STOP INVESTING | Recession Ahead

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Here is why you should stop investing and do this instead.

WHAT ARE THE ODDS OF A RECESSION?

There's 5 factors that can help us determine the odds of a recession.

1: INTEREST RATES

Interest rates are the cost to borrow money. The cheaper it is to borrow money, the more the economy starts to expand through debt. If rates are low everyone borrows to buy houses, cars, and corporations borrow money for share buybacks, acquisitions where they buy other companies, and day to day general operations. But when interest rates are high and it’s more expensive, then people borrow less money which means the economy doesn’t grow as much increasing the risk of a recession. The central bank wants to add .25% every few months. I'll add 10% to the risk of a recession.

2. The second variable that’s closely connected to interest rates is the yield on the 10 year treasury bond. It’s predicted 10 of the last 11 recessions since 1955 so it’s very reliable. This is called the “yield curve” and it’s one of the few things we have that is what’s called “forward looking”.

Our 10 year yield on the treasury bond is about 2% and the federal fund rate at 0.25%. It looks like it’s dangerously close to dropping below that line. I don’t think we’ll invert but it's still a risk. Let's add another 10% to the risk of a recession.

3. Real wage growth. Household wealth reached over $150 trillion dollars recently for the first time ever - that’s a 14.4% increase from a year ago. This is thanks to the stock market and inflation boosting asset values at the fastest pace since 1984. Millennials own just 6% of all that wealth or roughly $10 trillion dollars. In fact - the average person got a 4.7% increase to their hourly wages in 2021 or roughly $1.46 per hour. Inflation from CPI data was 7% in 2021 - which means the real wage growth is actually negative 2.3%. Anytime you have negative wage growth in relation to buying power of essential goods and services is when you increase the odds for a recession. Let's add another 10% to the risk of a recession.

4. Commodity prices. History shows that anytime we’ve had a spike in oil prices above the average price, there’s a high probability of a recession. In this case the word to remember is “Brent Crude Oil” - Brent is the name of a light crude oil made from a blend from 19 different oil fields in the North Sea and other useless fun facts for $200. Anytime the price of Brent Crude Oil goes up above $104, there has been a recession. This has been the case in 1970, 1975, 1980, 1990, 2000, 2008, and now potentially in 2022. I will add another 10% to the risk of a recession.

5. Consumer sentiment. The University of Michigan’s consumer sentiment measure is 67.2 which translates to the lowest that it’s been since about 2011. Which lines up with that 10 year cycle when recessions happen.

WHO CARES ABOU THOW PEOPLE FEEL?

How we feel about the confidence of the economy has a lot to do with where it goes. If we all collectively believe things are bad because we’re reading headlines that inflation is at a 40 year high every single month, we become conservative, and we spend less.

Companies start to become defensive, they hire less, they give out less wage increases. When you combine that with the conflict that’s going on, huge rise in oil prices, coupled with real negative wage growth, and this video which isn’t helping - and it can sometimes become a self fulfilling prophecy. I'll add another 5% to the total.

CHANCE OF A RECESSION IN THE NEXT 12 MONTHS:

The chance is roughly 45% based on these 5 factors (a little better than a coin flip).

WHAT HAPPENS DURING A RECESSION?

Watch the video to find out!

*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.