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By SHAH GILANI, Capital Wave Strategist, Money Morning
There's a recession coming; that's a given. But it's not here. In fact, there isn't one in sight, not even on the horizon.
And yet that's not what you're hearing from an overwhelming number of mainstream media and financial news outlets.
According to them, the next great recession is bubbling up, about to spill out of the containment towers built around it.
Investors not participating in the roaring bull market are being cautioned that it's too late. Even worse, investors sitting on spectacular gains amassed over the almost 11-year bull market are being targeted with sell recommendations.
Purveyors of the recession narrative want investors on the sidelines to be afraid. Moreover, they want investors who've amassed fortunes to sell their stocks and profit from the recession they say is imminent by selling stocks short.
The truth is there's no recession in sight, and the stock market is going higher - a lot higher. And every moment you wait to jump in, you're missing out on profits.
Today, I'm going to reveal what the recession narrative's all about. I'll show you who's behind it, how the economy's really doing, where the markets are going and why, and how to make 25%, 50%, even 100% or more, over and over, as markets head higher...
"Run for the Hills; the Recession's Coming"
Media outlets have been pumping out doom and gloom recession headlines all year. Here are a few offerings:
- From Huffington Post in January: "4 Signs Another Recession Is Coming..."
- In June, an NPR headline: "What Just Happened Also Occurred Before the Last 7 U.S. Recessions. Reason to Worry?"
- Reuters in September: "A Recession May Hit Some U.S. Metros Worse Than Others."
- And from CNBC last month: "Janet Yellen Says 'There Is Good Reason to Worry' About the U.S. Economy Sliding into Recession."
It's all fake news.
What's really going on was captured succinctly in the New York Post headline, "Recession Is at the Top of Trump Haters' Wish List."
That's what's really happening.
With no recession in sight, Trump haters, led by media outfits the president calls "fake" at news conferences inside and outside of the White House when he's asked leading or bias questions, are trying to implode the president's reelection chances by pronouncing a recession is upon us.
All of this is done in hopes of prompting investors to sell stocks and drive markets lower.
Since the only 100% truth about U.S. President Donald Trump's term in office is that equity markets have soared and are regularly making "new all-time highs," Trump haters know he's vulnerable if markets turn south. They'll take investor and consumer confidence with them and tip the country into a recession before next November.
Sadly, America's that divided.
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Bill Maher, a friend of mine and the Trump-hating host of HBO's "Real Time with Bill Maher," makes the case for causing a recession. On the subject of the pain a recession would cause, he remarked, "We have survived many recessions. We can't survive another Donald Trump term."
Now you know where media headlines come from - headlines like, "Will the Next Recession Cause a Stock Market Crash," from Motley Fool.
Or, "Are Recession Fears More Justified Now?" from the New York Times.
Or this one, from Rolling Stone: "The Next Recession Is Going to Be Brutal."
And this The Atlantic headline, "The Next Recession Will Destroy Millennials."
With a stream of headlines inundating investors and consumers with recession fears, no one would blame consumers for holding off on purchases or investors from staying on the sidelines or taking profits on their gains.
But it would be a travesty, even a tragedy, for sidelined investors and those who get shaken out of profitable positions to watch the economy chug along solidly and miss out on the market's next leg higher.
Don't be fooled.
That Was the Fake - This Is the Real
Gross domestic product (GDP), a measure of the market value of all final goods and services produced in a specific time period and usually expressed on an annualized basis, has been trending above 3% since President Trump took office. And it's only recently cooled off some.
In the first quarter of 2019, GDP grew at a 3.1% clip. In Q2, it grew at 2%. And in the latest quarter, 1.9%.
A recession is defined as two consecutive quarters of negative GDP growth.
Based on even the lowest recent GDP reading, the U.S. economy would have to contract substantially and very quickly to register two consecutive quarters of contraction.
Consumers who are being targeted by negative headlines are spending and likely to continue to spend into the all-important Q4 holiday season.
