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We're facing a big financial challenge - a market recession that's predicted to be the toughest in a hundred years. It's like a loud warning bell, telling us to get ready. But don't worry, we've got a plan. In this blog post, we'll show you exactly what steps to take to protect your money and come out strong on the other side. So, let's get started. Your financial future is important, and we're here to help you through it.
Key Takeaways
- Historically, recessions have followed periods of Federal Reserve interest rate increases, with an average onset of about 11 months after rate hikes cease.
- Despite concerns, the market hasn't crashed, partly due to a robust labor market and spending by the wealthiest and credit-reliant 99% of the population.
- The 1% wealthiest individuals and foreign investments contribute to propping up the economy, alongside consumer spending fueled by credit card use.
- Personal savings in the US have significantly decreased, potentially impacting economic stability in the face of a recession.
Sentiments and Market Crash Warning Signs
CEO Predictions and Economic Concerns
84% of Fortune 500 CEOs have gone on record saying that they believe there will be a recession. The reason they think that way is because of debt. Most of your major companies in the United States borrow money to grow, and a big part of these 84 CEOs who believe there will be a recession, their companies have borrowed a lot of money using short-term interest rates. They may have taken these loans out 3 years ago, or they may have taken them out before the pandemic, but a lot of these loans are going to be maturing and coming due. And we know right now where interest rates are, they are through the roof for short-term borrowing, even for long-term borrowing, that's through the roof. So a lot of these Fortune 500 CEOs are afraid that when this debt comes due and they have to reset their interest rates, instead of resetting them at 2 or 3%, they're going to have to reset them at 5%, 6%. A lot of them do not believe they will be able to service that debt at double the interest rate. And of course, our economy is made up of companies, and if those companies cannot make enough money to service their debt, they're going to have to do some cost-cutting measures. And the number one thing companies cut when they have to reduce expenses is payroll. And when payroll is cut, people lose their jobs, the unemployment rate goes up, and that, my friends, will cause a recession. So that's one reason.
The Federal Reserve's Role in the Equation
The third reason is anytime the Federal Reserve has increased interest rates the way they've increased them over the last 20 months, it's typically followed by a recession. The recession normally comes on average about 11 months after the FED stops increasing short-term interest rates. And the last time they increased interest rates was in July 2023. 11 months from July 2023 would put us at June 2024. History says that could be the start of a recession.
- Tip: Diversify your investment portfolio to mitigate risks associated with potential interest rate hikes and loan maturation.
Why Hasn't the Market Crashed Yet?
Let's say the FED decides to bump interest rates this week on November 1st. 11 months from November 1st would put us at October 2024. Sometime between June and October 2024, potentially there could be a recession based on what history tells us when the FED stops hiking interest rates. All three of these things I just gave you are real. Now let's talk a little bit about why the market hasn't crashed.The Resilient Labor Market:
Let's start with our robust labour market. When the economy defies all odds, it defies high interest rates, it defies high inflation, it defies high credit card debt, and high student loan debt, and it continues to grow. It's growing because people have jobs, and people are making wages on those jobs. So I think the number one reason why the market hasn't crashed, the economy hasn't crashed, and we haven't gone into a recession is because of this strong labour market that we have.
The Influence of the Wealthiest 20%:
I think the second reason we have not gone into a recession is because of the upper 20% of the wealthiest people in this country and foreign investment. See, you wealthy of the wealthy, they got money, they got assets, they're still buying and spending and having a good time and taking their luxury trips, right? They've made a lot of money in assets since 2008 when we had the last major recession. See, this 1% have done extremely well and they continue to do extremely well. So they're able to prop up our economy with their spending. Also, what's able to prop up the economy is the 99% who have been using their credit cards to continue buying. They've also used their active income because remember we got a strong labor market, so people can still work and afford to go out and buy the things they need. A good majority of the 99% are doing that coupled with their credit cards. We already know that 99% don't have any more personal savings. In this country, two years ago, we had $2.1 trillion in personal savings. That's down to about 200 billion.
The Dilemma of Personal Savings
Why am I still investing given the fact that a lot of folks think there's going to be a recession? Why not take your money out of the market, park it on the sideline and wait this thing out? I just don't think time in the market is the way to build wealth, guys. I think you got to be in the market. If you think about 2020 when the pandemic broke out, a lot of people panicked and sold their investments, thinking they're going to lose it all. I didn't do that. I kept my investments in place and I continued to buy. And then guess what happened? 57 days later after the initial 35% decline in the stock market, it was at all-time highs again.
- Tip: Prioritize building and maintaining an emergency fund to provide a financial cushion during economic uncertainties.
My point here is, guys, had I taken my money out of the market, I would have missed that opportunity to build more wealth. And that's what I'm afraid of doing right now. Now if I take my money out because I'm panicking and I'm fearful and I'm listening to the propaganda machine the 1% has gone right now because obviously, they want you to sell when you really should be buying, they want you to buy when you really should be selling, I'm not going to build my wealth the way I want to build it. Because if I try to time the market, I'm not going to win. . I'll never time it perfectly and if I miss over the next 18 months I miss the top 10 days, then I'm not going to make any money. You have to understand, guys, that you don't make money in the stock market every single day. You're in the market every day but it's some 10 or 15 days every couple of years that it goes crazy where you make the money. But if I'm sitting on the sideline those 10 or 15 crazy days where it just goes to the moon, I'm sitting on the sideline and I try to get in at the tail end of it, I just missed it.
So for me, it's in the market every single day through dollar cost averaging as opposed to trying to time the market and be the expert. You better consider that, guys, as you listen to all this propaganda out here. You're going to hear people say there will be a recession, there won't be a recession. Listen, guys, history tells me this. Whether this is a recession or not, if I'm in the market every single day through dollar cost averaging and I have a long-term outlook, I will win. That's what I've done for 25 years and it hasn't failed me yet. The only time I've failed in the market is when I try to be the expert and time the market. That's when I would get into trouble. As long as I was just time in the market instead of trying to time the market, I've always done well.
- Tip: Focus on consistent, disciplined investing over time, rather than attempting to time the market, for more reliable returns.
And I'm going to recommend you take that same approach. Drop me some comedown in the comment box and let me know what you think. Will there be a recession, or won't there be a recession? Love to get your thoughts.
