Market Pulse: There’s that ‘R’ word again | TahoeDailyTribune.com
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Market Pulse: There’s that ‘R’ word again

David Vomund
Special to the Tribune
David Vomund

Investors and the financial media seem obsessed with the economy and everyday’s data and measures. Is inflation peaking? Are we in a recession or about to be? The National Bureau of Economic Research makes the call on recessions.  

While the media and most investors call it a recession when there are two consecutive quarters in which GDP declines, the NBER looks at a lot of data, some of which are not finalized until well after the headline GDP number is reported and later revised once or twice. When the NBER finally reports a recession it may very well be over.  

One more point about recessions. There have been 12 recessions since World War II and in each economic activity declined and unemployment rose. No exceptions. But if we’re in a recession now that wouldn’t be the case. Unemployment is not rising and given the number of job openings (11 million plus) it doesn’t figure to rise anytime soon.  



In June, Consumer Price Index rose 9.1% year-over-year, the largest 12-month increase in 41 years. Producer prices rose even more, 11.3%. There is no way to spin the inflation picture as other than dismal. No, this is not due to greedy companies. It is due to too much money (money supply growth combined with fiscal stimulus) chasing too few goods (supply chain problems).  

Goldman Sachs pointed out recently that stocks, and for that matter bonds, are “anticipatory” assets because prices reflect expectations. Commodities, they said, are priced to deal with the here and now. In the case of oil, their current focus, years of under investment have created a supply imbalance that will take years to correct even with a recession. For that reason Goldman’s base case for oil is $140 a barrel. Because hedge funds dominate trading in oil futures (paper barrels), prices are more volatile than other commodities. Goldman’s outlook reflects that.



Falling commodity prices in June and now in July will impact consumer prices through the summer and into the fall. The June CPI number will stand as the worst and the CPI will steadily inch lower into next year though not nearly reaching the Fed’s goal of 2% even in a recession. An inflationary recession would be the worst outcome. The inflation part of that is all too clear. All that’s missing is confirmation from the NBER that we are in a recession.  Expect that next year, not sooner even if the popular definition of a recession — back to back negative quarters — is met.

David Vomund is an Incline Village-based Independent Investment Advisor.Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.


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