No one likes to hear it but a storm is brewing. The
Federal Reserve wants inflation below 2% and it's going to get it by
forcing the US economy into a recession. (How we got here? That's for
By consistently raising short term interest rates in an
attempt to bring down inflation the Fed has inverted the yield curve.
(Where short term rates are above longer term rates.) If you notice below,
a 2 year rate higher than the 10 year has preceded every recession
throughout the entire data series.
Continuing claims for unemployment have also turned up on
a year over year basis. Like the employment data it's not screaming Recession
just yet, but the direction higher coupled with continued yield
inversion will send more people to the unemployment office. The COVID
lockdowns broke the graph, so here is the data before, after, and with
So, how can you prepare yourself for the upcoming
Raise Cash: I've been slowly reducing the risk of client
portfolios. I suggest you do the same in both your investment accounts
and personal financial profile.
Liquidity: This is not the same as cash; do you have
excess buying power on your credit cards, lines of credit, etc.? Untapped
debt you can access during a recession can help one get through the rough
patches or capitalize on the dislocation.
Shopping list: I'm already building one for assets to
purchase during the upcoming financial storm. This doesn't have to be
stocks, bonds or market related items. Are you planning on a vacation?
Consider deferring the decision until prices drop.
Counterparty Risk: How will a recession affect those you
do business with? This could be an employer or a business partner. Do you
have any loans or financial commitments coming up in the next two years?
Now would be the time to consider how a recession would affect those
Opportunities arise during the chaos of a recession, which
can counterbalance the inevitable disruption which occurs during an
economic downdraft. Don your metaphorical financial rain coat and get