MAJOR WARNING: Thirteen Reasons Why A Recession Is Still Around The Corner

Forbes

Job growth is hot, inflation is cooling and stocks continue to rally. So why do some economic experts continue to forecast a recession?  Bob Ivry, a reporter for Forbes, joins "Forbes Talks" to discuss his conversation with bearish economic experts about why they believe a recession is still around the corner.  0:00 Introduction 0:16 Who Is The Founder/President Of Rosenberg Research And Associates 1:10 David Rosenberg's Background 2:45 What Are The Challenges When Conveying Economic Distress To People 9:49 Will These 13 Reasons Cause Change? 14:11 Optimism About The Economy 15:11 Is There A Government Shut Down Happening? 18:34 How Are The Recent Job Layoffs/Cuts Going To Play Out?  Read the full story on Forbes: https://www.forbes.com/sites/bobivry/2024/02/05/13-reasons-why-a-recession-is-still-around-the-corner/?sh=1e22528961ab  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Hi, everyone. I'm Rosemary Miller here with Bob Ivery, a reporter here at Forbes, here

00:08 to tell us why a recession is still around the corner. Thank you so much for joining

00:13 me today, Bob.

00:14 Hey, it's a pleasure to be here. Thanks.

00:16 So Bob, in a piece you wrote recently, you spoke to David Rosenberg, who is the founder

00:22 and president of Rosenberg Research and Associates. And he gave you 13 reasons why a recession

00:28 is still around the corner. For starters, who is he?

00:33 Who is he? Well, he's a strategist, a financial strategist. He used to be at Merrill Lynch

00:38 back when Merrill Lynch was still a powerhouse on Wall Street. And then he hung out his own

00:43 shingle. He's Canadian. So he hung out the shingle in Toronto. And he's very well respected.

00:49 You know, he's got a, you know, he's everywhere on the Internet. I talked to some other people

00:54 too. There's, you know, there's not a lot of people that are saying that we're getting,

00:58 we might, well, he says we will have a recession. There's not many people that fit into that

01:03 category anymore because there's been so much good economic news in the last year.

01:10 So what inspires you to cover David Rosenberg and his unique approach to predicting the

01:15 economic downturns?

01:16 Well, I think contrarians are really interesting. I mean, don't you? I mean, there, he's really

01:22 going against the grain here. You know, there was, they do a survey every once in a while

01:28 of how many economists say that there's going to be a recession. And in October it was 18%

01:35 that were predicting a recession. In December, well, December, January, it was 9%. And then

01:41 on Friday we had this huge, huge jobs number come out. 353,000 jobs were created in January.

01:50 New jobs were created in January, blew everybody away. And I noticed that, you know, some of

01:55 these people that some of these economists or financial strategists were saying that

02:00 had been saying that they thought there was going to be a recession. All of a sudden they

02:05 were sending notes out to their clients saying, well, you know, let's put the brakes on that,

02:10 all the recession talk. And they abandoned their, their call of recession. But there

02:16 was a core group of people that I talked to for the story, including Jeff. Well, I didn't

02:21 talk to Jeff Gundlach, but Jeff Gundlach is one of them too. Who's a, they call him the

02:26 bond king and he's a billionaire and they're very, they've dug their feet in, you know,

02:32 there's going to be a recession and everybody else is wrong and we're right. And we've,

02:37 we've stuck to our, our bet this whole time and we're going to keep it. Even with all

02:42 the economic good news. Well, what challenges did you face when trying to convey this narrative

02:49 amid all the good news? Well, I don't, you know, Rosemary, I don't have a problem reporting

02:57 on bad news. I mean, I do it, it's kind of something I do, you know, I put it on my resume.

03:05 The reports on bad news, but you know, they had a compelling story. They're not, you know,

03:11 they're not just saying it. They're, they're, they're, they're basing their convictions

03:15 on some evidence. One of the bigger things that they, one of the greater themes that

03:22 they, that they, that they kept hitting on where we can't, we can't trust the economic

03:29 statistics anymore because for every good, good metric that's put out there, let's say

03:36 by the Bureau of Labor Statistics, there's another one that has much more dire messages.

