JP Morgan and Moodys Analytics both forecast that we will likely be in recession in 2020. They base this primarily on the belief that the fiscal stimulus of the tax reform combined with the excessive 2018 budget spending, will cease to provide the stimulus we are experiencing, and the deficit and higher rates will lead to a downturn. Maybe they are correct. But maybe not. They admit in conversation, that there are so many black swans circling now, that the level of certainty of any forecast is suspect, good or bad. All of this makes it very hard for us in CRE to really have confidence in our project projections. Recall that at the end of 2016, most economists, politicians and media made fun of Trump and Mnuchin for suggesting GDP would grow at 3% or better with the tax cuts they were proposing. Most said 2%-2.5% was the best we could hope for over the next ten years. Many projected a stock market downturn of sizable amounts, and they projected bad times ahead.

Right now, it is possibly as good as it can get. It is possible GDP growth Q# will be 4% or better, and that might continue into Q4. Unemployment might go down further to be historically low. The filings for unemployment are almost at historic lows, and as a percent of the population they are at historic lows. Consumer confidence is at peak levels, and people feel very secure in their jobs. Wages are finally rising, and productivity is rising for the first time in over 10 years. Both are key to continued strong economic growth. Capital investment is picking up as companies now have had time to implement capital plans to take advantage of the tax benefits now available. This, in many cases includes new technology installations which will materially improve productivity going forward. Consumer balance sheets are as good as they have been for possibly 15 years. Banks are stronger than they maybe have ever been with high real capital. Inflation remains low and is likely to remain within reasonable levels due to the high dollar and the Amazon effect which economists estimate reduces inflation by .5% below where it might have otherwise been. Corporate profits are extraordinarily high and should remain so for a while. The stock market continues to hit new highs, and is likely to go higher making the cost of capital low, combined with still low debt rates. All of these things bode well for the next 12-18 months at least to continue strong GDP growth.

On the negative side, covenant light loans are back. Debt levels are creeping up. Unregulated lenders now have over 50% of the home mortgage lending. Emerging markets are getting into dangerous territory as the US dollar remains high, and as many take on huge unaffordable debt from China for their Silk Road projects. The EU is still growing slowly and may decline as political disruptions in Italy, and the eastern countries, combine with what could be a hard Brexit, to bring serious problems. The shift right created by Merkel's disastrous refugee policies, has materially changed the politics of the EU for maybe a decade, or more. It is very unlikely the EU will grow from here, and it is very likely it will see slow growth or negative in the next year or two. Whether we have a real trade war with China is very unclear. The entire Iran situation could lead to war easily, or a very violent revolution, and Turkey is a complete black swan, as is Syria. If the Dems do get control of the House in November, then all of Trumps plans are dead, and the economy may quickly go south. All in, there are so many black swans right now, it is hard to predict anything until after the election, and until we see if a Brexit deal gets signed by the deadline in November.