U.S. Economic Growth Update
Have the Cockroaches Left the Chat?
Starting with a refresh of the PB Cockroach Meter™️, which looks at the number of 1% trading days in a year. As of the close of April 17, 2025, it looked like this.
As of close of trading on May 9th, the YTD numbers have improved but just marginally so.
Thus, while the VIX index has declined, and markets have staged a remarkable comeback, the YTD volatility cluster ratio of 1% trading days to total trading has only improved by 110-basis points. Signal value or simply noise that will dissipate as calendar base effects kick-in?
We know from our prior cockroach commentary that forward 3-month returns after VIX explosion events above 4-standard deviations (on April 8th) have, on average, been lousy, at negative 40-basis points.
Is past prologue? Will the negative return cockroaches hang around? No one knows for sure. And while market price action can be informative of current and future economic states, price action can also be noisy. That April seems likes a distant bad dream is Exhibit A. in this context.
Ultimately, policy and data evolutions that provide economic gravity will be the tell. Below is a summary of a few foundational ideas that have guided the Pinebrook’s thought process before and after the Liberation Day cycle.
The Big Macro Picture (BMP™️) is driven by sectoral public deficits that are private sector surpluses, which are simply gargantuan in scope and are set to get bigger.
A Regime Changing Economic Shock put the economy in a recessionary window of weakness, which needed to be closed soon to avoid an economic downturn and bear market.
Evolutions in policy developments beyond the tariff walk-backs that looked at tax proposals, the impact of immigration policies on the labor force, and the Fed re-committing to its Romer & Romer playbook of front-running labor market weakness and looking away from one-off price distortions.
In Pinebrook’s view, the recession or no-recession dialog is limiting in its binomial outcomes.
Similarly, the idea that a late-cycle economy is one calamity or calendar period away from recession is equally binomial and un-nuanced. This same fluidity in an economy can keep it in a late cycle state for longer than most are anticipating or even return it a stabilized mid-cycle state.
The economics profession drowns itself in noisy data. Ultimately, what matters most is how much money, in aggregate, people are willing to spend on things and at what rate of change relative to before. That’s it.
When this total amount of cash goes down in real terms, economic contraction takes place, and a process of increased unemployment ensues that ultimately puts millions of people out of work.
As long as American consumers are making more money in real terms than in the past, they will continue to spend it and power the economy forward. This is the flawless historical record with a 100% hit rate.