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To investors,

Almost one month ago to the day (October 19th), I warned you to be fearful if we ever saw a barrage of articles claiming that a soft landing was going to happen. In that letter, I wrote the following and included this chart:

“Bloomberg recently did a study that showed a rapid increase in articles talking about a soft landing was usually followed by a recession. You can see the large spike in recent articles mentioning a soft landing would suggest that a recession is incoming. Humans are optimistic and like to think that bad things are not on the horizon, but this study shows that we should be fearful when others are not.”

I wish that I had better news, but it appears that the barrage of “soft landing” articles is upon us. James Lavish pointed out the rapid increase in frequency earlier this week.

This phenomenon is not exclusive to the Bloomberg Terminal. A quick Google search turns up plenty of articles predicting a soft landing across every major media platform, including CNBC, Wall Street Journal, Financial Times, and many more.

We don’t have to merely rely on the mainstream media’s sudden obsession with a soft landing to find reasons to be concerned.

The real-time Sahm Rule Recession Indicator, which “signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months,” is the highest it has been since the Global Financial Crisis if you ignore the COVID anomaly.

We can also look at the Conference Board’s Leading Economic Index (LEI). According to Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board:

“The LEI for the US fell again in September, marking a year and a half of consecutive monthly declines since April 2022. In September, negative or flat contributions from nine of the index’s ten components more than offset fewer initial claims for unemployment insurance. Although the six-month growth rate in the LEI is somewhat less negative, and the recession signal did not sound, it still signals risk of economic weakness ahead. So far, the US economy has shown considerable resilience despite pressures from rising interest rates and high inflation. Nonetheless, The Conference Board forecasts that this trend will not be sustained for much longer, and a shallow recession is likely in the first half of 2024.”

I have no idea whether a recession will actually come. Even if we have two consecutive quarters of negative GDP growth, which historically marked a recession, the government and economic organizations may not acknowledge it as they did in 2022.

Predicting the future is hard. But it increasingly feels like the public narrative is offsides. We are not out of the woods yet, so people celebrating the Fed’s avoidance of a recession should be more cautious.

Hope you all have a great weekend. I’ll talk to everyone on Monday.

-Anthony Pompliano

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