Gary Shilling's 8 best quotes from a new interview.

American financial analysis and commentator Gary Shilling, a regular figure in publications including The Wall Street JournalI, The New York Times, and Forbes recently completed an interview and the following is a series of my takeaways from Shilling's 8 quotes from the article regarding the current stock market, the possibility of a recession, and commercial real estate (CRE) bubble. Shilling was credited with correctly forecasting economic events including the housing crash in 2008. 

Quote 1) Most forecasters on Wall Street are brought in to make bullish predictions. Even if a forecaster makes a correct bearish prediction, its has a negative impact on job security.

Quote 2) Shilling has a firm opinion that stocks will decline from 30%-40%, peak to trough. Shilling's forecast indicates a 2,900 point fall for the S&P 500.

Quote 3) The Fed's credibility problem is a strong reason why they are going to kill inflation. If the Fed fails to kill inflation then their credibility will be impaired heavily. 

Quote 4) If the Fed is going to kill inflation then a recession will be the price of that decision 

Quote 5) Shilling says that there will be a recession coming in the near future. The inverted yield curve, LEI's and the Fed's battle with inflation are all points Shilling referenced for an upcoming recession.

Quote 6) It will be well into the next year before the weak economy expresses itself and inflation is cut back. 

Quote 7) Shilling references the mid-2000s housing bubble and crash and says that the major banks had to be bailed out as well as the mortgage lenders and so on. 

Quote 8) The biggest bubble right now is CRE. It is a bubble beginning to crack and many buildings have been stifled by the remote working boom. 

Article: https://markets.businessinsider.com/news/stocks/stock-market-outlook-crash-recession-commercial-real-estate-bubble-shilling-2023-11

The Haitian-Dominican Republic Water Dispute

    Two countries riddled with contentious history have developed a new feud to add to their everlasting list. Haiti and the DR share one island in the Caribbean, but that is where the sharing ends. The two countries fought in the 1800's in which the DR was able to gain independence over the French backed Haitians. Since then, the two have developed vastly different cultures, a passionate hatred for one another, and have gone completely different paths. Haiti is a nation experiencing everything that go wrong in a country including a presidential assassination in 2021, gangs overrunning the streets, and poverty sweeping the nation. The Dominican Republic on the other hand continues to be a tourist hot spot as 16% of their total GDP comes from the tourism industry. 

    Recently in September, the Dominican Republic sealed its borders and froze Haitian visas over a dispute involving the Massacre River, a river that stretches 220 miles of the countries borders. The DR claims full use of it, however the Haitian government says they also have full right of use. The two countries met for negotiations but after 11 hours, nothing was resolved. An arising issue that comes with this closure of the border is Haitians rely greatly on trade with the DR. As the DR is Haiti's third largest trading partner, Haiti's already high starvation rate could increase. 

    The conflict stems from a 1929 agreement between the countries in which they are both granted access to the water. The problem is the Haitian government has begun an excavation of the river which Dominican officials say will severely affect their countries farmers. The Massacre River is already home to 11 canals on the Dominican side, so many wonder if this response was somewhat of an overreaction. Since then, the DR has partially opened their borders but the water dispute persists. Haitians continue to worry about their current and future food supply as the lack of water greatly hinders their agricultural industry. 

https://www.nytimes.com/2023/09/14/world/americas/dominican-republic-haiti-border-water.html

Anger Is What’s Driving the US Economy

 In this Bloomberg article, there was a discussion about the U.S. Economy's interest rates being high while consumers are continuing to purchase as if rates were along the historical average. The high rates of consumer spending, values that are surpassing pre-pandemic averages, are driving economic growth. This spending behavior could be explained by the rate of inflation dropping from 9% this time last year to about 3.7% today. "And yet that very same inflation has also boosted incomes, which have risen even after adjusting for inflation." 

However, this does not mean that American consumers are happy with the rise in prices. Despite their income increasing due to inflation, consumers are consistently posting negative spews about how items have become too expensive. The article suggests this behavior can be described as a "frequency illusion," where as more media sources cover high inflation, then more consumers are looking for examples of inflationary prices to confirm this thought. 

