Torsten Slok on Voluntary Trade Reset Recession and Economic Outlook

Economic Data and Anecdotal Evidence

• 📉 Soft data has been indicating economic slowdown, and anecdotal evidence from earnings reports suggests hard data is also poised to weaken.
• ⚠️ Companies like PepsiCo and Chipotle have reported lower sales and traffic, while Southwest Airlines has indicated the economy is already in a recession.
• 📊 Many companies are unable to provide future guidance, with some explicitly stating that upcoming hard data will be significantly weaker.

The Concept of a Voluntary Trade Reset Recession

• 🇨🇳 The primary driver discussed is a voluntary trade reset recession, stemming from high tariffs on China, which are expected to reduce imports and lead to empty shelves.
• 🚫 Unlike previous recessions caused by events like COVID-19, the 2008 financial crisis, or the IT bubble, this recession is characterized by a sudden halt in US-China trade.
• 🚢 Consequences include fewer ships and vessels, impacting industries like trucking and potentially leading to shortages of goods such as prescription drugs and fireworks.

Market Reaction and Future Risks

• 🤔 The market appears to be underpricing the potential economic impact, possibly by focusing on the past earnings season and hoping for quick trade deals.
• 💥 A significant risk remains if tariffs, particularly on China, are not reduced, potentially impacting even seasonal items like fireworks for the 4th of July.
• ⚠️ The current situation is described as unsustainable, with the potential for sudden realization of consequences in previously overlooked areas due to high tariffs.

Outlook for the Summer

• 🗓️ The 90-day deadline in early July is a key date to watch, especially if no trade deals are finalized.
• 📈 The slowdown expected into the summer could be very significant, driven by the ongoing trade reset and its unforeseen consequences.
• 🎤 Multiple experts are highlighting the unsustainability of the current trade policies and the potential for a substantial economic downturn.