How many of these items have you been bombarded about lately?
- Inverted yield curve
- Negative bond yields
- Trade and Currency wars
- “Fed Chairman Powell lacks clarity in his Q&A sessions” (talk about the ultimate throw under the bus)
A recession may or may not be coming soon. Recessions have been part of the US and global economies since the dawn of recording market data which dates to the 1920’s (with recessions dating back to the 1800’s). Please see the accompanying chart that summarizes various scary events since 1970, several of which led to nasty recessions. Remember the Arab oil embargo?? The Dotcom bust?? Please also note the way the US stock market – which is based on a free market economy and the consumer – has recovered over time.
This is not to say there is not a recession on the horizon… or that there IS a recession on the horizon. The point is that recessions happen, and it may sound boring – but true – to say that it is possible for a well-designed portfolio to weather a recession and then thrive in the ensuing intermediate- and long-term. BUT then with this knowledge you would not need be glued to TV, radio and internet news! These media outlets mean to scare the #### out of you and divert your attention from your business, work, life, family and weekend.
A recession is defined as “a business cycle contraction when there is a general decline in economic activity”. An actual entity, The National Bureau of Economic Research (NBER), determines when a recession starts and ends. Recessions typically are preceded by an inversion in the yield curve, which means short-term US Treasury yields move above long-term 10-30 year US Treasury yields (the reverse is the case in a healthy economy). Currently the yield curve is partially inverted and constantly changing. BUT not all yield curve inversions lead to recessions. The news media will not highlight this fact – in order to scare investors into watching the media’s programming.
The US Fed Chair, Jerome Powell, has been thrown under the bus by economists, money managers and the media – which is not unusual. These same entities said not nice things about recent former Fed Chair Janet Yellen at times and criticized former Chairs Ben Bernanke and Alan Greenspan. These media and money managers will always find fault with Fed Chairs… partly because the Fed Chair and the Fed Board hold a fair amount of “power” over the future direction of US and world financial markets. Even the US President has been publicly critical of Fed Chair Powell. Powell has extensive experience and is leading the Fed in extreme times for the world economy. The fact is he is said to be the most transparent Fed Chair ever in that he is the first Fed Chair to hold press conferences after every Fed Board meeting.
Very few of the events in the chart above were entirely predictable. And neither is the timing of a recession.