‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean—neither more nor less.’
‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
‘The question is,’ said Humpty Dumpty, ‘which is to be master—that’s all.’
Alice’s Adventures in Wonderland is one of my favorite books. There are nutty characters, clever word-play, and like The Canterbury Tales and Dante’s Inferno, plenty of references to notable people and politicians. Today, people in The White House appear to be auditioning for a role in the next rendition of this classic children’s tale. This is currently on the White House website:
“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle. Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data”.
On this blog, when we want to point out that something is an egregious lie, we tend to use the term “nonsense”. The above is pure weapons-grade nonsense. A recession is two consecutive quarters of negative GDP growth. That’s the definition. There are severe recessions and light ones. There are long recessions and short ones. When second quarter GDP growth comes in at a negative number, the US will officially be in a recession.
We started talking about stagflation last February. Our view is once you adjust for inventory restocking and the under-counting of inflation, 4Q ’21 GDP growth was negative meaning we’ve already hit recession and are about to record our third consecutive quarter of negative GDP growth. We understand that no politician wants to take the blame for bad economic results on their watch, but trying to redefine words isn’t going to put food on anyone’s table, and is ineffective messaging. Instead of reassuring the American people, The White House just ended up looking like they have no idea what’s going on in the country. We’d prefer an economic plan that doesn’t depend on the exact kind of overspending and over-printing of dollars that created the current problem rather than trying to redefine words.
A month ago, we wrote a piece titled, “One Way or Another, We’re Going to End Up in the Same Place” where we explained that either the fed rate hikes wouldn’t work in which case, we’d get more rate hikes, or they would work, in which case, we’d see lower earnings. Earnings estimates are just starting to come down a bit now as we predicted. To support our point, after the close today, Walmart (ticker: WMT) reduced earnings estimates for this year. Walmart is the country’s largest retailer, and it’s taking down the retail sector in after-market trading. The company warned that consumers are being hurt by higher food and fuel prices and are shifting their spending to cheaper less profitable items. Walmart will need to reduce prices to move its current overstock of inventory.
So, we have consumers being hurt by higher food and fuel prices, company margins being squeezed by a shift to less profitable items and higher labor costs, and too much inventory that needs to be marked down to sell. We could call that double plus good company results, or we could just admit we’re in a recession combined with high inflation (stagflation) and come up with a plan to do something different. Either way, we expect S&P 500 earnings estimates to fall.