Bracing for 2020 Recession?
According to me, it’s not about the prediction. It’s all about the preparation. On June 12, 2019, the predictions are suddenly coming in hard and heavy. The headlines read, “America’s CFOs are bracing for a 2020 recession.” Nearly half (48.1%) of chief financial officers in the United States are predicting the American economy will be in recession by the middle of next year, according to the Duke University/CFO Global Business Outlook survey released on Wednesday. And 69% of those executives are bracing for a recession by the end of 2020, according to Yahoo Finance, June 12, 2019
“Next global financial crisis will strike in 2020, sparked by automated trading systems,” warns JPMorgan, The Independent.
“2020s Might Be The Worst Decade In U.S. History, triggered by contagion from a global credit crisis,” says Forbes.
“2020 is a real inflection point,” asserts Mark Zandi, chief economist, Moody’s Analytics.
While no one can see the future, here’s what we do know. Global stimulus packages are coming to an end. Inflation is rearing its head, and the trade disputes create as much greater uncertainty as they create a drag on economies at the same time interest rates are likely to continue upward. The ‘immigration crisis’ will slow growth at the same time aging populations are incapable of taking up the slack. This irony will likely be lost by the same demographic that voted for populist movements to remove them.
So, I am not predicting a recession in 2020. In fact, most economists forecast a recession only after it has started. Economists are masters of hindsight, but perhaps closer to apprentices at foresight.
“It was pure vainglory that drove the President of the United States of America to call into CNBC’s ‘Squawk Box.’ Last Friday, he tweeted, ‘Dow Jones has best week of the year!’ His re-election rides on the stock market. When the recession happens, the proximate cause will be new tariffs and the Trade War. The inevitable downturn will really be about easy money – too much of it for too long,” opined former OMB Director, David Stockman, in his June 11, 2019 message to subscribers.
Stockman went on to say, “It won’t matter that the collapse of this Everything Bubble is decades in the making. The Great Disruptor will be guilty. We’re already on the slippery slope. The incoming data are uniformly bad, except for ultra-lagging indicators like initial claims for state unemployment benefits and consumer confidence”
Rather than attempt to predict the future it makes more sense to me to learn from history. When we don’t learn from history it is reasonable to this observer that we will roughly repeat it. The two highlights about the Great Depression include stocks off -89% while New York real estate was off 60%. While stocks took 20 years to recover, NYC real estate took four decades to get back to its high water mark. Both events took place in about 24 months. When this information is shared with investors they are hard pressed to comprehend exactly what happened. Which means, investors have even more imagining how the emotions will run amok should something like this happen again. If you are, however, prepared for the worst case scenario you are more likely to weather the storm. Unless you think you think like way too many category 4 hurricane victims who washed away in the belief they could “ride this one out.”
Desperate times call for common sense measures. To avoid future shock and awe, answer these questions while you can.
1) How much risk can you accept?
2) How did your portfolio hold up 4th quarter 2018 and 2008?
3) What can you see to minimize losses?
4) What active management strategies can you identify that moved out of risk assets to cash or alternatives in 2008 and back into risk assets from safety in 2009?
5) What alternative investments can you add like legs to your portfolio stool?
It’s rarely the bus you see that can disrupt your day when crossing the street. The bus of disruption is typically one you did not see, you could not time, and there was no chance to get the license plates. So let’s be ridiculous and say Depression II is baked into the cake well ahead of predictions to begin this year, not 2020. Now is the time to prepare for the good, the bad, and the unforeseen in 2019.
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