Governments mishandle recessions

Across the planet, there is a growing crisis.

Some investors are selling stocks or cryptocurrencies, or both, and moving to cash, while other investors are having trouble selling their assets... wondering if they should have put their money into them at all.

Yes, some people are really having a hard time right now.

In fact, it seems that people's desire for luxury goods goes down with the markets.

Tumbling markets haven't just hit us mere mortals.

People say that some people are finding it hard to sell their Rolex now that the stock market has dropped.

One dealer said that the once-thriving business of selling used Rolexes is now "wobbling." A little over a year ago, many limited-edition Rolex watches could easily be sold for more than $100,000.

Six-figure prices are now only paid for very rare luxury watches. In fact, the same dealer said that the "deluge" of used Rolex watches is driving prices down and making last year's eye-popping prices a thing of the past.

But this isn't a big surprise.

A quick look at the Amundi Luxury index (LUXU), which is based on the S&P Global Luxury Index and tracks the share price performance of 79 luxury firms like Hermès and LVMH Mot Hennessy Vuitton, shows, not surprisingly, that the value of the luxury goods market tends to track the performance of the market fairly well...

If you look closely, you can see that LUXU's price peaked several months before the stock market took a turn. This means that LUXU could be a leading indicator of how the market feels.

Few people outside of the rich and famous will pay close enough attention to the prices of luxury goods to get a good idea of how the market feels. After all, if you can't spend £10,000 on a basic Rolex, let alone $60,000 on a used one, why should you care?

We could say that keeping an eye on the prices of luxury goods is a good way to tell when the stock market is at its peak... But there's a better way to figure out how healthy the economy is as a whole.

The Bank of England (BoE) has warned that the UK will be in a recession by the end of the year and that inflation will reach double digits by Christmas. When the BBC says:

It is expected that the economy will shrink in the last three months of this year and continue to do so until the end of 2023.

Interest rates went up to 1.75 percent as the Bank tries to stop prices from going up too fast. Inflation is now expected to reach over 13%.

The traditional definition of a recession is when the gross domestic product goes down for two straight quarters (GDP). In other words, two consecutive quarters in which the value of a country's goods and services was lower than the previous quarter.

The Bank of England's prediction of inflation has two problems.

First of all, government statistics are behind the times.

Also, this is the third time this year that the Bank of England has changed its forecast for inflation.

In March, the BoE said that the highest rate of inflation would be 8% per year. In May, the BoE said that the peak was closer to 10%...

... and now it's up to 13 percent after three months.

I wouldn't put much stock in an annual inflation rate of 13% either...

... or, for that matter, being right.

Commodity prices affect producer prices, which in turn affect consumer prices. This means that the worst of the high commodity prices has not yet made its way down the supply chain.

At the gas pump, people are feeling the pain right away, and long-term energy prices may have started to go down, but the effects of rising food prices and interest rates will be felt for many more months.

More importantly, the UK is already in a recession; the data just hasn't caught up with what people are doing yet.

A country full of shoppers

When the BoE says that the UK will be in a recession by the end of the year, this is part of the problem. The GDP is the only way the central bank looks at a recession.

Taking everything into account, the UK is already in a recession.

Whether we want to admit it or not, the UK is a consumerist society, just like the US. In the UK, the services sector makes up 72% of the gross domestic product. It's 76 percent in the United States.

The services sector is very big. Some of the things it includes are arts and entertainment, food and drink, essential and non-essential retail, finance, and insurance.

The UK is mostly a place where people buy and sell things.

Even though GDP went up in May, the devil is always in the details.

GDP went up because the number of GP appointments in England for the month went up by a lot. This made the human health activities part of GDP look better than it really was, making GDP data look better than they were.

As for everything else? Most of it was on the ground.

How much do you spend on lodging and food? Down.

Arts, amusements, and leisure time? Down, too.

Wholesale and retail? A lot of down.

The UK's economy depends on the junk you buy at the store and the services you pay for so you don't have to do the work yourself. This is why it's so important to understand consumption in the services sector.

When you add in low wage growth, inflation data that doesn't match up with what people actually spend, and a population with a lot of debt... and there were already signs that future consumption would be hard.

The May GDP numbers show that the average person is barely getting by.

We spend more and more money on things we have to buy and less and less on things we want to buy.

This means that growth in consumption, which is a big part of what makes the UK economy grow, is coming from things like food, utilities, and insurance costs, not from fun things like going out to eat and buying new shoes.

In other words, the GDP you read about in the news isn't as important as knowing how people act.

This gives you an edge in the market today.

The economy of the UK depends on what consumers do next. Most likely, it will be to get a little tighter with money.