#154 - The Federal Reserve Has Never (Ever) Predicted A Recession
Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to talk about why the Federal Reserve has never ever predicted a recession. I think this is actually pretty interesting. If you actually go back and really study the Federal Reserve and all of their predictions, all of their comments that they’ve put out… I think we haven’t talked about this earlier on a podcast. This is Show 154, so we’ve done a lot of them before. But I think we did cover the comments that have been made before by Bernanke and others. The thing is that the Federal Reserve literally has never ever predicted a recession in the US and constantly now, the market is looking towards the FED as like big daddy, big brother on where things are going to go. Like, “Hey. The markets are in turmoil. Let’s look at the FED. Where do they think that the markets are going to go?” But the reality is that they’ve never ever predicted a market recession and that's alarming. Even more so, if you look at… I think the one that’s really interesting is actually the Atlanta FED. The Atlanta FED and their GDP indicator now or index, that has been really like the go-to model for a lot of people. People referenced that often as a key indicator of where economic activity is and where the markets are going or where the economy is going. What’s crazy about the Atlanta FED, if you look at the history of how they come out with their GDP numbers, in most cases, they will come out with an absurdly high number for GDP growth and then during the entire quarter, will start slowly ratcheting it down. I think they came out recently with a forecast for first quarter of 2018 and it was 5.4% GDP growth and last time that this happened, they came out 5% something GDP growth and then they cut it to 5% and then it was 4% or 7% and then it was 4% or 3% and then it was 4% and then it was 2% and then it was… I mean, they’re just literally retching this down. Now, if you think about this. Our economy in the US is so massive that a .1% change is a huge change. How can they be half off? How can you legitimately come out with a growth forecast that says, “5% growth and by the time we get to the end of the quarter, it’s closer to 3% or 2% growth.” That’s a major shift. That’s a 50% difference that happens in the course of a month. What happened in that month all the time… This happens regularly with them. What happens in that month that they lower their estimate by that much? It’s still a huge, huge, huge change. I don’t think that the news articles really ever catch this. It’s always the change. It’s always that they lowered it or that it came out with this huge robust growth forecast or a huge exponential growth forecast. It’s always the headline that people catch, but they don’t ever really dig down into it to see where the FED has been successful and profitable in predicting market recessions. And so, I think it’s just a grain of salt for you to take today. Again, not that we need to necessarily act on it right now, but I think it’s an interesting comment, so that you can listen to their comments and obviously, hear what they have to say, but then take it with a grain of salt. As always, hopefully this helps out. Until next time, happy trading!
