Fisher Investments Reviews Key Economic Recession Indicators

Transcript

Ken Fisher:

Coming up on the end of the year, it's normal for people to ask me, do you see a recession ahead? What about how many Fed cuts do you think we're going to have? Or are we? What about consumer problems, and just what kind of indicators do you pay attention to? Now, let me say, not only do I see a recession ahead, I see a lot of recessions ahead.

Depending on what you think 2020 was— and I don't actually consider 2020 a recession, I consider it a governmentally-induced contraction, which is a somewhat different thing than a classic business-cycle recession. But in my 50-plus year career, I've, depending on what you want to categorize 2020 as, lived through 7 or 8 recessions, professionally, and I hope to live another good 20 years, so, I hope to see 2 or 3 more.

So, yeah, I see a recession ahead, the question is when; and that's a hard one to deal with. And I want to talk about that a little differently because I think that's the one that people focus on the most, more than all the other stuff. The other stuff is just a way to get a handle on that one, mostly. And I want to address that in a simple way. It's so simple, nobody can see it. I've never actually seen anybody that could see it, but I see it very clearly.

Now, when I was young, a long, long time ago, the most famous economist in the world with Paul Samuelson. Paul Samuelson was the first economist to win a Nobel Prize for economics. He wrote what was one of the leading economics textbooks that people read when they studied economics in college.

He taught at Harvard, graduate student of Schumpeter's and very smart guy. Neo-keynesian not always right, but of course, who is. He had a famous line when people would say the stock market is down, that means there's a recession ahead. He would say the stock market has predicted 9 of the last 5 recessions, and there's a lot of truth to that.

That same principle is carried forward into the future. Sometimes the stock market takes a swoon, and that leads into a recession, and almost as often the stock market takes a swoon, like what happened in 2022, and you don't get a recession. And therefore, there is a tendency—consistent with what Paul Samuelson was trying to convey to people at the time— to not think of the stock market as a leading indicator of the economy.

Now, this is the part where it gets really tricky and interesting if you read it correctly, and almost no one ever does. While it is true that the stock market going down does not predict a recession necessarily, although sometimes—more of the time than not— when the stock market goes down a good 20% or more, we do have recession.

This is the part in those data that nobody gets: when the stock market's in a continued bull market, you never have had a recession start. I want you to think about that for a second. In the third quarter of 2024 and going into the fourth quarter of 2024, there were all kinds of people who wrongly said that rising unemployment numbers are an indication that we're in recession now.

I just want you to think about that. If that were true, they're asking for something that's never, ever happened, which is always a tough ask—not impossible, but a tough ask. Why? Because the stock market's doing well. Going up, irregularly hitting new, highs domestically and globally. And you've never gone into recession until well after the stock markets hit new highs and started down the other side.

Sometimes it goes down the other side and you don't get a recession, but you never get a recession when the stock market's high and rising. That is not part of history. You'd have to have an exceptional reason to explain how and why that would be the case. No one tells you this, but it's true. You can go back and study the data yourself. There are no recessions that start while the stock market is high and rising.

Stock market has to fall for a while, maybe for 3 months, maybe for 6 months, but the stock market has to fall for a while before you roll over into recession. The stock market is a leading indicator, and it's an exceptionally powerful leading indicator. When it's rising, you do not want to cavalierly bet about a recession happening while the stock market is doing well.

Has the stock market been doing well? Yes, I've already told you it's been doing well. We've hit new highs regularly and into the fourth quarter as October swirled along. And therefore, that means there's no recession that's imminent. Can there be a recession in 25'? 2025 definitely could lead to recession.

Is it going to happen early in 2025? No. How do you know? Because you look at the stock market now. That's one of the most important indicators— is a stock market rising or not. It not rising doesn't tell you there is or isn't, but it rising tells you there isn't. Nobody tells you this. It's simple. It's basic. It's hard for people to get.

Now, let me go a different direction. The latter part of that question was what do you look at when you look at all kind of stuff? But it's the things at any moment in time— over some extended moment—that people aren't worrying about, aren't thinking about, aren't talking about, you don't read about in media, you don't see and hear people chattering on, that are bad, that what drive you into a bear market and recession.

Normal recessions are fairly normal; they're caused by excesses built up through the prior economic expansion. We had an economic expansion that lasted for a long time, from 2009 until 2020, when we got the Covid contraction. And that Covid contraction scared the Dickens out of people. And you know all that, and in that, it caused businesses to do an awful lot of house cleaning to try to cut down on whatever excesses they thought they had, which has then given life to the market thereafter, and life to the economy thereafter, because it was kind of like a house cleaning that wasn't the spring house cleaning of legend, but it was a house cleaning nonetheless, which meant when you got to the next spring, there wasn't quite as much to clean.

That function has extended the life of both the bull market and the economy, domestically and outside of America. And in that, what the key things to look for are what bad things are going on that nobody talks about? Right now, I don't really see a lot. I'd worry in particular if lending started going negative; I'd worry from here if the total quantity of money shrank. I wasn't worried about the one that happened in the last year, but I'd worry about it from these levels now; I'd worry about stupid stuff the government does because I always worry about stupid stuff the government does.

Most of the stupid stuff the government does don't matter very much. You'll ask me, but what about government debt? And I'll say to you, how many people worry about government debt? And the answer, is huge quantity. Therefore, my point is, everything that everybody worries about, you don't have to— they're already doing it for you, it's a free service.

That's not what's going to cause it. It's the stuff that they don't worry about you have to worry about. And so, you think about all of the various things that make up our wonderful global economy, and you focus on that which people aren't talking about. Right now, I don't see problems. As I moved to my year end forecast,  maybe I will, maybe in the middle of 2025 I will.

But right now, the economy globally is doing pretty well. Not everywhere, not all the time, but overall and moderately a thing that people have a great deal of difficulty with— the normal moderate function of life after all of the extremities that we went through in Covid and the aftermath of Covid that have led people to so much look for abnormalities rather than normality. But it's a pretty normally nice world right now and in the short term moving forward, and so, I don't see a recession immediately ahead; I don't see bad times immediately ahead. But we'll keep looking and thinking about that.

And maybe sometime in 2025, that'll change. Always have to keep your eyes open for these things. I do appreciate you listening. I hope you keep your eyes open and watch my videos as we move through 2025. If I see any of those things, I'll tell you then. Thank you very much for listening. I hope you found this useful.

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