Furry Finances and Economics
Submitted by Atlas Indicators Investment Advisors on July 28th, 2022
Blues singer Walter E. “Furry” Lewis died September 14, 1981. When he was born remains up for debate, but it was in either 1893 or 1899. Atlas brings him to your attention because a line in his 1928 song I Will Turn Your Money Green (link here) seems appropriate for the state the economy and policies from global bankers, including America’s own Federal Reserve. In it, he writes, “I’ve been down so long, it seems like up to me.”
Initial claims for state unemployment insurance come to mind. This measure of labor market health plummeted after the initial shock from the Covid-19 economic shutdown. Its four-week moving average bottomed back in the week of April 2nd of this year. While still low by historic standards, its trend continues up, rising 70,000 to 240,500 this week, a 41 percent increase.
And did you hear about the European Central Bank’s latest action? They raised their overnight lending rate to zero yesterday. You read that correctly. They increased the rate 0.5 percentage points to zero! This was the first time this bank increased its rate in 11 years. Like America, their economy is facing both inflation and the threat of recession, but those tending to the currency are more concerned about ongoing price hikes.
Interest rates in America also come to mind when listening to Furry. They have been low here at home, but the Federal Reserve has been putting upward pressure on them and is scheduled to do even more next week. This, along with a slowing economy, is causing the yield curve to change shapes. Instead of its normal, mostly upward sloping line, it has inverted; that is, the 2-year Treasury yield is now higher than its 10-year counterpart. While not a foregone conclusion, this is typically considered a harbinger of recession.
Economies cycle between periods of weakness and strength. During our lives, America’s economy has spent much more time in the strong segments. However, time can feel like it has slowed during periods of deceleration. When we exit the current slowdown (and potential recession), we should be able to once again relate to the feeling of being down so long that even mild improvements will feel like up.
