane Wade’s comments from Wednesday on why his family has relocated to California: I mean, obviously, the tax [situation] is great. Having Wade County is great. But my family would not be accepted or feel comfortable there. And so that's one of the reasons why I don't live there. Well, I’ve never once thought of Dade as Wade and I’m rather certain his family would still be accepted in South Florida, but hey good luck in Cali. Gavin and his hair will love to take your money. The more specific reason he cited the lack of acceptance. His 15-year-old daughter has come out as transgendered. Do with all of that what you will. And pray for the daughter – she needs it. In any event it’s a high-profile example of what I’d suspected expedited Florida’s political transformation. It’s not just more Republicans moving here. It’s Democrats leaving here.