Morgan Stanley: "The Recession is ALREADY OVER.."

It is a chilly, foggy day here in Sausalito, California by the houseboats, but it's not quite as chilly as the economy. However, if you were to ask Morgan Stanley, it's all just going to get better from here because we've already bottomed out. And you know, one of the most interesting parts about making all these YouTube videos is constantly staying up with all of the latest data and news stories and research that comes out about real estate and the economy. And this one, as soon as I read it, I had to laugh. Let me read you the headline verbatim. Maybe some of you have seen this. It says, the job slowdown actually means the recession's over, not starting, argues Morgan Stanley. I mean, I haven't heard anything that funny in a while, guys, when it comes to the economy. And it's really funny because they're getting so desperate to try to prove a point that everything is still okay, that they'll kind of say anything at this point, just to try to, I don't know, sort of save face or something. I don't really know what the goal is at this point, but I don't know even though who they think they're fooling. But these are the kinds of stories and headlines that we're seeing. And of course, I'm going to have to talk about it and push back against it. But let's see what they have to say. Do they have anything valid to say? Let's find out. And by the way, the fog is so thick out here, it's basically like almost misting or raining. So the lens gets a little bit foggy. I apologize, but I'll try to clean it off periodically. So Morgan Stanley says, we are not of the view that a rapid acute rise in unemployment or a significantly negative payroll numbers are coming unless we were to see another shock to the economy. Oh, right. As if that can't happen, right? We can't have any more shocks to the economy. It can't get any worse than this, or can it? Because I think it can get a whole lot worse than this. Most of you who watch my channel are old enough to remember how bad things got in 2008, and it can definitely get a lot worse than this, and fast too. And it looks like that's the direction things are headed, but somehow they think it's not. Morgan Stanley says that Friday's jobs data and improvement in revisions means June is the latest low point for payrolls this cycle, though other measures we track suggest labor weakness was most prevalent around Liberation Day, the trough of the rolling recession in our view. Here's something else interesting that they say, which I actually kind of agree with. We believe that we have actually been in a recession since 2022, and the economy bottomed out as of Liberation Day, when all of the tariffs were announced. And they say that the recent jobs data offers further proof that the economy is now in the early stages of recovery. Well, that is a very bold statement, because things have only just started to get really bad with that. I mean, obviously a year ago, the jobs market wasn't great either, but now it's even worse. So I can kind of see where they're coming from in the sense that, oh, well, maybe since it's so bad, it can only just go up from here. But the reality is, because of how stuck we are, and we're kind of in this stagflation economy right now, we could go for months, maybe even years of bad jobs reports if nothing really happens to help improve the situation. They say that the initial phase of this was led by tech and consumer goods, which massively benefited from the COVID stimulus, followed by most sectors of the economy passing through individual recessions at their own pace. This is a key reason why we never got the typical spike in the metrics used to define a traditional recession. Now, there's also some truth to that as well, because certain parts of the economy have been getting hit a lot harder than others and faster, right? In fact, one of the last sectors of the economy that's been taking longer than we all thought to get hit has been the housing market. Only over the past year has it really been starting to deteriorate in some areas, and now it's spreading to at least half of the country where home prices are down year over year. And everybody thought that the housing market was going to hold on forever despite whatever's happening with the rest of the economy. But that has now been proven to be wrong as well. Now, Morgan Stanley says that we do still have some near-term risk for the stock market, and it's still possible that prices are going to go down in the stock market, which we're seeing kind of happen right now. Another thing I actually agree with from this article is that with the Fed still focused on the potential for inflation and the labor data weak, but not bad enough, there are questions in terms of just how much the Fed can cut in the near term, and investors could see choppy markets into the fall season. So after looking at everything that they have to say, they do make some valid points that I actually agree with about us being in a recession since 2022. I don't think I've ever heard another big company come out and say this until now, and I don't know why that it took them so long to come out and admit that things have been in a recession, and now they're saying that it's over, that we're going to be having nothing but improvement from here on out. Well, for me guys, just like everything else, it's kind of one of those situations where I'll believe it when I see it, because from what I can tell, and everything that I'm reporting to you here on the channel, it looks like things just continue to get worse month by month. Unemployment is getting worse. Inflation is getting worse. The jobs numbers are getting worse. None of those factors are improving. Yeah, we might have some short-term bounce backs in some of those numbers, but nothing is fundamentally changing right now in the economy that is going to make those numbers have a meaningful comeback anytime soon. At least that's how it appears on the surface from what I can see. I could be wrong. I don't have a crystal ball. I can't predict the future, but that's just how things look right now. Now, the 10-year Treasury yields just took a nosedive a couple days ago, and that could actually be a sign that the recession is actually just getting started, which is a big pushback once again against whatever we just talked about with Morgan Stanley and where they think things are at. Back in January, the 10-year Treasury peaked at 4.8%, and as of right now, as of me filming this video, it's at 