If you think you can throw away a few dollars on a new home or car, think again. According to co-manager of Golden Returns Capital Dave Kranzler and trader Douglas Borthwick, the U.S. is entering a recession. Both Kranzler and Borthwick make their claims based on the recent revision of the Q1 GDP. “While the ‘advance GDP’ estimate showed a slight gain in Q1, the subsequent 1st quarter revision released last week showed an unexpected 1% contraction in Q1 GDP. “It is my view that the key economic data released so far in Q2 indicate a probability that Q2 GDP will contract even more than Q1,” said Kranzler. Borthwick added that such a divergence was last seen in 2007 when the U.S. was headed into a recession, especially when looking at the job offerings in relation to where employment is currently.
Borthwick continues to claim that not much has been implemented by the Fed to rectify the already deteriorating situation. Take new home sales, for example. Home sales are going up but not for the reason we might expect. They are up due to the building of multi-family houses as opposed to independent housing. “People are not buying houses, they are buying apartments…. 20% of the U.S. is still on food stamps compared to the 10% four years ago,” adds Borthwick. He also agrees that calling for a recession is a “way out there call” but says that economic growth has been covered by quantitative easing, which is slowly being reduced leaving many with the question – what is the Fed going to do to keep the economy buoyant?
Of course not everyone agrees with such a pessimistic statement. The U.S. durable goods orders were up 0.8% despite a negative growth predicted by Borthwick last week. Others are looking at the NFIB (National Federation of Independent Business) optimism index as a positive indicator. The index came in at its highest level since 2007, detailing the need of smaller businesses to hire and increase inventory.
