February 26, 2024

Commodity Insight: Prepare for the worst, but hope for the best

Over the past month, well-respected brokerage firms, legendary money managers and market forecasters with excellent track records have been predicting the U.S. and global economies are poised to slip into a recession. The only point they differ on is the severity of the recession.

Some argue the weakness will be mild, or a soft landing. Others argue that the recession will be a hard landing with uncomfortably large job losses and widespread economic pain.

But of all the downbeat forecasts, the one that shocks me most comes from the International Monetary Fund, a major financial agency of the United Nations and an international financial institution headquartered in Washington, D.C., consisting of 190 countries.

From CNN Business: “The International Monetary Fund has once again downgraded its forecast for the global economy with a sharp warning: ‘The worst is yet to come, and for many people 2023 will feel like a recession.’”

Yes, the IMF is calling for a recession to slam the world’s three largest economies, the United States, the European Union and China — and for the IMF to argue “the worst is yet to come” is sobering, to say the least.

What is unfolding is the fact that all of the world’s central banks, led by the U.S. Fed, are hiking interest rates at the fastest clip in 40 years and at the same time.

They are hiking rates to slay the inflation dragon because across the globe inflation is at a 40-year high with few certain signs it has run its course.

Inflation in the United States is blamed on demand due to job creation being too robust. In Europe, inflation is due to a shortage of supplies.

However, the problems facing the world’s global economies are more than raging inflation. There are concerns with COVID disruptions in China, the war in Ukraine, plunging asset prices, and fears the central banks and governments are misguided with their thinking and policies and may hike rates too high.

It is the sum of those fears that have so many calling for a recession in the months and year ahead.

Bloomberg News stated: “The latest recession probability models by Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all time frames, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update.”

To argue that the odds of a recession unfolding are 100% is stunning.

And Jeff Bezos, the richest man in the world with a net worth of $151 billion, cautioned that rougher times are ahead.

“Yep, the probabilities in this economy tell you batten down the hatches,” Bezos said in a comment related to Goldman Sachs CEO David Solomon’s CNBC interview.

Crabby Harvest

The only other news item intriguing me as much as the coming recession is the cancellation of the Alaska snow crab harvest for the first time in history.

From CNN: “The Alaska snow crab harvest has been canceled for the first time ever after billions of the crustaceans have disappeared from the cold, treacherous waters of the Bering Sea in recent years.”

And CNN goes on to state: “The Alaska Board of Fisheries and North Pacific Fishery Management Council announced last week that the population of snow crab in the Bering Sea fell below the regulatory threshold to open up the fishery.

“But the actual numbers behind that decision are shocking: The snow crab population shrank from around 8 billion in 2018 to 1 billion in 2021, according to Benjamin Daly, a researcher with the Alaska Department of Fish and Game.”

It is estimated that the reduction of the snow crab harvest and the end of the red king crab season will result in a loss of $3 million in tax income, or 50% of Alaska’s annual budget.

With or without the Fed hiking interest rates any higher and lingering issues with COVID and soaring inflation, a recession will settle on the Alaska economy sooner than later.

My advice, knowing full well a recession is looming, comes from Benjamin Disraeli, author and prime M\minister of the United Kingdom in the 1800s.

In Chapter 3 of his sixth book, “The Wondrous Tale of Alroy,” written in 1833, Disraeli stated: “Prepare for the worst, but hope for the best.”

I wish I had more encouraging advice, but do not. Still, the words of Disraeli should be taken seriously and to heart.