Can we really avoid a recession? … Eric Fry cautioned us to “beware the non-recession” … will we repeat 1966? … why Eric Fry and Luke Lango have AI in their crosshairs
Could we really pull off a “soft landing”?For any readers less familiar with the term, it describes an economic outcome in which Fed interest rate hikes are just high enough to bring down inflation and prevent an overheated economy…yet not so high that they cause a severe economic downturn and the recession everyone fears.At the beginning of the year, a soft landing appeared to be little more than a pipe dream for many investors…The Fed was hiking rates at the fastest clip in decades… though inflation was dropping, certain parts of inflation remained especially sticky… and data suggested the health of the U.S. consumer was deteriorating rapidly as they went further and further into debt simply to cover day-to-day expenses.And, of course, there was the inverted yield curve. According to research from the Federal Reserve Bank of San Francisco, an inverted yield curve has preceded every recession in the U.S. since 1950, with 1966 being the only false positive (a yield curve inversion that did not lead to a recession).But here we are in June and there’s no recession to be found. And with an increasing number of economists becoming more optimistic in their projections, might we really achieve the elusive “soft landing” after all?Here’s National Retail Federation Chief Economist Jack Kleinhenz:
While survey data shows consumers do not have much confidence in the economy, actual spending data shows they were upbeat as the second quarter kicked off……We continue to look for a soft landing this year…Historically, every aggressive Federal Reserve tightening cycle since 1970 has ended up in a recession.Nonetheless, there have been periods when the Fed increased rates and the result was a soft landing where the economy slowed down to avoid both a recession and a resurgence in inflation.
If this sounds familiar, it’s likely because you heard it from our macro expert Eric Fry, editor of Investment Report.
Back in May, Eric warned investors to “beware the non-recession”
Just as Kleinhenz noted, aggressive Federal Reserve tightening doesn’t always end in a recession. And even the inverted yield curve – which has a reliable track record of predicting recessions – isn’t 100% accurate.A moment ago, we highlighted how 1966 brought an inverted yield curve without a recession. What was it about that year that staved off a recession? And what parallels are there to today’s economic climate?Taken a step further, given Eric’s warning to “beware the non-recession,” what does he view as reason to feel more confident about a soft landing today?Here’s Eric setting the stage to answer that question:
A few notable economic trends from [the 1960s] era provide some insight: Government spending, consumer spending, business investment, and foreign investment were all robust.Typically, during a recession all or most of these investment activities decline. But in 1966, they did not.
In making his point, Eric highlights heavy government spending due to the Vietnam War… low unemployment rates, a relatively strong economy, and strong consumer spending… robust business investment funded by plenty of corporate profits… and a steady stream of foreign direct investments.Eric concludes that, together, these factors not only helped the U.S. sidestep a recession in 1966 despite an inverted yield curve, but the U.S. economy grew at a whopping 6.6% that year. It also tacked on another 2.7% the following year.
So, how does today’s economic climate mirror 1966?
Eric notes that the 2023 economy features these identical phenomena from 1966: big government spending… strong job growth … robust consumer spending… ample business investment… and plenty of foreign direct investment. And today, all of these variables are trending higher – not lower.From Eric’s May issue of Investment Report:
Here’s what has happened since the end of 2020…– U.S. government consumption spending has climbed 13%…– Business formations (52-week average) have jumped 16%…– Foreign direct investment has increased by more than half a trillion dollars – or 11%…– Private domestic investment has doubled…– And the U.S. economy has added 13 million jobs, net – a 9% increase.
Put it all together, and here’s Eric’s bottom-line:
In 1966, a recession failed to materialize, and I believe history will repeat itself.
So, what are the action steps for investors today?
Well, one action step is to load up with top-tier Artificial Intelligence (AI) stocks.Eric is tracking how AI is making inroads into all sorts of sectors. But the one that has most of his attention today is health care.From Eric:
According to Grand View Research, artificial intelligence will become a key driver of medical device innovation over the coming decade.The research firm predicts the AI component of the healthcare market will skyrocket from $15.4 billion in annual sales last year to more than $200 billion in 2030. That’s a compound annual growth rate of 37.5%.To support its robust forecast, Grand View explains…“Artificial intelligence (AI) and machine learning (ML) algorithms are being widely adopted and integrated into healthcare systems to accurately predict diseases in their early stage based on historical health datasets…Healthcare functions such as diagnostics, patient management, medication management, claims management, workflow management, integration of machines, and cybersecurity saw a remarkable surge in the integration of AI/ML technologies.”
Eric’s May recommendation in Investment Report was a direct play on AI and health care.I can’t reveal its name out of respect for Eric’s subscribers, but he describes it as a “solid, steadily growing medical imaging company that also includes considerable fast-growth potential from its AI product line and investments.” You can learn more as a subscriber, and access all of Eric’s AI research, by clicking here.
Meanwhile, our hypergrowth expert Luke Lango is also laser-focused on AI opportunities today
Luke says it’s time to bet big on this transformative technology. After all, this isn’t a trend or fad – it’s a “generational investment opportunity.”From Luke:
Ever since ChatGPT’s launch in late 2022, everyone has been buzzing about AI. But I’ve been researching this stuff for over five years now. And I can tell you that this is about much more than an online chatbot.AI technologies represent one of the greatest technological paradigm shifts of our lifetimes.And this shift isn’t something that will happen in 10 or 20 years. It has already started. And I think that in just a couple of years, AI will be running the world.
Coming full circle to our opening topics of a “soft landing” and inflation, Luke makes a fascinating point – we need advanced technology (such as what’s offered through AI) as a way of suppressing inflation permanently.Back to Luke:
There are two parts to the inflation problem. The demand for goods and services is too high, and the supply for them is too low.The Fed can solve the first part. Hike interest rates. Choke off consumer spending. Suppress economic demand – pretty easy.But rate hikes don’t address the supply side of the inflation problem. The only way to fix that is if companies figure out a way to make more products and services.But to make more products and services in a human-driven world, you need more labor. That means companies need to hire more workers, which means more wages, consumer income, spending, and economic demand.In other words, the present “solution” to fixing the supply side of the inflation equation will exacerbate the demand dilemma. And therefore, it won’t permanently resolve the inflation situation.We need a different solution – and not an inflationary human-driven solution. We need a disinflationary automation-driven solution.
Artificial intelligence offers us this solution
Luke explains how AI technologies have a big upfront installation fee but very low recurring costs thereafter. Their net impact to annual operating expenses is tiny.At the same time, those technologies don’t sleep, clock out, or take vacations. They’re always working, always productive. So, their net impact on output is enormous.Here’s Luke with the result:
The company can make a lot more product at a fractionally higher marginal cost. Supply goes up without producing more economic demand.Automation is the panacea to our current inflation problem.Companies are starting to realize this. That’s why they’re starting to turn toward automation technologies in 2023. And so emerges the multi-trillion-dollar Automation Economy.
