Recession Risks Rise: How Will Bitcoin Handle It?
Examining Consumer Stress and Price Cuts From Target and Walmart Reports, Commodity Weakness, and Spiking Monetary Assets
The current economic climate is rife with indicators pointing to a looming recession. Contrary to the expectations of some analysts for reaccelerating price inflation, we are starting to see major signs that suggest an acceleration in the opposite direction, downward toward recession. Reports from Target and Walmart highlight the severe financial strain on consumers, while surprisingly low gasoline demand provides a unique perspective on the approaching recession. This blog post will delve into these indicators, examine the broader economic context, and explore Bitcoin's potential resilience and strategic significance in the face of an impending recession.
Target and Walmart Very Concerned about the Health of Consumers
Recent reports from major retailers Target and Walmart underscore the financial strain that consumers are experiencing. Both companies have announced significant price reductions on essential items in response to declining consumer spending and increased financial hardship. Target has lowered prices on approximately 5,000 frequently shopped items, including groceries, household goods, and personal care products, aiming to alleviate the burden on cash-strapped consumers. Similarly, Walmart has rolled back prices on 7,000 grocery items to boost food sales and retain low-income customers, who are increasingly turning to discount retailers for their shopping needs.
High-income consumers are also feeling the pinch, with many trading down to budget-friendly retailers like Walmart to manage their expenses. This shift in consumer behavior highlights the pervasive nature of financial stress across different income brackets. The underwhelming April retail sales data further illustrate the extent of spending fatigue, as many households have maxed out credit cards and depleted savings to cope with ongoing economic pressures.
Sticky Prices Finally Coming Down
I have been quite lonely in my position on inflation, but we are starting to see the culmination of its transitory nature. While most analysts claim that the price increases since COVID were due to massive waves of money printing, I’ve been steadfast in my position that the stats people cite for the money supply are wrong and that there really wasn’t that much money printing. The response I usually get is, ‘But we haven’t seen prices coming down. If that were the case, prices would rise and then fall.’
Price increases tend to be sticky for several reasons. Firstly, wages are much harder to cut in deflationary environments than to raise in inflationary ones. Secondly, fixed prices in the cost structure of goods make it more difficult to cut prices. Businesses find it very hard to reduce prices on items they have in inventory that they paid more for, and leases or contracts signed during inflationary times still must be paid at the higher level. Thirdly, debt deflation, where real debt burdens are increasing, can make it financially impossible for companies to lower prices. For these reasons, the price cuts from Target and Walmart suggest we are closer to a recession than most analysts predict.
Retail Sales and Gasoline Demand Also Not Pretty
It’s not just Target and Walmart, the April total Retail Sales were a big miss, coming in at 0.0%, and have been weak the entire year. The critical segment of automobiles, a product that condenses much of the economy into one product, has been negative the last two months.
Source: US Census Bureau
Gasoline demand is also incredibly weak, not matching any of the claims about a booming economy with strong GDP growth. Interestingly, gasoline demand shows that we have never recovered from the COVID shock. Demand continues to deteriorate. Considering this chart, one would be forgiven if they thought we are in recession already.
Source: Energy Information Administration (EIA)
US CPI is highly correlated to the price of oil and gasoline. With gasoline demand low and retail sales struggling, we should expect the price of oil and gasoline to drop as the recession becomes more clear and the economy slows even more. Since CPI is highly correlated, it is also likely to drop. Therefore, if recession is closer than widely believed, we should expect the oil price and CPI to drop from here on out.
Other Commodity Prices and Economic Signals
Recent trends in commodity prices can provide additional insights into the current economic climate and the coming recession. Most commodities are showing signs of weakness as shown in the Goldman Sachs Commodity Index below, indicating a slowdown in economic activity, with one significant exception. Copper, often seen as a barometer for economic health due to its widespread use in industrial applications, has seen prices rise. This anomaly can be attributed to significant stockpiling by China, which has been accumulating copper reserves at a remarkable rate. This strategic move by China has propped up copper prices, masking the broader downward trend in other commodity prices.
Source: StenoResearch
The Goldman Sachs Commodity Index (GSCI) reflects a more comprehensive view of commodity prices and their movements. Despite the rise in copper prices, the overall index has shown a decline, suggesting weakened demand across a broader range of commodities. The combination of weak retail sales, decreasing gasoline demand, and falling commodity prices—except for copper—paints a clear picture of an economy on the brink of recession. This broader context underscores the deflationary pressures that are beginning to emerge, as businesses and consumers alike brace for tougher economic conditions ahead.
Monetary Commodities are Rallying
As recession looms, we should expect safe havens to also catch a bid, and that is exactly what we see. In a fairly broad move, we can see the flight to safety in gold, silver and bitcoin.
Monetary assets like Bitcoin are particularly poised to rally in a deflationary recession, minus the brief periods of flash crashes we often see during recessions, due to their unique characteristics. Unlike traditional assets, Bitcoin does not have credit risk or counterparty risk. In a deflationary environment, where the real value of debt increases and the risk of defaults rises, assets without these risks become highly attractive. Bitcoin’s decentralized nature and limited supply make it an ideal store of value in times of economic uncertainty.
Conclusion
The current economic indicators point clearly towards a looming recession. From the significant price cuts by major retailers like Target and Walmart to the weak retail sales and gasoline demand, the signs of an economic downturn are becoming increasingly evident. As we navigate these deflationary pressures, it’s crucial to understand the strategic significance of safe haven assets like Bitcoin. Its resilience, lack of credit risk, and counterparty risk make it a compelling asset in the face of impending economic challenges. Investors should consider these factors as they prepare for what could be a turbulent economic period ahead.
If you liked this content please give a like and share! Comment below with your reactions to this post and any recommendations for future topics.
Thank you for reading Bitcoin Magazine Pro™, we sincerely appreciate your support!
Not Financial Advice.
 | A guest post by
|