Recession Call Revisited
I first made the case that recession was in our future on the Dave Congalton show back in November of 2011 (listen to that show at Financial Planner Radio - Recession). I thought it would be a good idea to go back and revisit this prediction.
While it has taken way longer than I expected to evolve (thanks mostly to herculean efforts by the Fed to delay the inevitable), I am more certain than ever that the "R-word" will be the main subject of newscasts and dinner conversations at some point in 2012.
IN GOOD COMPANY
I'll start with a confession.
I'm a small-time shop-of-one. I don't have resources to hire a dozen analysts and economists to crunch numbers and sift through reams of data. As such, I am only as good as the data I can process quickly which means I must rely on other economists and analysts to do much of the "heavy lifting" for me.
I am not unusual in this way. Economic analysis is an incestuous business. With the exception of two or three firms, we ALL act as a herd, relying on everybody else in the field to keep us in line. I am one of the few analyst who admits it, though.
In my mind, there are very few "original thinkers" in this game and my recession call is in the company of three of the biggest. Those three firms are the ECRI (Economic Cycle Research Institute), the NBER (National Bureau of Economic Research - the official group who actually determine when a recession starts) and then the economic research done by John Hussman of the Hussman funds.
ALL THE DATA IN ONE PLACE
The fastest place to get a condensed version of ALL the data backing up a recession call for later this year (if it hasn't already started) is in John Hussman's weekly post issued today. He cites (in great detail) quotes from Lakshman Achuthan (of the ECRI) and Martin Feldstein (who is on the NBER committee that officially dates the start and end of each recession).
I just want to touch on a few points that Hussman brings out ...
Feldstein says, "We've now had QE2 and after that we had Operation Twist, and both of these have helped to lower long-term interest rates and boost the stock market a bit. But they're not doing anything to help the real economy ... The state of the economy is quite poor ... it doesn't suggest that there is strong consumer spending on ordinary goods and services, and certainly there isn't on construction and on business investment spending."
Achuthan has been more visible and more outspoken (his recession warning also started at the end of last year): "Year-over-year jobs growth - the size of the decline we've seen in that jobs growth, in the context of a slowdown, which we already see in GDP and broad sales and income - that is consistent with a recession over the last 60 years. And personal income is a real weak spot ... it won't be until the end of the year, I think, until people start to figure out - huh, something happened. Same thing the last couple of recessions."
WAITING FOR THE PUNCH
Achuthan's last point may be the most important.
Hindsight is 20/20. Unfortunately, forsight is not so good. So we humans have a tendency to re-write in our own minds how a sequence of predictions and realities actually played out - an innocent but dangerous form of revisionist denial. When you look at the historical data, employment was still improving for several months after most recessions had officially begun. Many other concurrent or lagging economic indicators also didn't roll over until after the fact.
Recession-identifying data snippets have a tendency to be pretty boring. The media ignores them (not glamorous enough) and hence they go unnoticed. The recession builds until it hits the masses like a giant, unexpected tidle wave. By the time that "Huh, something happened" phase has hit, the stock market is off by 20-30%, serious job losses are baked into the cake (but the pink slips have yet to be issued), and the best chances to protect yourself and your money are already gone.
WHAT THIS MEANS TO YOUR MONEY
I believe every person can benefit from a more strategic approach to their money (and their life). That's why I work as a Wealth Coach and financial planner. Planning means looking as far down the road as possible and trying to anticipate and prepare for opportunities and threats that have yet to happen.
The oncoming recession is an important threat to consider today, especially considering the certainty of one rolling through the U.S. economy in the next several months. Managing the possible repercussions today will prove to be easier and far less expensive than trying to deal with the tempest after the high winds are already howling in your face. That means:
--- Getting Cash Flow under control. Our Cash Flow Hydrant™ online cash management tool is a great way to get started.
--- Beef up your Cash Reserve account. We never call them emergency funds because that attracts emergencies into your life, but there are storm clouds on the horizon so that rainy day is far more likely to hit sooner than you'd like.
--- Hedge your investment bets - Either dial down the risk exposure of your portfolio or build in some kind of portfolio insurance (like an options strategy or shifting to non-correlated assets). Understand, prices on bonds and other fixed-income assets can be negatively affected by recession, too so don't think that moving to an all-bond portfolio will save your life savings.
--- Be prepared to work harder for less. Get your vacation requests out of the way now so are ready to answer when duty (or your boss) calls.
--- What are your recession-protection strategies? Add them in our comments below.
For more ideas, schedule a meeting and we can go over your specific case. Access to a Wealth Coach and CERTIFIED FINANCIAL PLANNER™ professional can be yours for as little as $30 a month. No up-front fees, no minimums and no sales pitches - just personal financial advice that is simple, affordable and accessible.
Call 805-476-0333 or schedule your appointment at meet.AltusWealth.com.
John

