The Government is Trying to Stop This From Happening… (It Can’t)

Summary

The video discusses the ongoing recession predictions and the role of government spending in delaying an economic downturn in the U.S. Despite a 50% chance of recession predicted by the Federal Reserve's model, the economy has continued to show strength, particularly in the stock market. High government spending, including the creation of government jobs, has helped keep unemployment low and GDP growth positive. However, small businesses are showing signs of struggle, and traditional recession indicators, such as inventory reduction, are emerging. The speaker suggests that while a recession might be delayed, it is not being fully prevented, and the bullish stock market trend may continue.

Takeaways

• 😀 The Federal Reserve Bank of New York's recession prediction model has shown a consistent 50% chance of a recession for the past 16 months.
• 😀 Despite recession predictions, the U.S. economy has avoided a downturn so far, with key indicators like unemployment, GDP, and personal income remaining strong.
• 😀 Government spending, which has reached 23% of GDP, is playing a crucial role in propping up the economy and delaying the recessionary cycle.
• 😀 The U.S. government has been hiring approximately 50,000 workers per month for the last two years, helping maintain a strong job market.
• 😀 While government job creation has been high, it has not stopped recessions from occurring in the past, indicating that current trends may only be delaying, not preventing, a recession.
• 😀 Small businesses, a vital part of the U.S. economy, are showing signs of economic stress, with decreasing profits and inventory levels, signaling underlying economic struggles.
• 😀 The U.S. government deficit, representing 6% of GDP, suggests that the government is effectively 'printing' money, which boosts short-term economic indicators but creates long-term fiscal challenges.
• 😀 Despite the general concern about recession, technical analysis of the U.S. stock market continues to show bullish signals, with the S&P 500 maintaining a strong upward trend.
• 😀 The recent correction in the S&P 500 does not necessarily indicate an imminent breakdown, with the market still trading within a strong technical structure.
• 😀 The trading strategies of investment firms, such as Braavos Research, continue to be guided by bullish price signals, allowing for profitable trades even amid market volatility.

Q & A

Why has the Federal Reserve's model been predicting a 50% chance of recession for the past 16 months?

The Federal Reserve's model predicts a 50% chance of a recession due to aggressive interest rate hikes, which historically have been followed by recessions. The model has been flashing a recessionary warning since early 2023, though no downturn has occurred yet.

What role has government spending played in avoiding a recession so far?

Government spending has played a crucial role by boosting GDP and supporting the job market. In particular, high deficit spending, which is essentially injecting money into the economy, has helped maintain low unemployment and economic growth, thus delaying a potential recession.

How does the Federal Reserve's interest rate policy relate to unemployment and recession?

Historically, the Federal Reserve's interest rate hikes have preceded recessions. Typically, about two years after significant rate increases, the unemployment rate rises, signaling a recession. Despite high rates, the unemployment rate has remained relatively low, preventing a recession so far.

What does the NBR use to determine if the U.S. is in a recession?

The NBR (National Bureau of Economic Research) uses four key metrics to classify a recession: unemployment, personal income (wages), GDP growth, and industrial production. As of Q4 2024, none of these indicators are showing signs of a recession.

Why is the government job creation rate significant in assessing the economy?

Government job creation is significant because it indicates increased government spending and employment, which supports the economy during times of weakness. The U.S. government has been hiring at record levels, with 50,000 new government jobs added monthly over the past two years, helping to stabilize the job market.

How does the level of government job creation today compare to past recessions?

While government job creation is at historically high levels, it has not prevented recessions in the past. In fact, government job creation has often been ramped up in the lead-up to or during recessions, indicating that it may delay but not necessarily prevent a downturn.

What challenges are small businesses facing, and how does this indicate economic strain?

Small businesses are struggling with declining earnings and reduced inventories, which are signs of weaker economic conditions. As small businesses represent a significant portion of the economy and workforce, their struggles suggest that the broader economy may be under strain despite government interventions.

Why is a decline in small business inventories concerning for the economy?

A decline in small business inventories is concerning because businesses typically increase their inventories in anticipation of strong demand. When inventories drop, it suggests that businesses are not expecting robust economic growth, which is a common signal of a potential recession.

How are technical signals in the stock market suggesting that a recession may not happen soon?

Technical analysis of the stock market, particularly the S&P 500, shows that the market is still trading within a strong bullish channel. Despite some corrections, the overall structure suggests that stock prices could continue to rise, implying that a recession may not materialize in the near term.

What has been the performance of stock market trades this year, according to the script?

The stock market trades have performed well, with over 20 winning trades and an average win of 177%. This performance has been driven by careful technical analysis and strategic entries, including profitable positions in the S&P 500, Bitcoin, and Palo Alto Networks.