Revising Our Thoughts About A Recession
At 45 years old (and still on the field) Tom Brady is undisputedly the best quarterback of all time. But it wasn’t always this way.
In April 2000, he was a Michigan graduate, and part of a “weak QB class” waiting to see if he would be drafted into the NFL.
By draft day #2, Every NFL team (all 31) had taken a pass on Brady- at least five times. Six other quarterbacks were selected ahead of him. His professional future was looking dim.
Patriots executive Scott Pioli recalls “finally, we get to the sixth round, and we’re all kinda looking at each other… ‘Did he get arrested last night? Is he dead? What’s going on?” New England ended up selecting Brady with pick #199.
7 super bowl rings later, he’s regarded as the greatest draft pick of all time.
Athletes, armed with an immediate win/loss record, have the ability to immediately change the public’s opinion of them.
Artists and Philosophers aren’t so lucky. As a population, alternative thinking leaves us confused. We don’t like threats to our consensus assumptions and beliefs.
Tragically, many of the greatest artists and philosophers of all time became victims of their culture, and never lived to see their ultimate success:
· Van Gogh only sold one painting during his life.
· Galileo was forced to publicly recant his scientific findings, or face being burned at the stake.
· Edgar Allen Poe never made enough money writing, and eventually drank himself to death.
Chuck Klosterman wrote, “We live in a culture of casual certitude; This has always been the case, no matter how often that certainty has failed.”
Every generation has a quiet certainty about several things. Some are right, and some are wrong. This happens, in part, because our existing ideas are linked to our identity and become hard to change.
It takes time and a ton of evidence to change popular opinions. It’s clear why, (through the power of hindsight), so many people were wrong in the past. What’s less clear, is what we’re currently wrong about. And that’s where this note begins:
Collectively, right now, economic sentiment is absolutely terrible.
No matter what indicator you look at, people are assuming the worst for our economy:
Market pundits have been throwing around the word “recession”, which would absolutely justify some of the pessimism.
But defining a recession isn’t as easy as it sounds: a slowdown in GDP for two quarters in a row, alongside the NBER announcing “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
But wait, GDP estimates, the economic report card by which we are judged, are constantly being revised. There are 3 less-publicized rounds of revisions which take nearly 3 years to complete.
That average revision isn’t small; it can redefine a recession into an expansion (or vise-versa).
Is a recession headed this way? Are we in one right now? How deep would it be? How long would it last?
I don’t know. The good news is that nobody will technically know until after the beans are counted (and recounted) through 2025.
What we do know is that current economic sentiment is horrific, despite the fact the data looks relatively ok.
Edgar Allen Poe wrote:
“The time will arrive when you will learn to judge for yourself what is going on in the world, without trusting to the gossip of others.
Believe nothing you hear and only one half that you see.”
This email note isn’t a prediction of the economy or stock market.
But when sentiment swings to the extremes you have to wonder what assumptions are being made or what groupthink is going on.
My bias always leans towards optimism, so I’m not convinced our reality is as bad as current perception.
Of course, I’m willing to be wrong.