According to the U.S. Federal Reserve, household consumption, government spending, and exports were the main drivers of growth in Q3, while business investment fell and imports made a negative contribution to GDP.
Let's take a quick look and compare some of these numbers.
Personal consumption expenditures (PCE) rose 2.9% in Q3 (versus 4.6% in Q2), mainly boosted by consumption of goods (5.5% vs. 8.6%), in particular durable goods (7.6% vs. 13%), and services (1.7% vs. 2.8%).
Consumer growth is fundamental and cannot be overlooked as a key indicator for dispatching fears of a recession.
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Additionally, federal government spending advanced 3.4% (vs. 8.3% in Q2) and state and local government spending rose 1.1% (vs. 2.7% in Q2). There was also a rebound in both residential fixed investment (5.1% vs. -3%) and exports (0.7% vs. -5.7%).
That's right; not only did we continue to have rising growth, but some measures even reversed on negatives from the previous quarter.
With consumption responsible for approximately 70% of GDP, it's hard to see any sign of a recession anywhere on the horizon, even if Q3 numbers are off from Q2's robust growth.
Granted, business investment shrank 3% in the quarter, the sharpest contraction in more than 3.5 years. It was dragged down by declines in spending on equipment and nonresidential structures, which naysayers point to as the metric to watch and the reason they're predicting an imminent recession.
However, with business investment, or capital expenditures (CapEx), contracting isn't unexpected. It's a byproduct of the trade war with China and not necessarily a long-term negative.
In fact, some analysts argue (myself included) that realigning supply chains and bringing factories, production, work, and jobs back to America - which is happening as a result of the trade war - will be a substantial long-term benefit to the economy.
As long as consumers remain in a good position - which they are thanks to low unemployment and rising wages - the falloff in CapEx will be offset by robust domestic consumption.
More Gains Ahead for Stocks and for You - Starting Now
With no recession in sight, equity investors expect company earnings to continue to increase, maybe not at the double-digit pace of the past three years, but certainly in the high single-digit range, based on analysts' reports on Q3 earnings and their estimates for Q4 earnings.
The recession narrative's not working. Markets keep going higher because smart investors are focused on real numbers and real econometric markers and haven't been faked out into selling.
With no real negative recession news facing equities, there's nowhere to go but higher.
And that's why you want to play it with these two outstanding stocks.
Kontoor Brands Inc. (NYSE: KTB) was spun off of VF Corp. earlier this year. It's the Wrangler and Lee brands' company that looks boring, but sure isn't. The stock took a hit in November on bad earnings, but it rebounded right away. One reason the stock rebounded and is going higher is that it sports a whopping 5.75% dividend yield on a 26.55% payout ratio.
Another reason the stock rebounded (besides all the bad stuff in its earnings report being mostly behind it) is that there's a massive 20% short position across all the company's floating shares. That's a huge short and a catalyst for the stock to move up and keep moving up.
Pinterest Inc. (NYSE: PINS) is another stock that's going to move higher in the fake recession future. The stock's been hit hard lately, mostly on lower-than-expected revenue and earnings disappointments. But down 50% is a great buy-in level. PINS is sitting on a tidy pile of cash, and as an almost $10 billion capitalization company with only $162 million of debt on the balance sheet, it's lean and mean. Pinterest is just starting to figure out how to monetize the eyeballs it attracts and is heading back up to its all-time highs and way beyond.
But you see, recession scares are just part of the problem. Open any news site, and you'll see fear-mongering headlines about the trade war, global debt, the Fed, inverted yield curves, active vs. passive investing, and more.
Be sure to check your inbox, because I'll be debunking all of the "fake news" around these topics and more in my newsletter, Wall Street Insights and Indictments.
In the meantime, my colleague, Michael Robinson, has cut through a huge market myth himself. Some say this is the salvation of the global economy. Others say it's a complete scam.
In fact, I'd say it's the most controversial investment of the past 100 years...
But it's already minted millionaires, and Michael's research indicates that the next wave is coming.