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  • Writer's picturen ev

Still No Recession?

The UK is going through a period of transition and uncertainty. What the UK needs is a strong global economy and that starts with the USA.


a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.


The total value of goods produced and services provided in a country during one year.

Now, the standard definition doesn't say whether we should be looking at Nominal GDP or whether we should use an Inflation Adjusted GDP.

The USA is a net spender, and they are generally running fiscal deficits due to the US government funding the largest spending programs, and as they also consume more than they export,




G=Government spending


NX=Net exports​

NX in the USA is usually negative so is a drag on GDP.

The US Treasury detail every line item of spending on a daily basis, so it is quite easy to follow the G part of the above equation.

The same for net exports via the US Trade Balance data which can be found on sites like

In 2022, the US balance of trade adjusted positively as the US bought less from abroad, probably due to supply chain issues, but also exported its energy.

Consumers are likely to spend when interest rates are low, or steady. What puts the fear of god into the average consumer is rising prices with no end in sight. Over the last 15 months, the Fed has not only prepared the markets for the rate hikes, but they have also actioned the rate hikes. The question on everyone's lips today is, will the Fed finish what they started or pivot as the economy supposedly crashes?

Adjusting for inflation rates have risen high enough to actually go positive in the last month. Something that happened just before we had the market wobble, Repo spike, and a liquidity crunch. Which was great preparation for the COVID crisis 🤮 .

Consumers are likely to spend their cash when the price of energy is low. Unfortunately, we had oil prices reaching $120 in the last 24 months, on the back of the re-opening following the COVID lockdowns, but also on supply issues from OPEC+ and then the war in Ukraine. However, looking at the current price, $86 per barrel seems reasonable and fair considering the world hasn't changed much since February 2022. The acceleration in oil prices, definitely made the SPX top out, just as it did pre the GFC in 2007.

Consumers will also spend their money when they have a job, with a decent wage.

The US labor force participation rate has not fully recovered from the COVID lockdowns, and maybe those jobs do not exist anymore. Maybe those who were working for some extra cash, no longer want to work? The graph above shows the 4-week average of the US Initial Jobless Claims and that on average shows fewer people needing to claim on their insurance.

The amount of US unemployment benefits being spent by the US government is also at levels prior to the lockdowns and nowhere near the 2008-2009 spike.

Companies need to invest in inventory and personnel and big-ticket items like machinery and premises. Now on the back of a pandemic and recession, there would have been a lot of cash burn, so it would make sense that the companies would tap a line of credit. Banks will not be offering credit to those they deem risky.

So surely, if interest rates are going higher and there is likely to be an engineered economic slowdown, who is being offered loans? Because there is definitely an acceleration in loan growth.

The household debt to disposable income ratio is also still relatively low, so anyone with a personal loan seeing interest rates go higher has some wiggle room before things get crazy and we have a deleveraging event. The fiscal stimulus that went into the consumer's hands via the CARES act etc., was generally used to pay off debt.

As new loans are created, so are US dollars and we have seen the US dollar index rising to levels last traded in 2002.

The lows of April 2002 were where the recent sellers had been patiently waiting for 2 decades, but there is still the March 2002 lows to target. A shortage of US dollars may be part of the reason for the acceleration in price as institutions are very picky about who they will lend to and require collateral in exchange. The Feds Reverse Repo facility is also offering anyone with a $ decent rate of interest in exchange also for the highest quality collateral. Banks are literally pushing $trillions onto the Fed's overnight books for a 3% return. So when the real rates have only just gone positive, why would you not gather up as many greenbacks as you could and see if you could triple your return?

All is not rosy and the MSM and FinTwit keep banging on about a recession. It doesn't help when the UK government succumbs to pressure, but that is no different from the Fed looking at the CME fed watch tool, and just going with that consensus. The markets lead the way. Governments follow.

The eurodollar futures curve shows an inversion. And a steep one too. Back in December 2021 it was hardly visible, but as 2022 progressed we had rates at the front end rising steeply, with the long end rising at a slower pace. A healthy market is predicated on lower interest rates in the short end, with slightly higher rates as time progresses. Over the last week or so, we have started to see the belly of the curve drop. We're just waiting to see if the first 6 months also drop.

The chart above is part of my main thesis. The level of spending by the US government has been steady these last few years. On the 30th of September 2022, the end of the 22 Fiscal Year occurred, with total spending hitting $6.85trln, which is $900bln less than the year before but above the $6.83trln from 2020. So why the big dip in the red dotted line? That would be down to the massive tax haul, stripping the economy of that excess pushed in during the stimulus programs. For me, the drop in flows (blue) also explains a lot of the dip this year in the markets (black dashed). As the fiscal flows do make their way into corporate profits and consumer spending.

The US fiscal flows spiked during 19/20 and 20/21 as this covers the time when the US treasury was sending out cheques to people. The green line represents this last fiscal year of flows and you can see that it is relatively high and ended in September above the previous 5 years. I have my fingers crossed this is a good omen for the new fiscal year.

What we don't want in 2023 is a repeat of what occurred in April 2022 that bled into June and again happened in September. The massive drag on the financial system due to the taxes made it almost impossible for the markets to rally. Especially with the social and geopolitical backdrop.

So while the media are blaming the war in Ukraine for everything, unless they are blaming the Fed for everything, I will keep an eye on the fiscal flows, rate of taxation, and where the money is flowing.

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