- Bank of America warns about possible coming recession in the three months
- Personal Savings Rate, and World Stocks trends indicate this very clear
- Warren Buffett sold $981M Bank of America stocks
Bank Of America, which manages more than $3T in assets, warns that recession is coming, highlighting worrying indicators.
Even with potentially coming interest rates cut on 18th September, those indicators are still valid, and Warren Buffett sold $981M worth of their stock.
Signs of a Possible Coming Recession from Bank Of America
The first important indicator is the Personal Savings Rate, which fell below 5% before the recession.
In particular, from April 1999 – May 2001, this rate fell just before the dot-com bubble for 23 months.
The next such dip was January 2005 – December 2007 and we were under that level for 35 months before another recession hit.
The third time we fell below this level was January 2022 and we have been below it for 32 months, which gives us reason to worry about whether a recession will occur in the next three months.
One possibility is that there is still more savings accumulated, potentially allowing a recession to be pulled back just as it was on the two previous occasions 12 months apart. However, this is still a worrying figure that Bank Of America is sounding the alarm about.
The second alarming chart shared by Bank Of America shows that gov’t dominance in payroll growth does not bullish productivity.
Namely, it shows how public sector and private sector payrolls are peaking, where the private sector is on the upswing and the public sector is on the downswing.
The twist in this chart is that when these two indicators are at their peaks, they are usually followed by a recession.
Again, there is no guarantee that these indicators clearly state that a recession is coming, but the trend is as clear.
So much so that it may have been the reason Warren Buffett sold $981M worth of Bank Of America stock.
Note that the imminent expectation of an interest rate cut on September 18 does not change his strategy and he continues to sell millions of dollars worth of shares of major companies.
World Stocks Trend Also Points to a Possible Recession
Another indicator that makes us worry even more because of its accuracy is the chart comparing the financial, energy, and commodities vs. tech, telecom, and healthcare sectors.
The state of the market now is exactly the same as it was before the recession at the time of the dot-com bubble and also the 2008 crisis, where tech and other sectors reached 44% while financial and other sectors reached 24%.
All of this suggests that many are looking in the wrong place trying to see recession indicators because most of the talk right now is about how rising unemployment will bring recession closer.
However, if we look at the chart, we see that it doesn’t indicate a recession and furthermore, unemployment doesn’t come until the recession is a third of the way through.
So there could be a scenario where a recession has already occurred, but we don’t see it on the charts if we only focus on the unemployment rate.
Also, many who are tired of inflation are eager to see deflation, but this can only make things worse and reinforce the chart above.
It is when deflation hits that companies are forced to lay off employees even more, and even the biggest banks will experience declines in value per share even if sales are rising.
Goldman Sachs, for example, announced layoffs of 1,800 employees, which may only be a mild early version of deflation not even in yet.
Add to this a much more fundamental problem that banks now have on a record number of unrealized gains and risking their very existence, as we wrote earlier.
Conclusions
We now have a rather risky situation, and indicators of possible recession, which are actively highlighted by Bank Of America.
Maybe nothing will happen, but such bright indicators oblige us to be very attentive to what will happen in the next three months.
