The Beginning of the End
In this quintessential article, I will share five reasons why it is impossible to deny that we will enter a very deep Economic Recession soon. Being that I lived and worked as a wealth advisor through the Great Recession of 2008–09, there are eerie similarities between then and now. In fact, for those of us that are novice economists, it’s almost comical how optimistic the average investor is with regards to the many interest rate hikes. Regardless of if you are a stock, bond, or real estate investor, …pretending a bad recession will never happen is playing with fire. Just like in 2008, investors are not paying attention to the risks and continue to pile money into overpriced housing and equity investments. Anyone with any knowledge of the ingredients that are necessary for a true Recession, can see the warning signs are very clear and the “writing is on the wall.” Keep in mind that even though employment levels and consumer spending appear resilient, there are plenty of signals suggesting a big recession will soon materialize. Please allow me to review many of these so called “Recession Triggers” and how they will push us into a full-blown economic recession-depression by year’s end.
The first element I’d like to discuss is a considerable decline in manufacturing activity. Over the past 70 years, whenever manufacturing ISM dropped below 45, recession occurred on 11 out of 12 occasions (exception in 1967). The ISM manufacturing index, also known as the purchasing managers’ index (PMI), is a monthly indicator of U.S. economic activity at more than 300 manufacturing firms. It is considered to be a key indicator of the state of the U.S. economy. Today the ISM is hovering at around 45…just a point away from a Recession trigger. Incidentally, a decline in manufacturing coincides with lower earnings being realized. This is infiltrating into the Global Economy now, which makes a Recession in the U.S., likely to permeate into the entire world’s financial system. The jobs market is closely tied to manufacturing activity, which has endured recent lay-off announcements. Another year of this will be the impetus for big interest rate cuts on the back of a full-force recession.
Secondly, bond yields are behaving erratically, and causing a steeping of the curve. With the Steepening yield curve, some experts say is…