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

College is getting more expensive.

According to a report I saw today featuring former Secretary of Education, William Bennett, costs have quadrupled in the past 25 years. Of course, that comment is a bit inflamatory - it equates to a 5.7% annualized inflation rate, more than regular inflation averaging 3.3% over the same term but not as astronomical as the comment might imply.

Still, rising higher education costs ARE a serious challenge. With many college grads unable to find good work today, the tough questions about college are piling up:

--- Is a College Education still worth the cost?

--- Are College Costs the next bubble?

--- And what can you do to get the best value for your college tuition dollar?

Is a College Education Worth the Cost?

The short answer here is: "It Depends."

Fellow financial planner, Michael Kitces did a great job of culling through all the data and opinions on this question in his post from May, 2011. At the most primary level, the answer would seem to be, "Yes, there is value in having a college degree," especially if you would prefer to be employed somewhere and/or bringing home a bigger paycheck.

But the question of "Is it worth the money?" isn't completely answered by the unemployment or average salary data. This is especially true when you take into account the amount of debt with which students find themselves these days. Student debt recently surpassed credit card debt in America and is soon to breach the $1 Trillion mark. Add the fact that student loans are never forgiven, not even by bankruptcy (or often death) and there is even more cause for concern over this number.

Kitces is also correct in suggesting that the data hides the fact that some college degrees are more helpful than others. A college grad with a technical or scientific degree is far more likely to be gainfully employed than someone who majored in English Poetry, ancient history or even economics (as I can attest to that first hand, nobody ever wanted to hire an economist).

Some people are well suited to get a lot out of a college education. Others would be better served at least starting at community or junior college. Still others could be better off with the four years' head start by getting to work right out of high school.

There is no blanket, one-size-fits-all answer.

Are College Costs the Next Bubble?

I believe it IS quite likely that at some time in the relatively near future, college costs will collapse just like home prices did after 2006. My reasoning is simple:

--- Outsized pricing gains cannot continue forever. Eventually something breaks. The valued college degree of today may prove to be a poor value when the price is 30% higher five years from now. Once a pricing trend reverses, it has a tendency to accelerate.

--- Technology is changing the landscape of education rapidly - from the cost of books to how, when and where we interact with our teachers. It hasn't happened yet, but Khan Academy and others are proving that the giant, beautiful (and very expensive to maintain) physical campus is going to have some serious competition in the near future.

When will the bubble pop? Pricing insanity like this can go on far longer than would seem reasonable. Just think back to that house you thought was way too expensive in 2005. The person that bought that house sold it two years later for 30% more than they paid for it. Of course, if they didn't sell it in 2007, the house is probably now underwater with a loan that is larger than the current value of the property.

Getting the Best College Value

As a college funding specialist, I encourage every student family to look at all aspects of the college selection process, especially this value question. Even though my average client saves more than $5,000 a year on college costs ... they STILL are paying out a LOT of money.

Here are a few tips on how you can limit the damage of out-of-pocket costs for college:

--- Tip #1 - Start Early - The sooner you begin the process (ideally no later than the student's sophomore year), the more likely (a) the student will find the perfect school for them, (b) that school will offer the student more free money (not loans that have to be paid back) and (c) the family will have more resources to cover their part of the bill.

--- Tip #2 - Tier Two - There are a lot of very good Tier-Two private colleges out there. Tuition at these schools is $10k-$20k per year less than high-profile private schools and these schools often give away just as much free money to students as the big-name-schools. Academic rigor is just as good and often the school is placed in a nicer and safer location.

--- Tip #3 - Start NOW - The key to covering the $10,000 and $20,000 per year per student out-of-pocket cost is cash flow management, but finding cash-flow leaks doesn't happen overnight. It is far better to start today with a small amount of savings than try to fix things the situation with a year or two to go. But it is NEVER too late. No matter where you are in that timetable, I encourage you to get started NOW!

Its All About the Student

Through my work as a college funding specialist and as a dad of two kids, I've seen this business from every possible perspective. The hardest thing to keep in context as a parent is that the college years (including the search and application process) are all about your student. The student needs to buy in very early (start the process as high school freshmen or sophomores). They will be making the ultimate decision based on their criteria (not the parents') and they are the ones who must end up growing and learning through the process.

This is a big step for each student and they are easily influenced by well-intentioned parents. What your student "gets" out of their college education in value is going to largely depend on how good a fit the school is with their personality, not what going to that school means to the parents. Anything you can do to facilitate that college education without trashing your own retirement plan or putting anybody deep into debt is also a good thing.

Let me know how I can be of service.

John

College Funding Solutions for your family are now available through ALTUS Wealth Solutions starting as low as $30 per month. Go to College.AltusWealth.com to learn more and link to a Free 30-minute presentation on the college funding process.

Try out the Cash Flow Hydrant™ - our most powerful cash management tool and the fastest and easiest way to build savings to pay for college. The Cash Flow Hydrant™ online tool is included in all college funding subscription packages.