03:45 For instance, most everybody looks at GDP, gross domestic product. As a matter of fact,

03:52 that's basically how we measure a recession is if growth in production starts either stagnating

04:00 or contracting, and that's the very definition of a recession. But what these folks are saying

04:06 is there's two statistics. There's GDP, gross domestic product, and there's GDI, which is

04:12 gross domestic income. And just to simplify it, it's all this money going out, that's

04:18 GDP, and all the money coming in, that's GDI. So it's income versus what we spend. And they

04:25 say GDP does indeed look good. It's the economy is growing, people are spending money. But

04:31 on the other hand, income is coming down. So you have a gap between what goes out and

04:38 what comes in. And, you know, just like any individual or company, you don't want more

04:45 going out than you have coming in. It's a pretty simple concept, right? You know, you

04:49 don't want to spend more money than you make. And the gap between what the US is making

04:56 and what it's spending is at its widest in a long time. And they said that that was an

05:03 indication that things weren't quite as good as everybody is, is, believes that they are.

05:10 Right. And that's just only right. You said that was only one of the reasons they gave

05:15 they had what 12 more, there were 13 reasons. And I do want to talk about those. Another

05:21 one was what soft landings preceding recessions. And what role does that play in in Rosenberg's

05:28 recession prediction?

05:29 Well, I ran this one, the the the the saw is that all recessions come after soft landings.

05:41 And a soft landing would be that you have less inflation, but you don't give up anything

05:47 in jobs. And that's exactly where we are right now. The jobs are up. Inflation is moderating,

05:53 coming down. That's very rare. It's very difficult. Of course, the Fed is, I think, taking some

05:58 credit for that or people are giving the Fed some credit for it because they've stopped

06:02 raising rates and that they haven't started cutting them yet. So we're in this kind of

06:08 honeymoon period. So Rosenberg said that every recession comes right after a soft landing.

06:14 So I ran this idea past Jason Furman, who was the the head economist in the Obama administration.

06:23 And he's he's not predicting a recession. He is he thinks that the economy will expand

06:29 in twenty twenty four. And he said, you know what? It's true. But if you look back and

06:37 there is a recession, it won't be a soft landing anymore, which he said would be a

06:41 hard landing. And there was some truth to that. I think he was just trying to make fun

06:46 of the fact that we just, you know, if something comes after something else, we think it's

06:52 a cause that that the first thing is a cause of the second thing. I think there's a Latin

06:56 expression for that, that just because something comes after it in time doesn't mean it doesn't

07:03 mean that it caused it. It just came after it in time. I will tell you about another

07:08 thing that everybody, all the economists talk about that the civilians on the street, you

07:13 know, they couldn't care less about it. It's called the inverted yield curve. Now, you've

07:17 heard of the inverted yield curve and I've heard of the inverted yield curve. But most

07:23 people have no idea what that is. What that is, is you take two bonds to government U.S.

07:30 government bonds. One is a two year, which means that it's you buy it and it's a two

07:35 year maturity. You get paid off in two years. The other is the 10 year. And logically, the

07:42 bond, the debt that's that's that that lasts longer, you should get paid more for it because

07:48 you're putting your money at risk for longer. But in an inverted yield curve, the two year

07:55 is actually throwing off more money than the 10 year, which is against all laws of gravity

08:02 and nature. And I say in the article, it's an indicator that the Detroit Lions will win

08:06 a playoff game. It's really kind of, you know, makes everything weird. And it could it could

08:13 show it could be it could result in banks not lending a lot because their cost of lending

08:20 is greater than what they're getting back from the loans. And when banks don't lend,

08:25 it slows down the economy. So there's this big fear about the inverted yield curve. And

08:32 we have had an inverted yield curve, I think, since July 2022, which, if it persists into

08:41 March, will be the longest time we've ever had an inverted yield curve, you know, since

08:48 they were painting on rock on the sides of caves, you know, right, since they started

08:56 measuring such things. And the last six recessions have been predicted by the yield curve, the

09:02 inverted yield curve. So every single time we've had a recession in the last six years,

09:07 in the last six times we've had recessions going back to 1980, 81, you've had the inverted

09:14 yield curve preceded it. But this time, we haven't yet. So what the what the bears are

09:22 saying is it's going to come. And what the bulls are saying is, gee, I don't know what's

09:28 going on. But, you know, we got 22 months. What is it since I'm sorry, since since June

09:36 or July 2022, which is a lot of months without having a recession coming after the inverted

09:44 yield curve. Please forgive me for rattling on and on and on about the inverted yield

09:48 curve.

