Speaker 1: The big economic news yesterday, GDP down for the second quarter in a row.
Many of the haters said, David, you will never cover this because you have to defend the Joe
Biden economy to the death. Speaker 2: And I.
Speaker 1: Know, guys, I don't care. I don't care about defending Joe Biden. I don't care
about Democrats. I'm not a Democrat. I'm just a progressive. I report to you what is not what I
would like to see or what someone else says should be. GDP fell 0.9% in the second quarter of 2022.
This is the second straight decline and it is being called a strong recession signal. There is
a traditional delineation of what is a recession, which is two consecutive quarters of declining GDP
and indeed on an annualized basis, GDP fell 0.9%. That's following a 1.6% decline in the first
quarter. And this was worse than the Dow Jones estimate of a gain of 0.3%. The drop came from
a broad swath of factors, including decreases in inventories, residential and nonresidential
investment and government spending. Now, I am terrible at this. I believe humans are terrible
at this predicting economic futures. I don't believe we are headed to a recession. I believe
we are going to have better inflation numbers in a couple of weeks. In mid-August, we're going to
get the July numbers. I believe they're going to look good. I think there will be a nice little
potentially a little, little market rally there. It's not actionable. I'm not doing anything. I'm
not buying, selling, suggesting any one of these is just a prediction that I'm making.
I think Q3 is going to end up being so-so and Q4 is going to be better. Now, that prediction is
worth what you paid for it, which is nothing. Okay, but this is my guess, and I'm going to
tell you a couple of different things. Why? First and foremost, there is this conventional wisdom,
which is often not that wise or conventional, which is the American economy, by definition,
has a recession every 6 to 7 years at the most, every ten. We are overdue for a recession.
I don't tend to believe that that is hard and fast. It's possible, but difficult
to avoid recessions, but it requires a very balanced stimulation of supply and demand.
And you can, in some theoretical sense, do this via fiscal stimulus,
low interest rates, preventing shocks like the 2008 financial crisis due to mortgage
products that were predatory and fed into the feedback loop. And now it never happens,
right? Like historically it just hasn't happened. So we've had recessions on this regular basis.
I don't actually believe we have to have true recessions, but we are certainly going to have
pullbacks and we've been experiencing a pullback. I am right now partial to the idea that we're
getting to the end of the pullback rather than only the beginning. If you look at the reasons why
the decrease in GDP took place, they're not the most concerning reasons. I'll give you an example.
Reduction in inventories. Why would their reduction in inventories lowers GDP?
Why would you have a reduction in inventories? Well, one reason can be that people are buying
everything. When people are buying everything and consumer demand is so strong, it's not exactly a
negative sign that inventories have declined even though it lowers GDP. That's just one example.
Second, there has been reduced federal government spending. This is usually what right wingers want.
When there is government spending, the right wingers go, we can't afford it.
Inflation, it's bad. It's all terrible. Well, you know what happens when the government spends less,
the GDP goes down. That's another reason that GDP is down, but it's not actually representative of
private industry struggling. And again, private industries is doing very well.
Residential fixed investment has declined. Nonresidential fixed investment like
these are not the GDP decreasing factors that to me signal that a recession is coming. Now, again,
I'm an idiot. I don't know anything. And I think even the people who do know stuff are
terrible at making predictions, but it's just not feeling when you look at demand is really high,
inflation is coming down. We are close to full employment. Tons of businesses have open jobs
that they want to hire for. This doesn't. Feel. Oh, my God. Am I saying feel? Do facts care about
my feelings? No, they don't. This doesn't feel like we're heading into a recession. And I don't
think that the next six months are going to be disastrous. Now, would I take that to the bank?
Hell, no. What am I doing? I'm doing the same thing I always do. I've got my asset allocation.
It's, you know, 15% cash, 3% crypto. I've got my real estate, I've got my stocks and bonds,
and I just invest monthly regardless of what the market is doing. I'm not I don't
even trust myself enough in these predictions to go and make any changes to what I'm doing. But
that's my take on this, and I know that. And by the way, I don't credit Joe Biden for
any of it. I would be it. Listen. I was right there when Barack Obama remember Barack Obama.
Speaker 2: Obama. Speaker 1: When he was running for reelection
and Mitt Romney was running against him. I said, I think the economy will be good the next four
years. Whether it's Romney or Obama, it might be a little different, but it's basically going to
be a strong economy and it just was going to be a strong economy. If it was. If it was Romney,
then I would have had to say the same thing. It was pretty strong. During a period under Trump,
the economy was fine. I would even say I wasn't on here saying, Oh, Trump's economy is actually
terrible. It was fine. Job growth slowed down a little bit than where it was under Obama,
but stock market was good, consumer confidence was good, inflation was low. I don't I don't do the
political games that many people do around this stuff. And right now, my sense is this is not the
start of some massive recession. Let's see, you know, four months from now, six months from now,
seven or eight months from now, come back and check with me and we'll see where we are.