4.084%, which is pretty much its lowest level since 2025 has begun. This could mean two different things for where the economy is headed and how the stock market in particular views it. On the positive side, they might look at it as, well, the lower yields reduce borrowing costs for companies, which boosts valuations in the stock performance. But on the negative, a drop can often signal weaker confidence in the US economic growth, raising concerns about recession risk. Now, of course, I think we're moving towards the second option because all the other indicators in the economy are flashing red as well. I think Morgan Stanley is way off on this one. I think that this whole downturn is kind of just getting started in the sense that all the official data is starting to back it up. Before, people were feeling it since 2022, so they're correct about that, that people have realized we're in a recession since 2022, but now the data is finally starting to reflect it. Now, of course, part of the reason that these Treasury yields dropped so dramatically is because they are anticipating that the Fed is going to cut rates next week. And the other problem is because they're probably going to cut out of necessity, not because they think it's the right thing to do. The problem is, no matter what they do now, they're going to cause problems. If they keep rates the same, then the labor market is going to continue to deteriorate. And if they lower rates, then inflation is going to continue to go up. And inflation has been going up even with them keeping rates the same. So imagine what's going to happen if they lower rates. And it's funny because Bank of America revised their end-of-the-year forecasts to having the 10-year Treasury at 4%, and it's already at 4.08%. So it's already basically there. Their original forecast was 4.25%. And of course, this has an impact on mortgage rates, which I'll cover in another video whenever we talk more about real estate, because I want to kind of keep the focus on the economy in this one. But the big problem that everybody needs to think about here is with these Treasury yields going down, this is probably because that there's going to be a big reduction of growth expectations for basically everything. But I actually think that if the Fed does lower rates next week, then it's possible that these Treasury yields can actually start going back up. Because if you really think about it, what kind of right-minded investor is going to want to buy these Treasuries if inflation is still a massive problem? Who's going to want a 4% 10-year Treasury when inflation's at 3%? Who wants to make a 1% return on investment over 10 years? And it's actually going to be negative when you factor in what the real inflation number probably is. And we're going to be getting the inflation report this week, a week before the Fed will decide to cut rates or not. And so many of the things we've already talked about over the past few weeks have pointed to us being in a stagflation economy right now. We have very, very low growth when it comes to GDP. At the same time, we have rising inflation, and we also have unemployment on the rise, and one of the worst job markets in U.S. history, where there are more people looking for a job right now than the actual amount of jobs available. So if you have a job right now, you are one of the lucky ones. You need to do everything you can to hang on to it. Forget about career advancement. Forget about getting a raise right now. You're lucky just to be able to be getting a paycheck. And I'm sure a lot of people who've been looking for work for six months to a year can corroborate that statement. The expectation for the new inflation reading coming out is at 3.1 percent. Of course, we will know what it actually is when it comes out, but it's expected to go up because right now the core inflation is at 3 percent. It's expected to go up to 3.1. And that might not sound like a huge deal, guys, but realize that the Fed's target for the longest time since they've been on this whole mission to reduce inflation has been to get it down to 2 percent. And now we're going back up to 3.1 most likely. It's like raining out here. It's not like pouring, you know, but it's like misting enough where you can see it getting on me and my glasses here. But hey, I'll take this over the torrential downpours and thunderstorms that we get in Florida so bad I can't even go outside and film. So not so bad. But, you know, with this whole situation happening, I'm just kind of sitting back and laughing at these top dog officials at the Federal Reserve and all these economists that, you know, think that they got everything under control and that it's all just going to turn around and be fine tomorrow, just like Morgan Stanley believes. And it looks like the complete opposite is true right now, in my opinion. It looks like they're finally losing control and the wheels are starting to come off the bus and they're sitting there scratching their heads trying to figure out what to do about it. You know, let's play these games of just, oh, well, we'll lower the interest rates and hope that the jobs are going to come back. Okay. Let's see how well that works out. In a normal economy in the past, that stuff might have worked. But I think we can all agree that there is nothing normal about this economy right now. They have pushed things too far with inflation, with the money printing, with the artificially low interest rates for too many years that the only way we're going to be able to get out of this is going to be a massive economic downturn and letting the bond investors who actually buy these treasuries decide what interest rates should really be. That's going to be the only way to get through this, in my opinion. When they try to artificially induce a certain situation in the economy, it might work for a little while, but it's going to just create more problems in the end. And it's no wonder that gold prices continue to soar to all time highs right now because people are tired of the shenanigans, guys. Everybody who's buying gold realizes that the jig is up. Our money is going to be completely worthless, even more so if the Fed decides to go with a rate cut next week, because that means inflation is just going to get worse. And it's also going to mean less people who are interested in buying treasuries, which ultimately means that the yields are going to have to go back up if they want to entice people to come in there and buy. Unless the Fed does quantitative