June 2021 Economic Update & Warning

As mentioned in my last Economic Update in August 2020, Covid-19 hit us in March 2020; so now we are barely 15 months out, and have experienced a very quick recovery from market lows about a year ago. In fact, many experts feel it’s too quick of a recovery caused by the Virus scare and how hard it impacted the travel and entertainment industry. I had mentioned in 8/2020 that we would still be in a quasi-recession early 2021. That may have happened briefly, but we have completely recovered from that recession as T&E businesses are back to almost full capacity again.

In my opinion, and that of many economic researchers, the U.S. Economy is very close to another deep recession. We are back to Dow Jones high records and continuing on an 11-year bull market (Since 2010). Therefore, there is a strong warning about our economy’s future. Please pay careful attention to the reasons why I think the impending recession may even be as bad as a ‘Depression’, exceeding the stock-economic crash of 2008-09. This potential ‘Depression’ is normally triggered by some type of major domestic event such as a mortgage loan fraud, Conflict in Oil producing Middle East, Sharp Inflation, or a Peace-Keeping war effort.

Historically, what follows the ‘Trigger’ is a stock market crash / decline of over 50 percent. This usually takes about 4-6 months before stocks hit their bottom. Afterwards, as you might remember, Real Estate and land values quickly follow and may lose over 60 percent in value. I say all this, because economic growth cycles (“Bull Stock Markets”) almost always follow a pattern of 7-9 years before they drop because of a recession trigger. This month indicated we are still in a Real Estate and Stock Market growth bubble that has finished 11-full-years. Balloons must pop eventually, and the longer this growth cycle continues, the more massive the recession – depression will be. The Coronavirus never caused a true Recession last year.

Although the unemployment rate was over 8% a year ago, today it’s about 6.1 percent1. I personally expect a slower drift down for the unemployment rate this year to about 5.8%. The unemployment rate however, won’t reach Pre-Pandemic levels (3.6%) until about the end of 2023. Again, although the unemployment rate is slightly high, nothing is to say that is a “Recessionary” level. Expect retail sales of large ticket items and “discretionary spending – luxury purchases” to drastically drop off if we ever hit a true Recession. When an Economist looks at Economic indicators, they not only look at Jobless claims, but also Interest Rates and Lending Rates. The Prime Rate is the interest rate that banks use as a basis to set rates for different types of loans and lines of credit, with the exception of mortgage rates. It currently is 3.25%2. One year ago, the Rate was about 4.0 %. This lower annual direction is expansionary to the economy. This may be a “key reason” the economic recovery from the Covid scare was so quick. Good news for stock market participants, but a reason to consider a re-balance of stocks (and stock mutual funds) toward holding less.

Commodities as of late May (2021): Gold bullion has stabilized (year over year) in per ounce prices; this month hitting a price of only $1,880 per ounce3. Down roughly $30 per ounce from a year ago. Silver bullion has remained a good investment over the past year, this month it is close to a 5-year high of almost $28 per ounce4. After a fantastic drop in price last March 2020 to roughly $12-13/barrel, “West Texas Intermediate” Crude oil has increased over the past 15 months to an annual high of $66/barrel5. The Crude Oil price outlook mirrors the economic growth outlook, therefore there is little hope that this price trend will continue until the end of 2021. Oil is up over 445% in price since 3/2020. This is a warning if you are heavily invested in Oil or Gas stocks; to also consider a rebalance and realization of profits.

Notes: 1) www.bls.gov, 2) www.bankrate.com, 3-4) www.kitco.com, 5) oilprice.com