Why A Recession Is Now An Almost Certainty: Uncertainty -- May 6, 2022

Up until yesterday, maybe this morning, I was in the camp that there was still a chance the US would avoid a recession -- odds I was giving it -- 50/50. Now, after yesterday, the odds of the US swinging into a recession is 90 / 10. 

In a not-ready-for-prime-time reply to a reader who sent me a political cartoon regarding an impending reecession:

It isn't the high price of gasoline or inflation that was going to cause the recession. It's the Fed. But that's fine. I don't care one way or the other, but I just find it fascinating to watch how it plays out.

Right now, the biggest change in advertising on television: all the commercials to get people to take trips to New Mexico, Arkansas, the Caribbean, lots of travel commercials. To start flying again. To start driving again.

Inflation and high gasoline prices won't affect the rich.

Inflation and high gasoline prices will affect the lower middle class and the poor, but they have little real effect on the overall US GDP / US economy.

It is the broad middle class that has the greatest effect on US GDP / US economy. And among the broad middle class that has the most effect, it is the investors.

Investors were looking forward to a summer of traveling and spending money despite inflation and high gasoline prices as long as the market was surging and they were feeling rich.

Now that the market is plummeting, all of a sudden, literally overnight, the investing class -- the ones who have a huge effect on the US economy / US  GDP -- all of a sudden, they're not feeling so rich.

And even if they don't think of themselves as investors, they are looking at their pensions, retirement funds, and 401(k)s and all of a sudden things don't look so good.

On top of that, worse: uncertainty. It's already bad, but how much worse will it get. That's what everyone is thinking.

So, it's not inflation or high gasoline prices that will directly lead to a recession. It's the uncertainty of how much worse it will get and the fact that the broad middle class is not feeling so rich any more.

Unless they are overweighted in EOG. LOL.