Dear Reader, every once in a while, you come across from the media or internet some talking head who claims the one sure sign of a pending recession. Yes, there is one and it is this: demographics and innovation.
If you have a declining and aging population, say like Japan, no force can propel the economy forward.
Secondly, if the time period that you live does not produce new innovation, no force can propel the economy forward.
In the example above using Japan, their economy has been in a slow downturn since 1989. The reason that it did not collapse is because the period contained many new innovative techniques and technology which has acted as a buffer to the decline.
With that said the ingenuity of man to cause problems is endless. Two of the chief reasons that will put in motion the chain reaction to cause a recession to an economy is the price of oil and interest rates.
OIL
It is the most important commodity in the world. Everyone needs some form of energy. It is central to transportation. It is the life blood in manufacturing. It is used to make products, help us cook and warm our homes. The last point is readily understood by the US population with our severe winter. Let me clarify that last statement. Everyone except the Federal Reserve. They don't include the price of oil in their inflation matrix. CROOKS! LIARS! THIEVES!
At the moment, oil production is being kept off the market to increase the price. This is basic supply and demand. Teddy Roosevelt isn't around to Trust Bust OPEC and their best buddy, Russia. No one needs to yell and scream at them because it is their right to do what is best for them. Our government could have responded to this as far back as Tricky Dicky with alternative forms of energy. It is nice to see that slowly but surely, we are getting off our addiction to gasoline with electric vehicles. However, we are still a long way into that transition point. If you have not noticed, the price of oil is slowly rising. As of last Friday, it was $57.26 for our light crude. The European price for Brent is higher at $67.12. Funny, how the market prices things? Light oil is better and yet, it is cheaper than the heavier grade. Anyway, the supply cut is slowly working and soon the transition from winter gasoline to summer blend will effect pricing even further. The trend is up. Sebastian told you months ago to find and track a cheap oil stock to at least benefit from the action of with-holding oil from the market.
Looking at the chart action in oil reveals a few price signs that you should look for and become aware off. My chart will show support levels. If those price resistance points are breached, both light sweet and heavy crude will explode to the $100 level. If oil reaches that point, it will begin a chain reaction that will send the economy into a recession.
*$BRENT: $72 = $80 = $85 = $100 plus
*$WTIC : $60 = $65 = $75 = $100 plus
The other artificial problem is the Federal Reserve. They can cause a recession by raising interest rates beyond what consumers and industry can support. At the moment, President Trump has put pressure on the Fed. The chairman, Powell's ego got the message. Not only is the Fed not going to raise interest rates, but a cut is a possibility. In any event the Fed is ready to allow inflation to surpass their 2% target. They say that they will monitor the inflationary aspects to the economy, but they have the tools to reign in any unwanted effects. So much, BS!
Tariffs
The tax on a product is as old as man. During the present bull cycle, China already had in place tariffs on many US products and even ban entry to others. In fact, every nation has protective tariffs, quotas, and regulations designed to help their nation. A Ford Fiesta is close to $40 grand in South Korea. A Florida pink grapefruit is $7 bucks a piece in Japan. Tariffs protect home industry to which helps workers and that raises the standard of living. On the negative side, tariffs cause inflation. Inflation is always dangerous, but by itself, is not the worse economic sin. Our standard of living began declining when we began the cycle to import rather than self provide. We should place heavy tariffs on all imports and a small tariff to American companies that outsourced labor that makes the product on foreign soil. Tariffs do not cause recessions. Idiots and greed are the roots to the "R" word.
Now, there will always be folks out there who will object to my viewpoint. I hope that they use the recent Dallas True Value home show as an example. There were 400 vendors who cried about price increases due to the tariffs tensions between the US and China. This is what I see. There are 400 areas that we can create jobs and never have to worry about imports in the future. Comprende?!