What do you think is creating the gap between attitude ("these prices are too high") and action (consumers spending at higher rates compared to previous years)? Will this spending continue to increase as we approach the holiday season?

https://www.bloomberg.com/opinion/articles/2023-11-13/anger-is-what-s-driving-the-us-economy#xj4y7vzkg

economic impact on individuals thoughts

     Americans are saying that the economy is horrible when people ask them questions for the polls but in reality is it terrible? Unemployment is so low, inflation is dropping, and the big kicker is that people are still spending loads of money! 

    Although Americans are saying that the economy is bad, it is not topping us from racking up credit card debt for the leisurely activities people want to do. This article specifically mentions the fact that American have spent LOADS of money on Taylor Swift tickets, but we can see this in a bunch of other purchases made by Americans. 

    In the article it mentions that young adults cannot afford a house with the high prices and mortgage rates. This all goes hand in hand together with young adults being okay to spend money on other tangible fun things to do rather than a house and to live paycheck to pay check. It is really interesting and I wonder what I am going to walk into when I graduate this upcoming Spring. 

https://www.cnn.com/2023/11/08/business/consumer-spending-us-economy-nightcap/index.html

Space Exploration and Economic Growth: New Issues and Horizons

Space can connect back to the economy in many ways. Space is a factor in the growth and development of modern economies (space economics). Over the past few decades, technology and policy development have led to an increase in commercial interest in space, with two high-income countries -United States and China- currently launching the most payloads to space.

Space technology requires a significant amount of capital investments because of their potential to combat secular stagnation; however,  government policies are enacted to govern human activity in space and prevent privatizing resources. Secular stagnation refers to a state of suffering from low private demand, requiring very low interest rates to sustain demand and achieve potential output. Even so, modern theories suggests the need to highly increase both aggregate demand and aggregate supply through capital investment, growth in productivity, or growth in population. If it were to succeed, the demand in the US would have increased in around 15. to 3.0 trillion to demand over the next two decades. 

The potential of space as a large-scale project to reinvigorate economic growth through the use of mineral resources and improve human well-being. The clean energy transition could lead to substantial increases in the demand for certain minerals. The trade-off being an increase to environmental degradation and the high cost of mining minerals in space compared to the low launch costs is something to think about. 

https://www.pnas.org/doi/10.1073/pnas.2221341120

Europe's Economic Powerhouse Tests A Shorter Working Week

     In an attempt to combat the worker shortage, many firms in Germany are adopting a 4 day work week to try and stay competitive. The organization 4 Day Week Global is spearheading this effort of workplace reform by encouraging firms to participate in this experiment. With the main goal of avoiding a loss in productivity, 50 firms will be utilizing a 4 day, 38 hour work week starting in 2024. Some of the other benefits that firms already utilizing this system claim are increased worker motivation and productivity, savings on fuel for workers with a long commute, and better social and family lives. Many firms are also offering shorter work weeks without a decrease in salary. 

    According to a study by the Hans-Boeckler foundation, about 81 percent of the German workforce, along with myself, supports a 4 day work week. And for those Germans who do not support this, they are still currently able to work for up to 48 hours. Some critics of this change argue that it will inevitably lead to a decrease in overall output. especially as the larger baby boomer generation begins to leave the work force. 

    While the 4 day work week is a far more ideal situation for many people, I think we are a long way away from being able to implement it at a large scale. As long as there is a near global workers shortage, I do not believe that it will be feasible. As the cost of living continues to rise, couples are opting to have children later and later in life, if at all, due to their financial situations. Until we can solve these issues, I do not we will see a 4 day work week in the United States. 

Source: https://www.barrons.com/news/europe-s-economic-powerhouse-tests-a-shorter-working-week-69dd83ee

The Fed's Tenacious Attempt to Rebalance; Consumers Still Not Satisfied.

 As the Fed continues to battle a never-ending rise in consumer inflation, many are predicting that there is still potential the Fed would choose to continue to raise interest rates. After last month's announcement, Fed Chair Jerome Powell stated "inflation is still too high." This made it obvious to economists that another rise in interest rates could still be a possibility as the Fed continues to try and combat soaring inflation rates.

