animal spirits
The Bezos Recession?

Since we at Via Meadia are always alert to the ways things could get worse, we read with interest this Financial Times dispatch about the possibility of a retail crash brought about by the disruptive impact of e-commerce companies like Amazon:

For a small band of hedge funds that slapped down prescient bets against the tottering US housing market, the financial crisis was the biggest money-spinner in generations. Some investors think they have now found the next “big short” in the retail industry.

The reshaping of how Americans shop by the internet is accelerating. The US retail industry faces a growing headache, with 10 companies pushed into bankruptcy already in 2017, according to Standard & Poor’s. Even Sears, a once mighty department store chain founded in 1886, is now tottering.

“We think the magnitude of this short could be bigger than subprime,” says Stephen Ketchum, the head of Sound Point Capital, a hedge fund that manages more than $13bn in assets.

As the article notes, there is a possibility that a retail collapse could spill over into the commercial real estate market—a somber second-act to the residential housing crisis that is now almost a decade in the rear-view mirror.

The Wall Street Journal‘s Greg Ip wrote earlier this month: “If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm. In other words, it would look a lot like the present.”

So even as the bull market keeps running and solid jobs numbers keep coming in, it’s important to remember the economy’s potential vulnerabilities in this time of technological change. And if a recession does strike, our political vulnerabilities will be exposed as well.

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