09:49 I mean, and before we continue into some of the other reasons a recession may happen,

09:54 do you believe that these 13 reasons is enough to convince bulls to become bears?

09:59 No, at this point, I think that that's one of the things that that's one of the things

10:04 that Jeff Gundlach actually mentioned as something that worries him is that you've heard the

10:12 expression irrational exuberance. Everybody you know, once everybody goes on, you know,

10:18 goes to one opinion, which is that we're not going to have the recession, that we have

10:22 a soft landing, that the economy is doing great, that we're going to come back from

10:26 it without any more pain. Once everybody seems to believe in one thing, that's when the other

10:33 thing happens. Now, so he so so Jeff Gundlach was saying, you know, things people are people

10:41 are are happy. And they're, you know, the stock market has reached these, you know,

10:49 record highs in the last few, I think, few days, actually. And all this isn't, you know,

10:55 all this, he says, worries him, which is kind of funny, because I think that's the very

10:59 definition of what I would call a perma bear, which is a permanent, a person who has a permanent

11:04 pessimistic attitude about the markets is when everybody starts being happy, they start

11:10 worrying, right? If everybody's worried, they're, you know, they're less, they're just contract

11:15 contrarian in that way. And Gundlach has a has a, he does have a history of being downbeat

11:23 about the about the future of the market. So it's not a surprise that he's sticking

11:27 to his recession call. But I think it's funny that, you know, once everybody's happy, that

11:33 they, he thinks that that's an indication that it's going in the other direction.

11:38 And I feel like I've heard this before. And if I've heard this, I'm sure others have heard

11:42 this, then why are we still I guess, like, why are we still playing the same game? Why

11:47 are we still following this?

11:49 Well, you know, it's a lot of people have a lot of money riding on it. So and a lot

11:57 of people are paid very well to try to predict the future, right? They're basically fortune

12:02 tellers. And as a as somebody who was a reporter who sometimes had to write a story about why

12:11 the stock market rose and fell that day, which I believe is the hardest job in financial

12:17 journalism, because you basically have to take the first thing that somebody tells you

12:22 could be any number of 100 things or no reason at all. It could be completely irrational.

12:30 But just like that, you need to establish a narrative for yourself in order to feel

12:36 stable in order to feel like, confident enough to invest. So these are all predictions from,

12:43 you know, I mean, Gundlach is a billionaire, like I said, Rosenberg's very well respected

12:47 in the economic field. And there were a few other people that I that I mentioned in the

12:52 story, who still are holding on to this. And I don't know, I, I kind of like the idea that

13:01 we have these people that are digging their feet in. And, you know, this big surprise

13:06 announcement on Friday about job growth, didn't sway them. They're just like, well, the government

13:13 revises their numbers all the time, this will be another time. Or, hey, this is the Bureau

13:18 of Labor Statistics. What about the Federal Reserve's household survey, which shows that

13:24 that unemployment is a lot higher? Or now Rosenberg mentions the Beige Book, the Beige

13:29 Book is put out by the Federal Reserve every eight months, eight times a year. And it's

13:35 the anecdotal, they talk to people and they have anecdotal evidence of how things are

13:40 going out all around the country. So this gives you, you know, the all the statistics

13:45 are the are the numbers. And these are the words that will give you a clue as to what's

13:51 going on among bankers and business leaders, the people who hire and fire all around the

13:58 country. And he says that the latest Beige Book, which came out in January, and the one

14:02 before that, which came out in November, are the most pessimistic about the future of the

14:08 economy that he's ever read.

14:10 Wow. And this is despite, despite everyone having such optimism about the economy.

14:17 Well, we all pick the number, we all pick the facts that we want to believe, right?

14:23 And I'm not saying and I'm not sitting here, you know, calling a recession, I'm not qualified,

14:27 and I would never do that. But I'm also not sitting here and saying there won't be one,

14:30 because I'm not qualified for that either. I'm just saying that human nature tells us

14:37 that, you know, we have a certain momentum. And there's a certain momentum right now for

14:43 saying we're out of the woods, there won't be a recession. Which I don't think anybody

14:48 says exactly, because they never want to just they never want to be that definite, because

14:55 if they're wrong, they end up looking like fools. But they do have, there is, like I

15:02 mentioned earlier, just this momentum to feel like we've dodged this, you know, a downturn.

