It Might Rain Tomorrow... or Not

On 2 October 2023 Bloomberg ran an article on the 6 reasons why a recession is still likely.

1. Soft landing calls always precede a recession
2. Fed hikes are about to bite hard
3. A Downturn is hiding in plain sight in the forecasts
4. ...And that’s before these shocks hit (enumerated in the article)
5. Beyonce can do only so much (consumer spending)
6. The Credit squeeze is getting harder

In the very same article, it gave reasons for the contra.

1. A drop in vacancies will take the sting out of wage growth
2. Productivity
3. Bidenomics

Counting the number of points and comparing them does no good since any one positive point can rebuff two or more on the opposing side.  This was, of course, before the Friday jobs report on 6 October 2023, which highlighted an economy firing on all cylinders with a hefty dose of nitrous oxide.

Are economists slowly becoming inept prognosticators?  Maybe.  No one gets it right all the time, and it is only getting harder.  Big data means good “big data” and bad “big data’ – they are joined at the hip.  With all due respect to economists, it is almost certain that they will be able to explain everything after it happens, but that really does no one any good besides economics students reading economics books.  The other unsettling point is that the economists are right, but they don’t know when they will be right.  I know it will rain eventually, even if I live in the Sahara Desert and I must wait a million years for the climate to change.

As Max Weber, a founding father of modern economics, put it over 100 years ago in one of those foundational economics books students read, “The capitalistic economy of the present day is an immense cosmos into which the individual is born, and which presents itself to him, at least as an individual, as an unalterable order of things in which he must live. It forces the individual, in so far as he is involved in the system of market relationships, to conform to capitalistic rules of action, the manufacturer who in the long run acts counter to these norms, will just as inevitably be eliminated from the economic scene as the worker who cannot or will not adapt himself to them will be thrown into the streets without a job.  Thus the capitalism of today, which has come to dominate economic life, educates and selects the economic subjects which it needs through a process of economic survival of the fittest.”¹  We cannot predict Capitalism’s whims per se, rather we must adapt to them.  This adaptation is an activity which occurs in momento but the act of survival from the chaos of the market must occur post facto.  In essence, Weber would have us hedge our bets as a survival tactic in the face of the unknowable future market norms.  Since the market sets the rules, and these are subject to change, we must act to prepare for multiple outcomes.  Weber is speaking about the prudence of diversification given our uncertain future.

Economists often pontificate about their results and analysis after the fact, and their hindsight is always 20/20.  Prior to this, like with Mr. Bostick, an economist will lay out potentialities of cause and effect which outline various outcomes based on variables as they see it.

It is easy to badger someone who has the courage to make a call.  That is not our point.  Our goal is neither to praise the optimist nor the pessimist when they get it right.  Our goal is to remind the investor that economists don’t really know.  We ourselves don’t really know either, to be fair.  No one really does.  What we do rely on is diversification that can sustain either path instead of a blind all or nothing bet on either scenario.

Take some solace in a 60/40 approach.  Take even more solace in a 60/40 approach cushioned with even more diversification with alternatives.  We are all cursed with the most infamous of all curses, that is, may you live in interesting times.  In our view, being smarter means being smarter about diversification, not being smarter about market timing, which is the purview of genetic super geniuses and prophets inspired by the divine.

1 Max Weber, The Protestant Ethic and the Spirit of Capitalism. 1905 Chapter II.  “The Spirit of Capitalism.”

Past performance is not indicative of future results. Remember, there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investment strategies discussed in this article) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Please remember to always speak with your individual advisor before making any investment decisions.