Folks cancel everything because the crisis is worsening. The latest GDP report came out this morning and it is showing a signal that we have not seen since the Great Financial Crisis of 08.. So as you know, the last two quarterly GDP prints were negative. The Q1 and the Q2 came back as consecutively negative.

But then the Q3 report this morning came out and it showed a positive so-called return to growth up 2.6 percent, quarter over quarter, seemingly reversing the trend. Well, not so fast. We'll go into a little bit later how this was calculated. So I wanted to go back and look at the context of how many other situations.

This kind of report happened right before a great crisis. Let's start with the Eversided 08. So in fact, in Q1 of 2008, GDP was negative 1.6 percent. But then we had a dead cat bounce the next quarter to 2.3 percent up and that happened right before the overall collapse started.

You go back to the.com bust in Q1 of 2001. You got your first negative GDP print. But then what happens, you get the very same ear. 3.

Dead Cat bounce the very first quarter of the recession. Now, it's important to keep in mind that this is using the never definition of a recession, which is declared in hindsight, usually looking a year back and after a year of terrible economic Numbers Never Like, okay, yeah, maybe that was a recession. The fact of the matter is that the first.com bust quarter was actually technically a positive GDP Print 2.5 percent up. And now look at the Volcker era recession in the early 1980s.

you had a negative 2.9 percent GDP print for Q2 of 1981. But then you had a five percent plus dead cat bounce and then the economy just fell off a cliff for the next two years. In the early 1970s stagflationary crisis, you had a contraction and then a dead cat bounce and then boom. a year-long recession.

same thing in 1960. Negative GDP Growth then did a dead cat bounce right into a recession. So what do all of these periods have in common? Well, each time before a recession, they had one sample of negative GDP growth and then a dead cat bounce. And then the recession progressed afterwards and economy means fell off a cliff.

So what is the point that I'm trying to make here? Am I Making a pattern observation Saying that oh, the pattern suggests that we must have a recession in the future because we've just had that dead cat bounce. No, I'm not making that argument. and in fact, you can't make that argument just based on the pattern alone, because quite frankly, I could find you about three or four other periods in the last 75 years or so where you had a negative GDP quarter that just ended up bouncing back afterwards. But the fact of the matter is that you can't find any that come and go and correspond with the level of fed tightening that are fed right now is embarking on.

That's a whole other. Dynamic You put the pattern and the fundamentals together and you get the push off the cliff. So then that leads us to two possible answers to what is going on right now: Number one, this is a dead cat bounce that leads us into more down trending quarters in the future. or number Two Powell and the FED have successfully engineered a soft landing and these are the beginning stages of that.

Now let's go ahead and disregard option one for a second. Could this be the early signs of a soft? Landing Well, in order for this to be the beginning of a soft Landing you need to assume three things are true: Number one, interest rate hikes plus Qt are already priced into the economy. You have to assume that is true. Number two, there are no new hikes or QT coming.

You have to assume that is true. And lastly, number three: Inflation you have to assume will Trend down fast enough so the FED won't have to be any more aggressive than their current policy trajectory States So the first one we know is false. It typically takes six to nine months to see the impact of rate hikes on the economy. Some argue as much as 12 months.

We'll just assume six months if you go back six months. In monetary policy, we were at a target range of about 25 to 50 basis points. Right now, we're technically at 300 to 325, but using the logic that it takes about six months, Well, it's going to be another six months until the full impact of those rate hikes are priced in and we're continuing to raise rates. Which leads us on to the second one.

The second assumption is that there are no new hikes coming. We know that this is false as well. We have a new hike coming in the next week on November 2nd, probably probably 75 basis points and more coming in meetings after that, and then number Three Inflation will Trend down fast enough, so the FED won't have to be any more aggressive on their current policy trajectory. This is the only one that may be a possibility in the near future, but it's as of right now not the case and shows no signs of being the case.

In fact, on the Lost CPR report, all item average inflation is getting worse, not better When people say oh, inflation's not a problem anymore. Well, the last report it showed it heating up again, so it is a problem. It's a worsening problem and the Fed's current rate hikes have not caused inflation to go down yet. at least not month over month.

Maybe it would have been worse if they hadn't gone on this trajectory, but we still have a lot more for the economy to factor in. If you want inflation to really go back down, probably need to be pushed into a recession. So in my view, and I don't know about your view. but in my view, these three assumptions are wrong at best.

So why is it that you can't have a soft Landing without these three assumptions being true and being assumed well? Because if inflation remains hot, the Central Bank needs to get the economy to slow down the circulation of money. Inflation is the hyper circulation of money. In order to get it down, you need to contract that circulation. Which means that you have to gut punch the economy until Capital just doesn't circulate around as much fish.

