Hurricanes and recessions deserve our attention and prep.
As I pen this blog, my fellow Floridians and I are preparing for the peak of hurricane season. Our eyes and ears are open to any “disturbance in the tropics” and many have made their tax-free buying spree to Home Depot to pick up the necessities such as batteries, flashlights, candles, duct tape, and more. We’ve pulled out our generators to test-fire and have dusted off those room AC’s just in case. Of course, we often tune in to our local weather channels and await those dreaded words…“SW Florida is in the cone!”
As we all know, being “in the cone” never guarantees a direct hit. Many times, I have gone to bed anticipating the eye’s arrival only to awake to find that the hurricane has changed its course. Having learned over the years from experience, being “in the cone” can be a position of UNCERTAINTY, but also a signaling of preparation. It only took going through Hurricane’s Charley and Irma to learn that these storms are to be taken seriously.
That being said, I believe the same mindset translates when it comes to anticipating a recession. There has been a lot of conversation, analysis, research, and projections regarding a potential recession in the coming year as we digest market corrections, a slowing economy, job numbers, inflation, supply chain issues, etc. The standard joke in our industry is that economists have predicted 9 of the last 5 recessions. In my career, we’ve seen past recessions- ’87 after Black Monday, The Great Recession, Covid-19 shutdown of the economy and others. These past events have shaped our thoughts and disciplines on how we manage your assets. We’ve learned to keep long-term objectives, refrain from trading the headlines, control investment emotions, develop our asset allocations and diversifications, keep investment costs low, and MOST IMPORTANLY, take advantage of opportunity when we see it! This economic slowdown we are seeing currently DOES NOT compare to those of the past.
Two weeks ago, Allie, Rina and I attended the LPL National Conference in Denver. My favorite Chief Global Strategist for over 25 years, who is also one of our research partners, was a guest speaker there and addressed the prospects of a potential recession. Here are the main takeaways (I am calling them our “Denver Nuggets” for all our basketball fans out there) from his presentation:
- Anticipate “mild/moderate inflation for August”
- The major culprit of inflation - “Stimulus money! It has to be worked off in this economy.”
- How did inflation get so high? - “The fed let inflation get out of hand.”
- Should we expect a recession? - “Wages are too high, and unemployment is too low to be considered a true recession. The economy is clearly slowing but an actual recession is too close to call. If there is one, the fed will have to cut rates.” (Projecting possibility come last half of 2023).
- “IF there is a recession, it will be a small “r”, not a big “R” (hence all the small r’s throughout this blog)
- The economy in general - “A cold front has come through, but it won’t last forever!”
- On investing in these volatile times - “The average investor never sees the FULL value of investing due to emotions. People get depressed. Keep focused on the long term!”
- “We live in economies of long summers and short winters - Invest for the LONG haul.”
- “At the bottom of the market, it takes courage!”
- “Today is a great opportunity to invest. U.S. is cheap by historical standards. International valuations are attractive. Stay with quality and dividend producers.”
So, are we in fact “in the cone” for a recession? That is still too early to tell. We won’t even debate it. But that does not preclude us from preparing like we do for hurricanes. Our managed portfolios are well-diversified, we are not overweighted in speculative positions, and we have kept cash handy to continue to meet income distributions. We pivoted over a year ago into positions that would weather higher interest rates. We will always look for quality investments and seek dividend players that will pay our portfolios while we weather these short-term storms.
And IF we end up “in the cone” of a recession, I am confident that we will weather this storm like we have the others in my over 35 years of experience.
As always, Allie, Anita, Rina, and I sincerely appreciate your friendship and business! If we can answer any concerns or questions you may have, please do not hesitate to call upon us.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Economic forecasts set forth may not develop as predicted.