You’re so vain — you’re probably betting on a recession
In my 50-plus years of managing money — which started back in the days when Carly Simon was cranking out hits — recessions have mostly been surprises. Now, almost everybody expects one.
The Philadelphia Fed’s Recession Probability gauge has hit a record high. A survey from The Conference Board shows 98% of American CEOs expect an economic downturn within 12 to 18 months, with 99% forecasting the same for Europe. KPMG found that 63% of Asia-Pacific CEOs expect recession. In Taiwan, it’s 9 out of 10. It is, surely, the most- and longest-anticipated recession in modern history.
That’s where Carly Simon comes in. No stranger to life’s surprises, in her 1971 single “Anticipation” she crooned, “We can never know about the days to come but we think about them anyway.” That’s key because, as I noted in this column on Christmas Day, forewarned is forearmed. When you beware, you prepare. In short — to concoct a rhyme that I would never accuse Carly of writing herself — anticipation is mitigation.
Recession chatter perked up last spring with the Ukraine war. Growth forecasts and CEO confidence plunged. Two quarters of (barely) shrinking US GDP raised alarms, causing many to think we were already in recession. Now, recession warnings are at DEFCON 2. If you think CEOs aren’t preparing, you must take them all for idiots. (And if you aren’t preparing, maybe you’re the idiot — or “so vain” you probably think this column isn’t “about you”).
More specifically, gloomy business leaders are nixing growth endeavors and cutting costs as if recession were already here. There have been 364,000 global layoffs since April. US job openings are off 12% from March’s peak. Over a third of Asia-Pacific CEOs are freezing hiring. Firms are leaning toward lean and mean fast.
Beyond headcount, the World Federation of Advertisers found almost a third of multinationals slashing ad budgets, with 75% putting spending plans under “heavy scrutiny.” Firms are squeezing operations—accelerating receivables collections, scrapping productivity-sapping meetings, even kiboshing free coffee.
This isn’t how firms historically acted before downturns. On recession’s eve in Q4 2007, the Business Roundtable’s CEO Economic Outlook Index ticked higher. Respondents expected rising or flattish capital expenditures and employment. Headlines touted Big Tech and telecom expansion plans well into 2008. The subsequent surprise deepened recession’s pain.
Recessions wring out the excesses of prior expansions — indeed, that is their very reason for being. But this time, firms have been increasingly at it since spring. How much wringing remains? Enough for a brutal recession and another bear market implosion? Unlikely. Widespread anticipation renders mild downturns — or none at all.
A mild recession would be consistent with 2022’s 24.5% decline through October’s bear market bottom — a cub by historical standards. And if we actually sidestep recession, nearly everyone will be shocked — and positively. Stocks move most on surprise — hence the bull market ahead (smaller or bigger, as I detailed Christmas Day).
Note that, since good data start in 1925, 9 of 10 US bear markets tied to recessions ended long before the recession bottomed. An ounce of prevention is worth a pound of cure. Nearly a year of increasing corporate sobriety means any downturn can’t cut as badly as feared.
As Carly ended Anticipation, “These are the good old days.” Be bullish.
Ken Fisher is the Founder and Executive Chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 17 countries globally.