The “R Word” | July 27, 2022


As I’ve watched, listened to, and read various financial media outlets over the last few weeks and months, there is an accelerating drumbeat of mentions, predictions, and discussions on the big “R word.” You know it, the dreaded RECESSION. I’m sure you also hear it, as the topic has crossed boundaries into non-financial media as well. Frankly, it is hard to get away from. I suspect some of it is political. Most is simply the fierce competition for clicks and eyeballs.

First of all, we should all understand that a recession is a part of virtually every business cycle. They are quite normal and in many cases not very severe. Unfortunately, many of us lived/worked through two of the worst recessions in modern history. The 2000-2002 and 2008-2009 recessions were notable and quite painful for many reasons. But, these are not the norm. Frankly, neither was the pandemic-induced brief recession in early 2020.

In our opinions, we are not in a recession. Sure, certain parts of the economy are slowing. That should be no surprise, since the Federal Reserve is TRYING to slow the economy to tame this pesky inflation that we’ve been dealing with the past 12 months or so. So, don’t be surprised by data showing a slowing housing market, slowing corporate earnings growth, etc. Of course, asset markets have corrected considerably this year. But, again, all of these things are pretty normal. And, overall the economy is in pretty good shape. Unemployment is very low. Personal balance sheets are strong. Corporations are growing, spending and hiring. Consumers are spending. None of these things suggest a recession is here.

Of course, we will likely have a recession in the next 12-24 months. Again, this is a normal part of economic cycles. But, whether we are “technically” in a recession now or not isn’t that important. Whether we slide into a recession in 18 months, really isn’t that important. What is important is whether there is an unexpected global crisis that exists coincidentally with that recession. That’s when “normal” can turn into a disaster.

In 2000-2002 recession and bear market, we had the 9/11 attack on our country that really exacerbated the declines. In the 2008-2009 recession (Great Financial Crisis), we had a housing market collapse and a banking crisis that truly had the US economy on the edge of disaster.

So, in our minds, the question isn’t recession or not. We’ll see one soon enough, whether it is now, in 18 months or in 36 months. What we’ll be looking for is the emergence of some other type of crisis that can create a “Black Swan” type of moment. While this is a tough task, as Black Swan’s are by definition unpredictable, we don’t see any of those storm clouds on the horizon at the moment. Of course, that could change quickly, so stay tuned. But, don’t tune in too much unless you want to hear the R word on repeat, repeatedly.

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