Ed Dowd was one of the many highly respected macro analysts who got the recession call in 2022 and 2023 blatantly wrong.
Mr. Dowd is a former BlackRock money manager, a longtime Wall Street trader, and the current founder of Phinance Technologies – and he was on this recent Julia La Roche podcast: Why The Next Recession Is Different: The Coming Economic Reset in 2025.
Mr. Dowd says two unprecedented events kept us out of recession: (1) record peacetime deficit spending equal to 8% of GDP; and (2) record levels of immigration that were eight to ten times normal levels.
Our $2 trillion deficits kept asset prices high, and they kept numerous people employed who otherwise would not have been. And the mass immigration also resulted in an immediate influx of cash into the economy, both as a result of the billions coming from NGOs and government itself to support them and as a result of the money that was given directly to the immigrants that was immediately spent.
This is obviously not sustainable because it results in both significant inflation and much more wealth inequality, as much of that excess money creation (from government spending) flows into asset prices.
If it were even close to sustainable, every government would simply spend its way to prosperity. The longer that governments try to spend their way to prosperity, the worse the subsequent economic crisis is – every time. There are no exceptions.
So, no – governments can’t stimulate into a strong economy forever, and the stimulus is stopping now – with immigration getting cut off and spending getting curtailed.
These are a few of the reasons Mr. Dowd predicts a recession this year – along with a series of Fed rate cuts and much lower interest rates.
Mr. Dowd also repeats his oft-made assertion that the BLS has been vastly overstating jobs numbers and that when the actual data starts to surface, the stock market will react negatively.
Why Recessions Are Good
While recessions are obviously very bad for everyone who loses their job, they can be a very good thing too, per Mr. Dowd.
Recessions lower asset prices, making it easier for the middle class to invest and buy homes.
Recessions clean out deadwood or inefficient businesses.
And recessions result in lower interest rates, making housing much more affordable and making government debt financing much less expensive (lowering deficits).
Here Are a Few Other Random Points Mr. Dowd Makes:
Stock prices will correct significantly – so keep some dry powder to reinvest.
Gold prices could drop at first before rising again – if investors are forced to sell gold to meet margin calls (gold dropped 50% after the 2008 crisis).
The dollar will go down in value before shooting up as a result of a dollar shortage (when banks stop lending dollars because of the recession).
Inflation will come down because immigrants will be spending much less government money and because rents (30% of CPI) are coming down.
DOGE could bring down rates too, if it signals an actual ability to cut spending and control deficits.
BIGGEST TAKEAWAY THOUGH: Mr. Dowd is adamant that rates will fall significantly this year.
