What is the Recession Risk?
What is the Recession Risk?
The new words on everybody’s lips as of late are “recession” coincided with “run for the hills”. Who can blame them.? The media reported the inversion of the yield curve last week like it was an asteroid the size of Texas just seconds away from impact. (It was an asteroid the size of Texas that killed the dinosaurs).
I have had so many people ask me if they should be worried (more than I can count!), because the yield curve had inverted. Of course this is interesting because few grasp what that means, and less understand why it could be bad.
For those lost in watching space movies involving impending doom (Armageddon is a great one), let me explain in simple terms. The 2 year treasury bond briefly yielded more than the 10 year bond. That’s never a good thing, because you should get more for investing your money in longer term investments.
It is true that it is ONE of the warning signs of a recession, but it is not without a flaw and certainly does not always work as there can be many reasons for this co-occurrence.
So what is causing the inversion now? The pompous Federal Reserve appearing completely out of touch with reality….again.
At the last Fed meeting, they did lower rates a quarter point, which was a step in the right direction. The problem was that they were so pathetically wishy-washy in the press conference after, that the bond market lost confidence in their ability to deal with the situation. The result was this infamous inverted yield curve.
Another case in point. Just this past Thursday, the Kansas City Fed President Esther George refused to admit that further cuts were even possibly needed.
Listen EG, no one says we are in a recession at the moment. Quite the opposite in fact. However, the 10 year bond yield is so much lower than the Fed Funds rate, that the market simply wants to hear that the board is on the ball, and at least ready to act if necessary. Things are good now, but they need to understand is that their ineptness could actually cause a recession.
Another important point for the economy, and what most are missing is that the new re-acceleration of low rates is a massive boon for the economy. Mortgage rates are back down to the lowest levels, and both new loans and refinances will add a boatload to economic spending.
The fact that banks are lending and not hoarding means we are not in a recession.
Furthermore, possible recessions are not a bad thing for the stock market. In fact, when the Fed is aggressive in lowering rates in advance of a recession, rather than waiting until we’re in it, the markets do quite well.
These are trying and dangerous times for investors. Don’t try to invest without a solid master plan, one that includes forward looking tax-strategies, involves ‘Tactical” asset management (never buy-and-hope) and always have an asset protection system firmly in place. You can’t buy fire insurance once the house in on fire.
If we can help you with putting a plan in place or simply with a free 2nd opinion on your portfolio, give us a call for a complimentary consultation today!
Invest for need, not for greed!™
Cheers -Keith Springer