There is Definitely a Recession Coming

Recession

I just don’t know when. I’m of the opinion that we simply don’t see enough facts suggesting we are on the cusp of a recession. There are a lot of people out in the press calling for one and I think it’s an attempt to gain headlines with outlandish statements…even if they are not running for President.

Rest assured that the press will remind you that there is always a crisis. The key is knowing if a crisis merits a change to your strategy. Nothing I’m seeing right now is causing us to make changes to our strategies.

Recession possible? Yes.

Recession probable? No.

The market has pulled back. These things happen. Investing and managing your wealth is a journey that will span several market cycles. It also requires you to set expectations. Ask yourself – are you renting or buying your financial plan and investment strategy?

Oil…and GDP

My fingers are bleeding from writing about the breakdown in oil prices…but the most recent GDP report affords us an exceptional look at how oil is affecting the economy.

Fourth quarter (Q4) GDP was released last Friday. It grew at just 0.7% on an annualized basis, which is down from 2.0% in Q3 and 3.9% in the Q2. Using those numbers, it looks as though the full 2015 calendar year GDP expanded at 2.4%.

That puts us at the same pace as in 2014.

So we’ve seen flat growth (I’ve been using the word tepid a lot)…but remember that this has been enough to bring the unemployment rate down to 5.0%.

That brings my blistered fingers back to oil. Unless you have lived under a rock, you are likely aware of the absolutely stunning drop in gasoline prices. I took some great pictures of my most recent trip to the gas station in this recent blog. As of Saturday, January 30th, the average price of regular gasoline in the U.S. stood at $1.80.

A BUCK EIGHTY!

That’s a ton of dough being saved by the average driver…which I did some rough, unscientific math on in this blog.

The problem is that only some of those savings are finding their way into the economy. I’ve looked a little wrong in some of my recent blogging because I’ve been maintaining that this money would dump back into the economy. However, I think it’s less about being wrong and more about being a victim of timing. It appears that a good chunk of the savings is, well, being saved.

One of the tough parts about of the drop in oil prices is that it’s really impacting the investment in capital equipment made by oil companies. This investment is down from an annual pace of nearly $146 billion a year ago to around $64 billion in Q4 2015. Using my fingers, I come up with a number around $80 billion in capital equipment purchases that are no longer factoring into the economy.

However, while this whole oil thing sucks for the oil and gas industry, when you press that against an economy that is hovering north of the $18 trillion mark, IN MY OPINION, it’s simply not enough to tilt us into a recession.

Look, I also get that it hurts. I’m taking massive liberties with billions of dollars…but it’s at the margin.

I still think that the massive savings the consumer is seeing at the pump will eventually benefit the national economy. I’m willing to be wrong until I’m right.

Some Randomness

  • I like this chart below from Dorsey Wright & Associates. One thing to take away from this is how much of the post-correction gains come in the first six months versus the whole twelve months after both a 10% and a 20% correction. It’s why I keep saying, unless your need for liquidity has changed, do not succumb to panic or emotion or any over-confidence in your ability to predict anything in the markets.
  • Today we saw a modest increase in the ISM manufacturing index. The index moved up from 48.0 in December to 48.2 in January. It’s encouraging to me in so much as it didn’t go down more rather than the fact that is went up a little. Manufacturing is still clearly coping with the stronger U.S. dollar and lukewarm global demand.

Average Performance after Corrections

  • Given how risk averse the Federal Open Market Committee (FOMC) seemed to be in 2015, (remember when the markets got nervous because the Fed was NOT raising rates???), I would not be surprised to see a lack of willingness to raise rates a second time this year if there are any protracted concerns about the slowdown in China.

Please call with any questions.

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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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