Commentary: Paul Ebeling on Wall Street


Recession Special Report

Bank of America’s (NYSE:BAC) CEO has just 1 reason why he does not see a recession looming.

Mr. Moynihan says the “US consumer continues to spend and that will keep the US economy in good shape.”

“But what is going to make that happen is the underling US consumer. And the underlying consumer is doing well and making more money, they are employed; and more importantly, they are spending more money.” Mr. Moynihan declared

The Wall Street leader’s comments, which aired on TV last Wednesday, come as investors have been fretting about the health of the US economy with The Trump Administration has been locked in a yearlong battle with China over trade policy.

The dispute, centered on import duties, has raised the chances that a recession could grip the domestic economy soon, elevating anxieties in financial markets.

However, Mr. Moynihan said that a yield-curve inversion, which occurred briefly last Wednesday between the closely watched yields for the shorter-dated and longer-dated government bonds, does not necessarily signify that a recession is imminent.

The US 2-year T-Note yield TMUBMUSD02Y, -4.34% briefly traded above the 10-year T-Note yield TMUBMUSD10Y, -5.20% for the 1st time in over a decade, and it occurred briefly on Wednesday, a condition that has preceded the last 7 recessions by 18 to 24 months

Look, when the yield curve moved around the pundit-ocracy got going, saying, ‘Here, this means a recessions coming,’” Mr. Moynihan said.

However, the big bank boss said this time the recessionary gauge may be influenced by a global market swirling in some $15-T in negative interest rates.

But if you actually think about it, there could be 2 reasons that the yield curve is moving around and you’re seeing that debate take hold,” he said.

Which in part is the flight to quality. 80 – 90% of all the yield in the world is available in the United States. So, the money comes flying here because you’re gonna give your money to someone — a thousand dollars — and they give you back less in 10 years ? Or you’re gonna give your money to someone — a thousand dollars — and they give you back more in 10 years?. And so, that’s why there’s a great debate about that,” he said said.

Mr. Moynihan said the debate about the US economy’s trajectory comes down to the consumer.

“And so in our customer base through this time August 15 year to date, you have seen the amount spent by American consumers at Bank of America: $2 trillion,” he said.

It’s up 5.9% from last year through the same period of time. So, in [2017-18] you’re up about 8.5% and 2018-19 up 5.9%. So, think about that as $120 billion more spending by our consumers this year versus last year, which means the US consumer continues to spend and that will keep the US economy in good shape,” Mr. Moynihan explained.

According to the Bureau of Economic Analysis, consumer spending makes up 68-72% of the US economic activity.

Note: the stock markets activity is not an economic gauge, so always take what the market gives, it is your money, so your responsibility.

Have a terrific week

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