You’re so conceited – you’re probably betting on a recession

In my 50+ years of money management, which began back in the hit days of Carly Simon, recessions have mostly been surprises. Now almost everyone is looking forward to it.

The Philadelphia Fed’s Recession Probability Indicator reached a record high. A survey by The Conference Board shows that 98% of US executives expect an economic downturn within 12-18 months, and 99% predict the same for Europe. KPMG found that 63% of Asia-Pacific CEOs expect a recession. In Taiwan, 9 out of 10. This is by far the most long-awaited recession in modern history.

This is where Carly Simon comes in. Unaccustomed to life’s surprises, in her 1971 single “Anticipation” she sang: “We can never know about the days to come, but we think about them anyway.” This is important because, as I noted in this column on Christmas Day, forewarned is forearmed. When you are wary, you are preparing. In short, if you come up with a rhyme that I would never accuse Carly of writing, anticipation is softening.


No stranger to life's surprises in her 1971 single. "Expectation" she sang "We can never know about the coming days, but we still think about them."

Unaccustomed to life’s surprises, in her 1971 single “Anticipation” she sang: “We can never know about the days to come, but we think about them anyway.”


Carly Simon performs on stage, New York, April 1978.

Carly Simon performs on stage, New York, April 1978.


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Recession chatter was revived last spring in connection with the war in Ukraine. Growth forecasts and CEO confidence have fallen. A two-quarter (barely) reduction in US GDP has caused alarm, leading many to think that we are already in a recession. Now the recession warnings are on DEFCON 2. If you think executives aren’t preparing, you have to take them all for idiots. (And if you don’t prepare, maybe you’re an idiot—or “so conceited” that you probably think this column isn’t “about you.”)

In particular, grim business leaders are abandoning growth efforts and cutting spending as if a recession has already arrived. Since April, 364,000 people have been laid off worldwide. The number of vacancies in the United States decreased by 12% compared to the March peak. More than a third of Asia-Pacific CEOs are freezing hiring. Firms tend to be lean and fast.


Candidates line up at a job fair
Since April, 364,000 people have been laid off worldwide.
AP

Carly Simon, 1971 "Expectation" album
Carly Simon’s 1971 album “Anticipation”
Elektra Records

In addition to headcount, the World Federation of Advertisers found that nearly a third of multinationals are slashing advertising budgets, with 75% subjecting spending plans to “tight scrutiny.” Firms are cutting back on operations—speeding up collection of receivables, ditching productivity-damaging meetings, and even ditching free coffee.

This is not how firms have historically operated before recessions. On the eve of the recession in the fourth quarter of 2007, the Business Roundtable Index of Economic Prospects for Business Leaders higher. Respondents expected capital expenditures and employment to rise or remain unchanged. Headlines touted plans for major technology and telecommunications through 2008. The ensuing surprise added to the pain of the recession.

Recessions crowd out the excesses of previous expansions – in fact, this is their reason. But this time, since the spring, firms have been doing this more and more actively. How much spin is left? Enough for a brutal recession and another bear market crash? Unlikely. Widespread anticipation leads to moderate or no recessions.


History favors a positive 2023 schedule.

A survey by The Conference Board shows that 98% of US executives expect an economic downturn within 12 to 18 months.
A survey by The Conference Board shows that 98% of US executives expect an economic downturn within 12 to 18 months.

A mild recession would correspond to a 24.5% drop in 2022 due to the October bear market bottom – a cub by historical standards. And if we do avoid a recession, almost everyone will be shocked—and positively. Stocks move the most because of surprise—hence the bull market ahead (less or more as I detailed Christmas).

Note that since the good data began in 1925, 9 out of 10 recession-related US bear markets have ended long. before the recession has bottomed out. An ounce of prevention is worth a pound of cure. Nearly a year of growing corporate sobriety means any recession may not hit as hard as feared.

How did Carly end? Expectation“It’s the good old days.” Be optimistic.

Ken Fisher – Founder and Executive Chairman of Fisher Investments, four-time The newspaper “New York Times bestselling author and regular columnist in 17 countries.

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