(Forbes) I was happily pouring through earnings forecasts today when this happened…
Bloomberg delivered its “Evening Briefing” (October 8) that led off with an ominous-sounding recession piece, “New Kind of Recession Threat Presents Problem for Powell and Fed” (underlining is mine).
“… what’s making investors nervous about a recession is a global, geopolitical shock to business sentiment that’s prompting U.S. companies to curb spending amid uncertainties from the U.S.-China trade war to Britain’s potential pullout from the European Union…. Get ready, because this won’t be your father’s recession.”
That sounds ominous. However, upon examination, the article looks contrived, misleading and flawed
The article does not offer a straightforward explanation of what unusual factors could cause a new type of recession. Instead, it starts by citing (correctly) the absence of the conditions that precede a recession.
However, in a twist of logic, the article then concludes that, without these normal drivers, the coming recession must be abnormal.
This explanation is like forecasting rain from a cloudless sky, then saying the forecast is correct, so that means the rainstorm will be like none we’ve ever seen before. So, get ready!
The article, itself, looks as if various quasi-relevant quotes and data were gathered, then arranged to create a presentation with passable plausibility.
About that “global, geopolitical shock”…
That phrase appears designed to frighten with an ominous-sounding issue. But, what does it mean, exactly?
“Global” – okay, that conjures up the alarm, “It’s everywhere, it’s everywhere!”
“Geopolitical” – Per the Encyclopedia Britannica: “Geopolitics, analysis of the geographic influences on power relationships in international relations. … In contemporary discourse, geopolitics has been widely employed as a loose synonym for international politics.” – As the article’s comments seem to show, “geopolitical” is narrowly defined to cover two actions: (1) Different countries’ central banks’ interest rate management, and (2) Trade between countries, especially the U.S. and China.
“Shock” – The purpose of this word choice must be simply to give those previous two words an ominous aura, because it is not describing a sudden, unexpected and frightening occurrence.
So, “global, geopolitical shock” looks like a hyped, redundant and flawed description of the recession hypothesis we already know: Namely, that the U.S.-China trade war and Brexit create uncertainty and could cause an economic slowdown and maybe a recession.
The bottom line
Investing is tough enough without having to contend weak, unsubstantiated, misleading, simplistic and careless analysis and advice. Worst of all is when this tripe relies on fear to be “interesting.”
So, how do we avoid it? Generally, by sticking to reliable and reputable sources, but that does not guarantee complete avoidance – as this Bloomberg article shows. For me, the advice that always works is: “Question everything.”