Can we dodge a recession?

or is it already in motion

All signs continue to point to an oncoming recession sooner rather than later and this will be the wildest recession we’ve seen in a long time. More on this below but first, the data.

The trade balance came out on Tuesday and it showed a big bounce off the bottom.

While the prior months dip was extreme, the bounce back has been equally as extreme. The trade balance is calculated by the difference between exports and imports. Lately the US has been exporting at record highs. Goods such as natural gas, petroleum products, and soybeans have been leading the way. On the other side of the equation is imports. These are primarily driven by Walmart and Target, take a look.

Target has been putting out multiple warnings about high inventory and low sales. Their stock price has taken quite a hit because of these warnings. Now it looks like they must be slowing down their imports due to this slack in demand. What makes this an interesting data point concerning recession is that the last three (2020, 2008, 2001) all saw a reduction in the trade balance.

This is most likely due to a reduction in imports because the economy slows, unemployment then rises, and consumers become tapped out. Speaking of which, the latest consumer spending data came out Tuesday. This was one of the insights that Martin Zweig had on the health of the economy. What we are witnessing is a dramatic increase in consumer’s reliance on revolving credit, aka credit cards.

After consumers paid down the credit card debt with the covid handouts, they have now quickly resumed reliance upon them. Last month saw a record rise in revolving credit at $25.6B. This was the highest print on record. This month is the second highest at $17.8B. Consumers are trying to keep up their current lifestyles while battling inflation. Something is going to give sooner rather than later. The latest CPI data comes out Friday. While car prices are coming down, food and energy are staying sky high. This is what will make for a very wild recession.

Consumer spending is dropping but food and energy prices won’t see much relief. This is because supplies are tight. We’ve already seen struggles with the food supply chain including fertilizer, seed, and equipment parts for farmers. I have also been consistent on the fact that OPEC was not going to be able to increase production meaningfully. This is a theme now being picked up.

Since OPEC+ started reversing last year the record cuts from April 2020, the group has been consistently struggling to meet its production quota as many members lack spare capacity or investment to increase production.

Investment in new oil research and developments have been severely curtailed. 2020 guaranteed this for the majority of the middle east when oil prices went negative. This was already in motion in the United States. Now OPEC is attempting to play catch-up but the US still hasn’t figured it out. The Biden administration is hell-bent on bringing about the Green New Deal whether it gets voted on or not. This is causing catastrophe for the US economy.

The recent bounce in the markets has stalled. It looks like the next move lower could be coming soon. Today saw a devastating selloff in the shipping companies. It triggered my stop loss and now I’m out. The bottom is ripe to drop out of this market, watch out below.