15:10 Well, let's keep talking about some of the reasons that there may be a recession, a government

15:16 shutdown. So how can that play a role in a recession occurring?

15:21 Well, the government stops paying its debts, you know, all the you know, I don't know how

15:25 big I used to know the number for for how big the Treasury market is, it's got to be

15:30 in the trillions. If they stop paying their debts, what you know, all those all those

15:34 people in those funds and those pension funds and the organizations that are invested in

15:40 and they don't get paid. The government also has a had a role in sending up the stimulus

15:48 checks last year. And Rosenberg says that two thirds of the growth of the American economy

15:54 last year was you could you could that the government stimulus was responsible for that.

16:03 And there won't be any more government stimulus coming. That was all the pandemic stuff, right?

16:08 Where people got checks in the mail. I mean, there was, it was amazing. It was amazing.

16:15 And sure, just like anybody else, I'd love to get another check this year, but it's not

16:20 going to come. So if Rosenberg is right, that two thirds of GDP, GDP growth was based on

16:27 that those government stimulus checks. I mean, I think he said it gives it a gives it a positive

16:34 glow. And we won't have that positive glow in 2024.

16:38 Well,

16:39 I'll give you another one.

16:42 Sure, give me another one.

16:45 I'll give you one more. The conference board has the index of leading economic indicators

16:53 and it's contracting. And although everything, although a lot of, you know, the inflation

17:00 and employment are the two main numbers. And those are good, right? Inflation's cooling,

17:09 unemployment is down. I mean, it's been that's been under 4 percent. The unemployment rate

17:13 in the country has been under 4 percent for quite a while now. And those make everybody

17:18 happy, you know, justifiably. But there are other numbers. And one of them is the index

17:24 of leading economic indicators. And there's a whole bunch of things that that that they

17:28 measure. And that has been down. That was down all last year in 2023. So folks aren't

17:35 as optimistic. These folks aren't as optimistic due to that sort of thing. And there's, you

17:43 know, there's there's evidence we had New York Community Bank last week lost, you know,

17:49 almost 40 percent of its stock value because they were exposed to, you know, they have

17:57 commercial real estate loans that are can't really be renegotiated right now because the

18:04 interest rates are so high. I mean, they can be, but it would be money losers. Right. So

18:09 if you remember last year, we had Silicon Valley Bank and Signature Bank go under because

18:14 of the same thing. Well, it seems like New York Community Bank, which had actually bought

18:20 a bunch of the assets from Signature Bank, is having a hard time because they had to

18:26 set aside a whole bunch of cash in case those loans went bad. Those commercial real estate

18:32 loans went bad. And I want to go back to unemployment for a second. You mentioned that.

18:39 Let's talk about job cuts and layoffs that are likely to happen throughout 2024. And

18:45 how how could that play a role in impacting the economy?

18:48 Well, that's one of the things that the the contrarians pointed out, that the the overall,

18:58 you know, we get 353 jobs created in January, according to the Bureau of Labor Statistics.

19:05 But other measures are not quite as optimistic, not quite as rosy. And that is, you know,

19:12 there was over 100,000 layoffs last last month. So what they one of the one of the common

19:21 threads was you have, you know, one statistic saying one thing, thumbs up, another statistic

19:29 on the same metric, employment, giving the thumbs down. And with the the numbers everywhere,

19:39 meaning that they're, you know, up and down, and you can't really get a hold of a consistent

19:46 steady narrative on that, that one of the things that they do is they go to the they

19:50 go to the anecdotal. So they go to the Beige Book, and they read about how, you know, different

19:56 companies and different banks in different states are doing, as reported by the Federal

20:02 Reserve. And they find that things that things are, you know, if you listen to the stories

20:07 of people that are on the ground, that make up the economy, this the the story is not

20:14 that good. You know, I said before, Rosenberg says it was the worst of any of the recessions

20:21 this this month, and well, it was last month and October, I think, no, November. But anyway,

20:28 the last two Beige Book reports were the least were the were the worst, were the gloomiest.

