THE UPCOMING RECESSION?

The Trump Administration is telling us that our economy is expanding, more people are employed, and tariffs will make for a stronger America. Meanwhile the politicians are salivating over $1 TRILLION spending on government-allocated and managed infrastructure as if the lessons of the Obama stimulus spending remain unlearned. 

On the other hand, we find well-credentialed and respected financial pundits telling us that, according to their tea leaves, we are headed for a potential recession in 2019 or 2020. The driver of this recession is said to be slowing consumer spending conditioned by the demographics of an aging population, fuel prices and the hassle of travel, the satiation of available in-home entertainment with software updates rather than hardware purchases, and the ability to shop at discounted prices online. Many people no longer believe the type of news that used to drive stock market volatility and generate profits, and have increasing suspicions about billion-dollar companies that do not turn a profit.   

Then there are the economists who tell us that our economy is a chaotic system that ignores the past – yet paradoxically base there very predictions on past economic behavior and cycles. 

However, the major problem is that any upcoming recession will affect all asset classes, leaving little room for capital flight to safety. 

THE KEY TO RESILIENCY

There is little or no doubt that today’s consumer is becoming less mobile and unable to take advantages of distant opportunity. Whether restricted by family, employment, the lack of resources or being locked into real estate, people appear to be willing to absorb some level of difficulty and malaise knowing that America usually pushes through its economic recessions to the next bubble.

Action one: Reduce your debt level. Pay down those credit cards and small loans as soon as possible; starting with the highest interest ones.

Action two: Consider a “side hustle” to develop multiple independent income streams that will allow you to survive, even thrive, after a job loss or an adverse change in employment. 

Action three: Quit spending money. Yes, you will dampen the economy, but that is someone else’s problem. Use coupons. Ask for that discount. Use money wisely.

Action four: Prepare for a haircut. The government has mucked-up Dodd-Frank and those “too big to fail” banks have gotten bigger and are continuing to use dodgy derivatives to goose their earnings. There is a likelihood that the next bank bailout will be along the lines of an involuntary borrowing of depositors money in return for valueless securities. Use multiple banks and keep deposits under federal guarantee limits. Diversify into different asset classes if possible, but try to avoid the scams centered around precious metals.

Remember those unions that negotiated those fabulous retirement packages with the assistance of union-financed politicians? Well, those packages have nearly bankrupted most municipalities and states – especially when you factor upcoming unfunded pension liabilities. It is likely that pensions may be trimmed or payouts stratified into tiers.

Action five: Be aware of what is happening around you and invest in some form of personal or family protection. Not to be a survivalist or a prepper, but it is a fact of life that those will little or nothing to lose will often attack people who appear to have plenty to spare.

I don’t know if we are heading toward a recession, but put aside the paranoia and become prepared to insulate yourself from the worst of any downturn. There is nothing new about these suggestions as they are the basis for most of the self-help products including those expensive wealth-building seminars.

Is the handwriting on the wall?

CHANGE AHEAD: NOT "IF" BUT "WHEN"

One need only look at the deep divisions in the United States political infrastructure, our leadership, and the large-scale infiltration of Wall Street Wizards into the Administration and it becomes a real possibility that we will encounter what the financial pundits and prognosticators euphemistically call a "serious market correction." A time when valuations, especially of companies who earn little or no profits and must maintain their borrowings to survive, are readjusted -- maybe not to a rational reality, but maybe to a realistic expectation of reality.

I somewhat regard Tesla as sort of a canary in a coal mine. The story and hype drive the stock price ever higher with the only profits apparently coming from the sale of government-approved pollution credits. Take these away, and you have a company that has never produced a profit. Now, we see something else that is somewhat disturbing. Instead of selling equity or a combination of equity and debt, Tesla appears to be moving forward with a pure debt offering. Perhaps they think that they can repurchase much of this debt at dramatic discounts during the correction. In any event, investors who purchase debt tend to ignore the "story" and look for company dynamics which indicate that the debt can be serviced and then repaid.

Of course, you have the Federal Reserve as a wild card as Janet Yellen leaves her leadership post for someone new. Not that the policy will change all that much, but it will be a convenient signal to the markets. Like those who try to predict black swan events, one might ask what would happen if the worst case of the Fed selling their bonds into the broader market at a loss. Because of accounting rules, they are not even required to record those losses against their capital base. But, it doesn't matter because the Federal Reserve is backed by the full faith and credit of the United States.

So what I am saying is that something will happen in the future. It is not a matter of IF, but of WHEN. Therefore, one might decide to take a prudent course of action. One, reduce your standard of living and try to eliminate any high-interest debt. Two, downsize by converting unused or unwanted assets into cash. And three, work on developing multiple independent streams of revenue to compensate for the potential loss of your job through no fault of your own.
 

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