easing and they just come in there and buy it all up themselves, which just means they're exacerbating the problem even further. And people aren't stupid. Everyone's starting to realize that these are all big problems because right now the consumer perceptions on the future job prospects and unemployment actually got worse in August. The short-term inflation expectations just went up. The number of people who are expecting the unemployment rate to be higher in a year from now rose by 1.7 percentage points to 39.1 percent in August. And people's perceived likelihood of finding a job if they were to lose one right now fell by 5.8 percentage points to 44.9 percent, which is the lowest reading since the New York Fed started tracking this data point in 2013. So nobody has been this worried about being able to find a new job since 2013. And that's just when we were kind of on the recovery cycle back then. Anybody who remembers the 2008 downturn and the big great financial crisis, you would know that 2008, 2009, 2010 were all pretty bad years. And then around 2011 or 12, depending on where you live, things started to get a little better. And then after that, it started to noticeably improve from 2013 and beyond until we hit the pandemic. So if Morgan Stanley was correct, and this was going to be the end of the recession, so to speak, and now things are going to get better, then why is this the worst reading that we've had since the Fed started keeping track of this stuff? And the reality is the falling payroll numbers are a classic sign of economic trouble. And the story here is simple. You have only a few industries that feel good about hiring workers right now. And the pressure of the economy has led every other industry to be shutting jobs right now and put a hiring freeze essentially on everything. So how does that bode well? How does that mean things are going to get better soon? I don't get it, man. Just tell me. Tell me in the comments below. If you agree with Morgan Stanley, I would love to know your position on this because the justifications that they give, I just don't see it. So I want to know what everybody else has to say about it. Consumers are also expecting inflation to be going up as well, and that's consumer inflation expectations. So not only are the official numbers predicting that inflation is going to go up with this next reading, but also people themselves believe that it's going to continue going up over the next year or two. And you know what was the funniest thing out of all of this? They said, despite all of this, despite people expecting inflation is going to go up, despite people really worried about if they can get a job or not, consumers are still feeling good about their household finances. The median expected growth in household income remained unchanged for the second consecutive month at 2.9 percent. And also perceptions of credit access compared to a year ago improved with a smaller share of households reporting that they find it hard to get credit. And they say that the median household spending growth expectations grew by 0.1 percentage points to 5 percent, which is a positive sign that Americans are still willing to spend despite the economic uncertainty. Well, of course they are. People still have to spend. People need money to get by. It shouldn't be some giant shocker that everybody's willing to spend money when you have to spend money to live your everyday life. And one of the things I want to talk about that I rarely ever talk about, but I saw this and it corroborates everything we just talked about here, is the lumber prices right now in the U.S. are also a warning sign for the current economy, okay? Because lumber prices have dropped 24 percent just since the beginning of August to And the spot prices for lumber are down about 12 percent since August 1st. And they're saying this is due to the tariffs as well as the very weak housing demand. Lumber prices have historically been a leading indicator for the housing market and the broader economy. You know, for example, the lumber price has tripled during the pandemic when there was a huge supply crunch and there was also a big demand for new construction. And lumber was one of the first assets to fall when the Fed began raising rates back in 2022. So the current declines are raising alarm bells about the slowing housing demand and the weaker economic activity. And remember, lumber prices actually spiked whenever the tariffs were first threatened because of how much lumber we received from Canada. So now the inventory that we have in the U.S. and the amount of lumber that we're hanging on to has ballooned. And it's to the point now where the lumber producers are cutting their output. One company, Interfor, is reducing their production by 145 million board feet. So they're cutting hours and shutting down shifts. So that means people who work for the lumber companies, guess what? They're not making as much money or maybe no money at all. And at a time like this, that's not so good. And then you have Domtar, which is another lumber company in Quebec and in Arkansas. They're cutting down hours and shifts as well. Residential building permits fell to only 1.4 million in July, which is the lowest that we've seen since June of 2020. And U.S. construction spending also dropped by 3.4% in July. So from where I'm standing, guys, basically everything is pointing to a very massive economic downturn. And we're just on the cusp of it. We're not at the end of this. We're not getting through this right now. We are just now starting to feel the full effects of it. At least that's what I think. One of the key indicators of that also is, I don't know about you, but I don't really see anything happening right now in this country to make a massive improvement in the jobs market. If the Fed decides to cut interest rates at their next meeting, it's probably just going to be by a quarter point, maybe by a half a point if it's a big cut. But is that really going to be enough to have a bunch of companies go out there and take massive gambles and risk when people don't have the money to buy their products and you see all these layoffs still? I think that's going to be a very tough pill to swallow for a lot of businesses. And a lot of them are not going to be fooled that easily and just be jumping back in the water just because of a measly quarter point rate cut. Well, let me know what you guys think down in the comments. And if you enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.