Currently, according to CNBC, because many credit cards have a direct connection to the Fed's Benchmark Rate, average credit card rates have spiked more than 20% setting a new all-time measure. 

Matt Schulz the chief credit analyst at LendingTree reflected on the situation expressing "Credit card rates are the highest they have been in decades and will continue to get higher in the next few months." 

Average Credit Card Rate: October 2023 is 24.46% versus September at 24.45% 

I would expect borrowing costs to remain at their highest levels with many economists arguing that the rates will stay this way for a while in order to balance out. The Fed's tactics will continue to influence and affect borrowing and saving rates on a day-to-day basis. 

Source for Statistics: https://www.lendingtree.com/credit-cards/average-credit-card-interest-rate-in-america/

Article Source: https://www.cnbc.com/2023/10/27/federal-reserve-may-not-hike-interest-rates-what-that-means-for-you.html

Inflation Report Showed Prices Were Still High

 While US prices remained high in September, there is an encouraging sign in the form of a slowdown in pay growth, providing some hope for relief from rising inflation, according to the most recent set of inflation data released. According to the Bureau of Economic Analysis, the Personal Consumption Expenditures Index, which measures consumer prices, increased by 0.3% in August and September but was constant at a high 6.2% for the year. In the meantime, the US Federal Reserve's favorite inflation measure, the Core PCE, which takes fluctuating food and energy costs out of account, climbed by 5.1% yearly. This was somewhat higher than the 4.9% gain from the previous month but still slightly below consensus predictions.

The information highlights the continuous challenge the Federal Reserve faces with tackling the greatest level of inflation in the last forty years. The Fed is expected to raise interest rates one more time in an attempt to regulate inflation and reduce demand, but others believe that given the indications of an imminent slowdown in wage growth, this rate hike may be the last of its kind. The outcome of these efforts will be closely tracked as the Fed struggles to keep the economy stable in the face of inflationary pressures.

Source: https://www.cnn.com/2022/10/28/economy/us-pce-inflation-september/index.html

The affect the war in Israel has on the nation's economy.

 The war in Israel has caused many economists to believe that the Israeli economy will become slow, and that the nation's budget deficit will begin to soar as the nation spend more on its military.

Before the war Israel was had low debt, a current account surplus and high foreign exchange reserves, although growth had begun to slow amid high interest rates, rising inflation and expectations. Since the war the Israeli currency has been on a downward trend which has cause the central bank to ask for 30 billion in foreign exchange to support it. 

The Central bank then had to deal with the question of what they should do with the nations interest rate. The two options were to Reduce interest rates to help bolster the wartime economy or keep them elevated to support the war. The bank picked to keep them the same as they focus on "stabilizing the markets and reducing uncertainty.” Along with this the national debt that is also expected to rise as the increase in spending on defense. 

But as Israel continues to fight the fight against Hamas the government is trying to implement policies to help support its people. With focuses being include housing evacuees from combat zones. Banks and credit card companies, under the government’s direction, are providing repayment deferrals and other financial aid to help households and companies. It's going to be interesting to see how the nation's economy does over the next few months. 

Fed Currently Holding High Interest rates

The fed has been raising interest rates in order to fight inflation in recent times to ultimately avoid the occurrence of a recession. They currently have a tight financial condition while there are several economic indicators showing strength. Leading the fed to decide to keep the interest rates at 5.25-5%, a high of 22 years, with the potential to raise them. The goal of this is to lower the inflation to its target of 2%. Hedge fund managers are predicting that the interest rates will stay for the rest of the year and possibly hike even more early into 2024 or even for the coming years. This is largely dependent on whether the recent increase of economic activity will continue to rise or not. Consumer spending has continued to grow causing the third quarter GDP to grow at 4.9%. This is in despite of a rise of 0.3% in prices, which is the highest in months. But some believe that this growth does not accurately represent the true state of the economy. 

https://finance.yahoo.com/news/fed-expected-to-hold-rates-at-22-year-high-but-leave-hikes-on-the-table-094002863.html