Before I begin my rant — I mean commentary — regarding the subject title, allow me to provide you with a brief, educational summary regarding recession 101.
The technical definition of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call it a recession. Perhaps stated more simply, a recession is a significant decline in economic activity that goes on for more than a few months. As an interesting side note, the economy comes out of recession when it begins to rise, not when it has regained lost ground. Are you with me? Good job, student! Now that the boring academic material is out of the way, let us move on to a more interesting perspective.
Although the U.S. economy is firing on all cylinders, the talk of the next recession is in the air again. I hope that you are emotionally ready, because a recession is on its way. Whoop-de-doo! Pul-lease! There is always a recession coming, but nobody and I mean nobody knows when and for how long it will last. Therefore, all the gnashing of teeth about the next recession is a huge waste of time, especially if you believe as I do that the future exists to keep forecasters humble!
I understand why investors are confused, as it appears that every day, heavily credentialed experts are declaring the next recession or market crash is right around the corner, while at the same time, equally credentialed whizzes are foretelling a stock market boom is upon us. Which camp is right? Flip a coin! Folks, I encourage you, no I beg you, not to participate in the silly and unprofitable game of forecasting the next economic activity. It is a loser’s game! Over and out!
Whether the recession begins in a couple of weeks or a couple of years, it is coming, so let us please not be surprised when it rears its ugly head. Recessions are a natural part of the business cycle and we should accept it, warts and all! If you follow my methodology of implementing a professionally managed, diversified, prudent and cost-effective portfolio, I believe we should be just fine riding out the next recession.
Do you remember when the last recession was? If you said it was 2008-09, bingo! Do you remember how long the recession lasted? Eighteen months, which was the longest recession in history, and the worst economic crisis since the Great Depression! Do you recall how it felt when it looked like our financial world was ending? I bet you do, just like me. It was brutal. It was scary! It was frustrating! Here we are, a decade later and the stock market has accomplished what it has always done, moved higher over time while setting record highs. In the final analysis, most investors are happy that they stayed the course by riding out the storm.
History of Recessions in the United States (from www.thebalance.com)
1945 RecessionEight months
1949 Recession11
1953 Recession 10
1957 RecessionEight
1960 Recession10
1970 Recession11
1973-1975 Recession 16
1980 7
1982 Recession 16
1990-1991 Recession 8
2001 Recession 8
2008-2009 Recession 18
Harry Pappas Jr. CFP®
Managing Director-Investments
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
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harry.pappas@wellsfargoadvisors.com
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