On Thursday, October 27, 2022, at 8:30 am ET (one hour before the stock markets open), the advance report of 3Q 2022 GDP will be released. Forecasters expect a sliver of growth. The Conference Board is projecting 0.05%. However, it should be noted that the Conference Board projected growth in the second quarter of 2022, and that quarter turned out to be negative.
We’ve had two quarters of negative growth already this year, which would normally be considered a Recession, but has not yet been characterized as such. So, even though we’ve had a rally over the last week, it’s important not to get too complacent.
Mild Recession or Halloween Haunting?
We keep hearing the words “mild recession” bandied about. As I mentioned in my blog “Apple and the R Word,” from earlier this week (and as I’ve warned repeatedly all year), it’s quite common for politicians and career economists to downplay the severity of an economic contraction in the early stages. Part of that has to do with the fact that money is emotional. If we all believe that we can keep the economy strong, we’re more likely to achieve it. If we all stop purchasing things, the economy will seize up and become a big problem. It often happens that when Main Street is finally apprised of the recession, stocks have already dropped 40% or more, and is closer to the bottom.
Thursdays in October can be spooky. The Great Crash of 1929, which ushered in the Great Depression, occurred on Thursday, October 24, 1929. Black Monday occurred on October 19, 1987. Stocks plunged -22.6% that day. There are breakers to prevent that now. However, markets can sell off severely over a series of days.
The Federal Reserve Board and Treasury Department are going to try to prevent a disaster from happening. At the same time, they have to rein in inflation and have been clear that they will keep raising interest rates, perhaps even hitting 4.4% this year and 4.6% next year. With the Fed Funds Rate at 3-3-1/4% now, it’s widely assumed that means the Nov. 2nd meeting could have another 75 basis points increase, with the and Dec. 14th meeting seeing a rise of at least 50 basis points.
Last year, we had the hope of a “soft landing” (no recession). According to the Conference Board on October 12, 2022, “Economic weakness will intensify and spread more broadly throughout the US economy over the coming months, with a recession to begin before the end of 2022.” During the FOMC press conference on Sept. 21, 2022, Chairman Jerome Powell said, “We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging and we don't know, no one knows, whether this process will lead to a recession, or if so, how significant that recession would be.” That’s about as close as a board governor will get to admitting a recession is likely – until the NBER makes it official. (I discuss the NBER in my Apple and the R Word blog.)
What Can We Do to Protect Our Wealth from This Uncertainty?
1. Act according to a time-proven, 21st Century plan, rather than reacting to the headlines.
2. Keep enough safe, and consider overweighting safe due to weak economic conditions.
3. Put the safe side to work strategically.
And here’s a little bit more information on each one of these three points.
1. Act according to a time-proven, 21st Century plan, rather than reacting to the headlines.
If you wait for the headlines to get yourself properly protected, it’s always too late. Most of the losses occur before the recession call is made. Once the recession is announced, the economy is closer to its inflection point to begin the recovery. There are typically a series of unfortunate events that prompt overnight gap downs before the announcement. There are steps each one of us can make now to protect your wealth. Most of us are not properly protected before we do this forensic analysis.
So, what is a time-proven, 21st Century strategy? Proper diversification, keeping enough safe, overweighting safe, regular rebalancing, and knowing what is safe in a world where bonds and fixed income are very tricky. I just did a blog and videoconference on yield. Click to access them. You can learn this time-proven, 21st Century system, which we call the life math that we all should have received in high school, at our New Year, New You Financial Freedom Retreat January 20 - 22nd, 2023. Register now and you get the lowest price and a private prosperity coaching session (value: $300). Invest in the life math that we all should have received in high school and watch how your life transforms.
2. Keep enough safe and consider overweighting safe due to weak economic conditions.
It’s very important that we don’t have blind faith that someone else is protecting our future for us. Most people lose more than half of their wealth in recessions, and then spend most of the bull market crawling back to even. In the Dot Com Recession, it took the NASDAQ almost 15 years to hit 5,000 again (from losses of -78%). So rather than think the coming recession is going to be like the Pandemic Recession, we should understand that the U.S. printed up $5 trillion, and gave it out to everybody with a pulse. We are now tightening up the monetary supply, and asking people to repay the money they borrowed. Even the Central Bank is losing money right now. The Federal Reserve Board reported that the central bank lost money in September, and is likely to continue posting losses for a few years.
3. Put the safe side to work strategically.
Rising interest rates create opportunities for savers and fixed-income investors. They also create problems. Anyone who had fixed income products last year is likely to be exposed to capital loss, and illiquidity (the inability to get rid of something they no longer want). Because over half of the S&P 500 is at or near junk-bond status, this is a serious problem that should be addressed ASAP.
It’s equally important to understand that if we’re interested in a product that we consider to be fairly safe with a good yield, such as the Treasury I Savings Bond, which is still offering 9.62% yield, and your broker can’t get it for you, but instead offers you a TIPS product, that might be because that’s the only product he can sell to you, rather than that is a better investment. Don’t swap out one thing for another indiscriminately. We must be the boss of our money, and understand how and where we can find opportunities that are creditworthy and relatively short term, while also keeping liquidity for better opportunities that will keep coming as interest rates keep rising.
This is something I discussed in our “Yield” blog and videoconference this month. It’s also something we spend one full day on at our Investor Educational Retreats.
The odds of a recession in 2022 or 2023 are very high. Thursday morning will be a very important day. If the report is negative, there could be a sell-off on Wall Street. Even if Thursday isn’t terrible, the winter months could prove to be quite challenging.
Recessions can cost investors more than half of their wealth. In the past, bonds were the saving grace because typically interest rates are cut (and the value of existing bonds rises). In this recession, bonds are very tricky because interest rates are rising. If you have credit risk and duration risk in your existing bond portfolio or if your bond fund has lost money, you should know what your options are now rather than be complacent that everything will work itself out.
This may sound like an extra job. However, before a recession it’s a very good idea to give yourself the job of protecting your wealth properly – of fixing the roof of your financial house now, while the sun is still shining. Otherwise, you could be in a position to have to hope and pray that you make up losses over the coming years. And in the meantime, your credit score will suffer, your family and relationships will suffer. Stress levels will be very high. All of this can be avoided by adopting a good plan now that protects our wealth from extreme losses, while positioning us best for the recovery.
If you're interested in learning 21st Century time-proven investing strategies for protecting your wealth and managing the bear market from a No. 1 stock picker, join us for our Jan. 20-22, 2023 Financial Freedom Retreat. Email info@NataliePace.com to learn more and to register. Click on the banner ad below to discover the 18+ strategies you'll learn and master, to get pricing information and to read testimonials Get the best price and a complimentary private prosperity coaching session (value $300) when you register by Halloween, Oct. 31, 2022 Register now to access your free 4-part Protect Your Wealth Now webinar that will get you started immediately.
Join us for our New Year, New You Financial Freedom Retreat. Jan. 20-22, 2023. Email info@NataliePace.com to learn more. Register by Halloween, Oct. 31, 2022, to receive the best price and a private prosperity coaching session (value $300). You'll also receive a free 4-part webinar (which you can access to protect your wealth now). Click for testimonials & details.
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.