(New York)

New data just released shows the US economy is a bit weaker than everyone expected. Second quarter GDP data has been revised downward, showing that the US expanded at only 2.0% in the quarter instead of the first-reported 2.1%. Government spending, weaker exports, and private inventories weighed on the numbers. However, the very good news in the data is that consumer spending increase was the strongest in 4.5 years.

FINSUM: Consumer spending is at its highest levels since 2014 at the same time as bond yields are at extraordinary lows and everyone is worried about a recession. Either a recession will arrive or there will be some big losses in bond markets.

(Los Angeles)

Pimco is probably the most respected name in fixed income, and the firm just went on the record warning about the economy and encouraging the Fed to act. The asset manager argues that the US economy is in worse shape than many think and is admonishing the Fed to cut rates more aggressively than expectations. Pimco says that momentum in the labor market is slowing, the trade war is showing little sign of abating, and the risk of financial excess caused by lower rates appears minimal. According to Pimco, “We can’t emphasise enough that labour market momentum has decelerated more markedly than most forecasters were previously expecting”.

FINSUM: We actually are on the opposite side of the fence as Pimco. We think the market is blowing things out of proportion about the economy and is overly worried. We surely hope we are right.

(New York)

Investors tend to go to the same old ports to ride out the storm of a recession—gold, Treasuries, healthcare, utilities etc. However, finding a new safe haven can be not only the means to good protection, but also solid capital appreciation. With that in mind here is a very unglamorous, but potentially lucrative idea—buy garbage stocks. We don’t mean bad stocks, we mean stocks of solid waste companies, like Waste Management, Waste Connections, and Casella Waste Systems. Garbage companies are highly recession tolerant (it is not as if there is less garbage), and they tend to throw off huge amounts of free cash flow. Michael Hoffman, an analyst at Stifel is recommending these shares.

FINSUM: This seems like a very good recession hedge. Garbage is a very durable sector. Will this be the next recession star?

(New York)

The bond market is doing something that it usually doesn’t—it is scaring stocks. Generally speaking, big sell offs in stocks drive moves in bonds, but rarely do moves in bonds spook stocks. Except for right now, that is. The ten-year yield dropped to 1.48% recently, below the two-year’s 1.51%, signaling another 2y-10y inversion which is a classic recession indicator. But the 3m-10y is even scarier as it touched a fresh new low of negative 51 basis points.

FINSUM: The bond market thinks a recession is coming and that Fed policy is too tight. The velocity with which that sentiment is driving yields is spooking stocks, and rightly so.

(Washington)

Whichever side of the political aisle you are on, the new polls coming out about the 2020 presidential election look misleading. A new Gallup poll released this week showed that Biden has a 54% to 38% lead over Trump. Furthermore, the poll found that any of the 5 top Democratic contenders would beat Trump in the election were they to win the bid. Additionally, 37% of voters reported that they felt the economy was worsening versus 31% who said it was improving, the first time recently that Americans have been pessimistic about the economic outlook.

FINSUM: The polls don’t seem to be doing justice to how close this election feels. They just don’t reconcile for us. That said, the numbers on economic sentiment are quite interesting.