JP Morgan Says No Recession This Year; Professional Handicappers Likely To Want Some of That Action

What catches the eye this morning is the headline on Yahoo! Finance, "Recession odds haven't been this low in 15 months."

That's remarkable for any number of reasons, chief among them the idea that somebody actually calculates odds on whether or not the US GDP is going to go negative for two consecutive quarters (the classic definition of a recession) and the idea that these odds are so low.

The article goes on to tell that it's JP Morgan making the odds, as their quantitative model of the US economy is in a very positive state. The firm makes odds at 3:1 that the US economy will enter a recession this year. So, anyone wishing to plunk down a shekel, drachma, euro, or yen on JP Morgan's table would get three back if the economy tanks. It would not be too much of an assumption to think that Morgan would hold the bet, put it in an interest-bearing account and make a few bucks in the interim as the earliest this could possibly pay out would be well after the end of the second quarter, like August, or, in the event that a recession occurred in the thrid and fourth quarter, the firm could be holding the dough until well into 2021.

Anyone of the belief that the US economy will not turn down, gets short-ended to the tune of 1:3, putting up three units to make one. Morgan would surely like that wager, being that they'd be holding - and investing - three times the amount of the potential payout. It's always good for the house that punters like favorites. It's also well known amongst the brotherhood of gamblers that favorites only pay out 1/3 of the time at race tracks and less than half the time on flat wagers on say, sporting events.

Unless one has a doom and gloom attitude toward investing, the favored play would be the short side, even though the payout will be minimal. According to the boys at Morgan, this is about as sure a thing as Muhammad Ali in a 15-rounder against a 120-pond nun.

We'll pass. Oddsmakers are notorious for being wrong. Just ask Joe Namath, quarterback of the 1969 Jets, who went into Super Bowl III as a 15-point underdog, guaranteed a victory and managed to beat the heavily favored Baltimore Colts, 16-7. It's almost a sure thing that the analysts at JP Morgan are equally clueless about putting up ridiculous numbers on the chance of recession when the real issue is how long the continued depression will carry forward.

According to James Rickards, famous gold investor, the US economy has been in a depression at least since 2008, when the entire global economic structure came within 23 trillion dollars of complete meltdown. Those 23 trill were supplied after the fact by our friends at the Federal Reserve and their friends at other central banks. Rickards' assertion is that the US economy suffered a near-death experience in 2008 and economic activity, though not negative for long, has been sub-par, which qualifies, in his mind, as a depression.

He's got plenty of evidence to back up his claim, notably the Great Depression of the 1930s, in which GDP mostly grew year-over-year, but at a snails pace, not keeping up with population growth or inflation. Today's situation is different, in that population growth in the US is pretty much stagnant, but GDP growth since then has been bolstered by changes in definition and plenty of funny money printed up by the Fed. The 2-2.5 percent growth that has been the hallmark of the past 12 years has not kept pace with inflation, the official numbers be damned.

With evidence piling up that coronavirus will continue to spread and that industrial production and unemployment may have peaked, there's at least a distinct possibility that US GDP will slow to about 1.5 to 1.7 percent for 2020. While there may not be a recession, the economy is almost certain to struggle with slack demand caused by fear of catching something worse than the flu. People can't be blamed for not wanting to get sick or dying, but they will be, with certain segments of the population eschewing the occasional night out on the town, attending a sporting event or generally avoiding close human contact.

When the coronavirus (COVID-19) claims a few lives in the US, watch the panic. It's already well underway in China, with Japan, South Korea and Hong Kong about to be sharing the sentiment. The virus will plague the US and many other nations, particularly those in Europe, already on the brink of an actual recession, because quarantines have not been sufficiently enforced on most travel, particularly by air.

The virus has shown to have an incubation period of anywhere from five to 24 days, so there are likely multiple carriers everywhere. In a few weeks time, the number of reported cases will begin to spike in non-Asian countries and then it will be too late. The big hope is that warmer weather will slow the spread, as it usually does with these kinds of infectious diseases.

We'll see. But, if you're looking for better odds, better head to the race track. Long shots often arrive at the wire in time.

At the Close, Thursday, February 20, 2020:
Dow Jones Industrial Average: 29,219.98, -128.05 (-0.44%)
NASDAQ: 9,750.96, -66.21 (-0.67%)
S&P 500: 3,373.23, -12.92 (-0.38%)
NYSE: 14,061.48, -25.65 (-0.18%)