20:35 Well, Bob, we are going to let your readers go and see what the other reasons are that a

20:42 recession may happen. But I do want to know, you spoke to various people, you spoke to

20:48 Rosenberg, DiMartino Booth, Love Forge, now am I saying that right? Okay, LaVornia, and

20:57 what gun luck, right? Yeah. So how did you go about balancing all of these different

21:04 viewpoints?

21:04 Well, you have, you know, it's like a seesaw. And you have this huge boulder on one side.

21:13 And that's the, that's the bearish people, the people that are happy. And then you have

21:19 these four economists and investors, you know, gun luck's an investor, the other three are

21:25 economists. And they're just on the other side of the seesaw. And they're up in the air.

21:32 There's more of them. I think these, these are the four that I that that I found, and

21:38 that would talk to me and that I thought had some interesting arguments. So it was more

21:46 of a case of saying, hey, let's balance what everybody else is saying. There's this, this

21:52 this avalanche of, of happiness and goodwill. And on the other hand, these four people who

21:59 represent a larger constituency, but I don't think that there's a whole lot of people that

22:05 are shaking their fists at the clouds right now saying there's going to be a recession,

22:09 and I don't care what the Bureau of Labor Statistics says, you know, so that was that

22:14 was the that was the, the, the effort was in balancing every all the good stuff out

22:21 there with what the people who are saying that things aren't going to be so, you know,

22:25 that's going to rain. It might be sunny now, but it's gonna rain.

22:29 It's gonna rain. What surprised you the most or challenged your understanding of the

22:35 economic landscape throughout your reporting?

22:37 Well, I think, you know, I don't talk to economists that much, you know. And my life's

22:46 much too boring for the thrill of talking inverted yield curve. But one of the things

22:53 that that struck me was that there was a lot of they were, you know, they were really,

23:01 economists usually are numbers people, right. But what struck me was these four were very

23:08 interested in what people said, the word part of it, there's the words and the numbers,

23:12 the numbers, you know, we all we talk about, you know, unemployment rate, or, you know,

23:17 CPI, the inflation measure, talking about GDP, some of us talk about GDI, I had never

23:25 heard of GDI before I'd started working on the story. But now I, you know, now I'm

23:31 obsessed. But the amount of now I know that everybody wants to find things out there that

23:39 are evidence that prove their thesis, you know, I'm right. And everybody else is wrong.

23:46 But I was impressed on how much they, they put stock in what the folks in the Beige Book

23:53 said, what, you know, people they talk to, just how anecdotal information was telling them

24:03 things that the numbers didn't. And they were trusting the anecdotal stuff. That's really

24:08 what surprised me. I thought economists were all about numbers, big numbers, you know,

24:13 very, very detailed numbers, very narrow in the scope numbers, you know, dry goods orders

24:22 from the Baltic states, or, you know, whatever it was that, that economists look at to say,

24:29 Oh, there won't be any recession, look at this, you know, non farm Canadian payroll,

24:36 among, you know, people under the age of 12, you know, or whatever it was, you know, I'm

24:41 trying to be funny, and I'm failing miserably. But, you know, all these are numbers, you

24:47 know, all these, like, you've never heard of some of the numbers. But that's what impressed

24:52 me is like, they're going to say the numbers say one thing, the numbers are actually confused.

24:57 So the numbers are confused, I'm going to go to the to the to the on the ground, you

25:03 know, I'm going to go to the banks, and I'm going to go to the businesses, I'm going to

25:06 go to the manufacturing companies. And I'm going to find out what people are saying about

25:10 the economy. And that's going to color my, my perception and my prediction about what's

25:16 going to happen next. I was impressed with that. Because I'm a word guy. You know, I'm

25:21 a reporter. I mean, I kind of a numbers guy too. But you know, it's mostly I you know,

25:26 if you try to write a Ford story in all numbers, it doesn't really work. You got you need the

25:31 words. I'm a word guy.

25:33 Well, Bob, this has been so interesting. Thank you so much for joining me today.

25:39 My pleasure. Thanks for having me.

25:41 Absolutely.

25:43 Thanks for having me.

25:44 Transcribed by https://otter.ai

25:46 Edited by https://otter.ai

25:48 Transcribed by https://otter.ai

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