The Economy – Where Are We?

News and Information

There is so much information, often conflicting, about the economy and what will or might happen that it is important to stop and think about the difference between what we hear and what history tells us.  The good and bad of the information age is that we now get such a flood of information that telling correct from inaccurate is daunting. 

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

Warren Buffett

We thought we would look at five areas of the economy to see what they are telling us every day. 

Study hard because your analysis and opinion is probably just as valid as most prognosticators on television.  To Warren Buffet’s point, work to understand how events affect your situation, do not try to be much of a forecaster.  Tell it like it is now, not how you would like it to be.  Being honest with yourself about your financial situation is the first step to financial freedom.


There are just too many indicators of a recession for us to avoid one.  Several things are going on in the economy that normally show an economic slowdown is on the horizon, I think the near horizon.

Is there going to be a recession?  In my opinion yes, but we are not nearly there yet!

Yield Curve Inversion and Interest Rates

The bond yield curve has inverted, and recessions are always preceded by this phenomenon.  What does this mean?  The normal situation for the yield curve would be for rates to be higher, the further you look into the future.  The further you try to predict the future, the less certain you are about the probabilities of financial, political, geo instability, market uncertainty and other factors.  Rates should rise with this uncertainty.

Rates are closely followed by economists at two, five, ten, and thirty years.  Normally the thirty-year rate should always be higher than the ten-, five-, or two-year rate, because we cannot predict the future at 30 years as easily as we can at 2 years.  When this situation is reversed (inverted) it shows that investors are more concerned and uncertain about today than at different periods into the future.  The ten-year bond yield is often compared to the two-year yield to gauge investor optimism.  Right now, the two-year rate is higher than the ten-year rate, showing that investors see more uncertainty in the immediate economy.

The bond market is much larger than the stock market, so how bond investors feel about the future is very important.  Right now, they know that the FED held rates too low for too long and that we are in a period of reckoning and reestablishing rates at a more proper level.  This normalizing of rates influences loans of all types from mortgages to credit cards, to vehicles, and so on.  It affects savings rates also, but interest rates are a concern only to the extent that they encourage people to save more and spend less, also contributing to an economic slowdown.

The Federal Government and the FED are in a real pickle where they must raise rates to slow inflation.  Raising rates is also needed to attract investors to bonds as inflation increases and our debt rating falls.  The real problem is that going into an election year politicians will spend more, negating all the FED’s efforts to slow inflation.  The FED knows that the Nation cannot afford the National Debt at a higher level.  Raising rates to slow inflation creates yet another problem.

Vote carefully and for politicians who want to control spending and not waste money on projects like studying the mobility of shrimp or building turtle tunnels!

Single Family Housing

As interest rates rise typically there is a slowdown in home purchases because consumers get priced out of the housing market as their payments rise.  Today there is a double whammy.  Rates were artificially held low, mostly for political reasons, for so long that many homeowners bought houses with very low-rate mortgage rates.  For most it is helpful to hold on to their existing house and mortgage, slowing sales and purchases.  For most young people this is the first rise in rates in their lifetime and probably a little mystifying.

Secondly, we have a strange twist in the housing market that is very rare.  Not only have rates risen, but there is a housing shortage caused by the combined effect of the pandemic, immigration, construction labor shortages, and supply chains.  This places upward pressure on house prices and when combined with mortgage rates this can be very uncomfortable for purchasers.  Some will opt for variable rate mortgages expecting rates to come back down, a bad bet.

If rates stay high expect more defaults, fewer sales, and strangely more housing shortages.  All this feeds into the uncertainty and recession beliefs.

If you can, stay put and enjoy your low interest rate mortgage, but if you must move opt for a fixed rate mortgage expecting to refinance if or when rates cycle back down!

