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  |   Business


Are We Getting Closer to a Recession?

April 10, 2017: CNBC releases an article titled “There’s more than 60% chance of a global recession within the next 18 months, economist says” in which they state the following opening:

Global growth is expected to slow down significantly in the coming months as borrowing levels dominate in both China and Europe and "Trump-mania" is set to fade, a chief economist at Danish investment firm Saxo Bank told CNBC on Monday.

But what is the real possibility of a recession? I’m sure if you ask one economist after another, you’re going to get a ton of different answers. So asking only one person isn’t a clear indication of a “yes” or “no”.

I would like to point out the Dow. This bull has been steadily increasing over a number of years. Consumer confidence seems to be getting higher and higher. All of this is really good for the time being. People who study stocks, however, get a little scared at seeing this. There’s a common expression that goes, “bull markets don’t die of old age”. This means there are a number of factors of why bull runs give out. Consumer confidence, as mentioned earlier, is one reason they seem to give way. People are investing more and aren’t as hesitant. These can add “fuel to the fire” of why stock junkies and economists are preparing for a financial crisis. We never hope for one, but we do have to prepare for them. Recessions are rather tricky to follow, though.

One of the main reasons it’s hard to get this information is because a lot of it is politicized. A new administration in the White House causes markets to sore and indexes to skyrocket, or just the opposite. So with that in mind, a lot of websites post articles predicting a recession because they dislike the President, and vice versa.

According to Forbes, recessions are defined as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. The question you might ask is, “if we can detect these recessions, why don’t we prevent them?” That’s a valid question. The problem is if we have 100 reasons to think a recession is possible, maybe 5-10 of them are staple, legitimate reasons. The other 90-95 reasons are usually specialized by a certain matter.

Let’s look at a few examples of what this means. When the video of the United Airlines passenger was dragged off the plane emerged, the first thing I thought of was their stock. The news controls stocks. So when people got home that evening, people were able to watch the news and see what happened. The next day, when the opening bell rang, United Airlines stock ($UAL) completely and utterly tanked. The news of this was a staple indicator of the stock dropping.

One of the more recent economic crises we’ve had was the attacks on 9/11. These attacks were not able to be recognized. Obviously, America had a little more on their plate to worry about. The New York Stock Exchange (NYSE) was closed form 9/11 until 9/17. When it opened, the Dow dropped 617.70 points. We knew the markets wouldn’t be amazing from the closure of the NYSE, but we didn’t know that the Dow would drop that much. The new recession was from 2001 to 2003. According to The Balance, not all of this was because of the attacks. The news came into play and many investors didn’t know whether or not the U.S. would go to war or not. $1.3 trillion was added onto the national debt from the “War on Terror”.

Like I said, there are a few of these staple indicators for a recession. These typically include:

  • Asset Bubbles
  • “Get Rich Quick” ads in reference to the asset bubbles
  • “This time, it’s different” said by professionals

Financial crises lead to recessions. Just like the housing bubble in 2008. This caused a huge recession leading from 2008 to 2009 and is arguably even a depression. When you see a few of these signs pop up, it’s probably time to be cautious. Notice these signs and stay in-the-know with news! This can greatly benefit you. It’s also good to train your mind like I explained in the example of United Airlines stock: negative news comes out, so I instantly thought the stock would tank. In another example, “Insert Company Here gets approved by the FDA!” so my instant thought is, “that stock will soar”.

On another note, getting a financial adviser can help. You will have to pay them money, but they can use the initial funds you give to invest in an array of things. This, over time, can cause an increase in income. Your wealth and net worth will shoot up! Best of all, these men and women are paid to know all things finance. So if the slightest bit of recession or financial crises leak in, they can spot it and they can also guide you to make the best decision! There are a number of these advisers. Some work in corporate and franchise positions while others work independently. Your adviser is going to be a close acquaintance. A good relationship and knowing you’re both on the same page is crucial! Search and look at reviews for financial advisers near you!

Overall, I would definitely remember to follow up on news marked “recession” and look for those stories with an overall census of economists and finance professionals. It’s one thing if one person says a recession is in the near future, but if the other 999 economists say that a recession is unlikely, I would bet on the 999.

Like I said, stay up to date on the news, talk with financial advisers, notice how the overall economy and stocks are doing and you’ll be on the path to avoiding financial crises. All of these factors can help you protect yourself and family in the second to worst-case scenario- a recession.

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