GDP report today just shows more evidence. More evidence that the FED isn't effectively slowing down the economy and inflation will continue to be elevated. Incoming reports and thus, the FED must must be even more aggressive. And they're going to look at this and say okay, we have to be a lot more aggressive than otherwise we would have.

We are in a situation where really no news is good news, good economic news just means the FED has to be more aggressive. If the economy is doing well, That means people are spending and spending and spending. Which means more and more inflation. If the economy is doing bad, that means that people aren't spending.

people are being gutted. Which means companies are going to be reporting earnings. which is also bad. so it's kind of like two sides of the same negative coin.

Obviously, we're also in a situation right now where we have a bear Market rally because we are overdue for one, but that's a whole nother. But anyways, back to the print. Why was this print positive? Well, according to the Bea who makes the prints, this was due to five major reasons: Number One: increases in exports, increased Federal government spending, increased state and local government spending, increased consumer spending, and increased non-residential fixed investment. But you go over to CNBC quote.

Overall, while the 2.6 percent Rebound in the third quarter more than reversed the decline in the first half of the year, we don't expect this strength to be sustained. Exports will soon fade, and domestic demand is getting crushed under the weight of higher interest rates. So a big reason that exports are high and the trade deficit decreased is because businesses have had excess inventory and they are selling it around the world at reduced costs. However, eventually you go through that excess inventory and then that trade deficit widens again and I think the strong dollar is going to make that very, very apparent.

And according to Bloomberg, if you go ahead and you strip trade and inventories out, final sales to domestic buyers showed an annualized growth rate of just 0.5 percent That compares with an average of almost 2.6 percent over the five years before the pandemic. So the main motivating sector is about to be stripped in the coming quarters. And if you stripped it in this quarter, it would have only been a a GDP print of plus 0.5 percent, which is like less than a fourth of what the print came in. As and where's the other growth coming from? Well, largely government.

According to the Bea, the increase in Federal government spending was led by defense spending. The increase in state and local government spending primarily reflected an increase in compensation of state and local government employees. So you had a lot of the positive parts of this report coming from the offloading of excess inventory and the stacking up of excess inventory and increasing government expenditure. Things that quite frankly are not sustainable measures of economic growth.

But the one part that is being debated on heavily is this increased consumer spending part. Because this is a bit more mixed. we know the consumer spent a lot of money in Q3 but look at what the Bea data says quote within consumer spending: An increase in Services led by health care and other services was partly offset by a decrease in Goods led by motor vehicles and parts as well as food and beverages. So people are spending more on services and essential services like health care and less on Goods Less on luxuries.

We Are continuing going to see that post-pandemic shift that we saw where all of a sudden in the pandemic everybody was buying goods and goods and goods and then you had massive supply chain shortages. Well, now you're getting back to a economy that's more based on services and especially essential services like in the healthcare space. But obviously, as the consumer gets more gutted into 2023, I wouldn't expect consumer spending to remain hot, especially when adjusting for inflation. Now this report though I will say it was mixed consumers.

Despite the fact that they have to spend more because of inflation, they're also just spending more of their money on their own. which is the American Pastime. Of course we know that they're taking out debt. They're doing all these things.

But for the moment, for this: Q3 they spent more money than they otherwise would have. even if you adjust for inflation. And Bloomberg's economists really sum this up nicely. Quote: a return to economic growth in the third Quarter obscures continued signs of a Slowdown and components that provide a clearer, cleaner signal of momentum.

The FED is likely to view the weaker components as intended consequences of its tighter monetary policy and not as reasons to back off the tightening cycle just yet. So in conclusion, my viewpoint is that this report is not the good news that many analysts are making it out to be. but keep in mind that a watched recession never boils. Contrary to popular belief, If you look back in the last 75 years, there are no economies really, except for maybe 2020, where it came somewhat close because the government shut everything down.

But there are no economies where the economy fell off a cliff overnight. In most situations, it has been a ebb and flow downward for quite a long time. In certain periods where it seems like things were recovering and then it ends up getting worse. And so it's very, very important to stay diligent and not get confused with the smaller details.

You know, the way that I see it is that if analysts are right and this new report means the economy is a lot stronger and faster than expected, well that simply means the FED is going to have to go even farther with rate hikes to get inflation down. And if they are wrong and this is the last hurray for the economy. Well then history will repeat itself on its own and we'll see further dipping quarters. So until inflation is down I Say, don't trust any of these numbers, look at the bigger picture.

the FED is at War or with the economy as long as inflation is overheating. Anyways, let us know what you think down below. What are your thoughts? Are we heading for a recovery? or is this the beginning of a massive recession? Are we in the strongest economy ever? or are things pretty much across the board weakening? Make sure to hit that ravishing like button and subscribe and we will see you in the next video.