Commercial Real Estate

We are at a very strange juncture on commercial real estate, especially in larger cities.  The pandemic led to more work-from-home opportunities and many employees have taken advantage of this change.  Larger employers are just learning about the effects of these changes, but one of the biggest is that they no longer need as much office space.  Because of long-term leases and refinancing cycles, the issues have not yet passed from the lessor to the lessee to banks.  But this is changing and as leases renew companies will need less space, and office building owners may have fewer tenants, or tenants with needs for less space.  Lessors will either sell, default, or renegotiate and the jury is out on how this will work.

Many of our major cities are in a death spiral where crime, high taxes, fewer jobs, and poor schools encourage outward migration.  Every person and every corporation that leaves, places pressure on those remaining to carry the tax burden, creating a death spiral for larger cities.  Until there is a wholesale change in voting patterns, these large cities will continue to decline.    

There is no reason to subject you and your family to living conditions in these cities and If you have bus fare out of town, leave!

Consumer Savings and Debt

I get a little chuckle every time I hear someone on CNBC or FOX Business say the consumer is fine and they see plenty of people out shopping and dining everywhere they go.  Most of these people make high six or low seven figure salaries, live in upscale areas, and only know people like themselves.  The average consumer is not fine.  Our country is headed for some real bumps in the road because shoppers do everything they can to keep spending as long as they can, and then they just abruptly stop.

Consumers have been helped recently by government stimulus money and lower gas prices. As gas prices fluctuate there is an immediate effect on the consumer’s financial health day to day. Consumer debt is climbing, debt relief for students is in all probability not going to happen, and payment on consumer loans are starting to fall behind.  With the stimulus money coming to an end, we will soon learn just how much resilience there is in the economy.

The FED’s December 2022 report showed that American consumers now face a staggering $16.9 trillion in debt, rising over $1.3 trillion in just the past year.  Delinquencies on all loans are increasing modestly but the trend is not good.

If you can, get out of debt, or at least reduce your debt!

The Big Technology Stocks

If you watch the morning business channels you might believe the stock markets are in some causal pause, and really doing all right.  I believe the indices are skewed by just a few stocks that are performing well, and the irrational exuberance around artificial intelligence that has inflated some if not most. 

If you invested in Apple, Microsoft, Meta (Facebook), Nvidia, or Alphabet (Google) you may feel like a genius and cannot understand all the concerns.  But this handful of stocks are unusually cash flush and are disproportionally skewing the market indicators.  They are large enough to be included in multiple indices, multiplying the feeling of overconfidence.

In the future markets will return to normal valuations based on earnings and earnings potential, and analysis of investments will be more rational.  Soon many if not most corporations will need to refinance their corporate debt at a time where it is unknown whether they can afford it.  Once this cycle begins profits and valuations must adjust down.

While the FED is driving rates higher, take advantage of those opportunities risk free!

Much More to Analyze

This article just scratches the surface of our present economy and anyone who wants to understand the markets and the effect on their finances needs to do their own analysis.  Everyone’s situation is different, and all the moving parts of the economy have a dissimilar effect on individual circumstances.  But the indicators that I trust point to a period of greater financial difficulty. 

There is a ticking time bomb that is being discussed in financial circles but poorly understood by the public, and I will discuss it in an upcoming article.

Resources Used in This Article

Commercial real estate woes weigh on New York City recovery, NY Fed says, by Michael S. Derby,, April 13, 2023.

Consumer debt hits record $16.9 trillion as delinquencies also rise, by Jeff Cox,, February 16, 2023.

It’s Time to Accept That Higher Mortgage Rates Are Here to Stay, by Holden Lewis,, June 28, 2023.

New York Real Estate Market: Will It Crash in 2023?, by Stave Casale, June 26, 2023.


The coming commercial real estate crash that may never happen, By Tim Mullaney,, April 9, 2023.

Understanding Bond Prices and Yields, by Barry Nielson,, May 24, 2023.

DISCLOSURE: This commentary is being communicated as general information and observations only and should not be taken as investment advice.  It is not investment research or a research recommendation, as it does not constitute material research or analysis.  The actions that you take as a result of information contained in this document are ultimately your responsibility.