{"id":5193,"date":"2019-08-16T17:30:38","date_gmt":"2019-08-16T17:30:38","guid":{"rendered":"https:\/\/investingcounterpoint.com\/?p=5193"},"modified":"2019-09-11T13:01:42","modified_gmt":"2019-09-11T18:01:42","slug":"great-recession-deja-vu","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/great-recession-deja-vu\/","title":{"rendered":"Great Recession Deja Vu?: What to say to ignore the peanut gallery"},"content":{"rendered":"\r\n\r\n\"\"<\/a>\r\n

What do you tell fearful clients when they\u00a0call to suddenly change their investment strategy because of the trending\u00a0bearish media soundbite? Maybe it is easy to dismiss when the source is dim.\u00a0But, periodically a few distinguished\u00a0 voices emerge distinct from the usual\u00a0chatter of bull, bear, push and pull monkeys shaking their crystal balls for\u00a0peanuts and spectacle. Then, it can be a challenge to remain strong-willed,\u00a0rational, disciplined, and tactically calm while peers and social media pages\u00a0scream of falling skies and hidden treasure. When clients come to advisors with\u00a0media madness, they need a competent, nerdy, macroeconomic wealth caretaker to\u00a0tell them a calming economic narrative so they can sleep well.<\/p>\r\n

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Leverage,\u00a0Tariffs, and Brexit \u2014 Oh My!<\/strong><\/h2>\r\n

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Tariffs, low inflation, and a near $1 trillion budget deficit<\/a> made Fed\u00a0Chair Jerome Powell\u2019s interest rate speech a hot ticket at the end of July.\u00a0It\u2019s the first time in a decade<\/a> that the central bank noted\u00a0a change in the monetary course, but Powell\u2019s not the only one sounding alarms.\u00a0Elizabeth Warren<\/a>, a Democratic\u00a0presidential primary candidate rang an economic contraction warning that felt\u00a0familiar to one she made before the Great Recession. It is easy to dismiss hermessage as a political tactic to counter the president\u2019s self-crediting message\u00a0of a strong and growing economy. However, the IMF<\/a> and former Fed Chair Janet\u00a0Yellen echo the same grim narrative of household debt, corporate debt, and new\u00a0debt instruments bearing unnoticed risk.<\/p>\r\n

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When the U.S. Economy looks like it\u2019s\u00a0preparing to sneeze smaller economies take mitigation measures, so similar\u00a0recession warnings are chiming around the world. The American shift away from\u00a0globalization to protectionism has the potential to drastically unsettle\u00a0economies around the world. Trade tensions are making China\u2019s debt market more unstable<\/a>. The U.K. is on the brink\u00a0of tremendously restructuring European economic exchange (on Investing Counterpoint<\/em> you can read more\u00a0about Brexit outcomes<\/a> and the meaning for financial <\/a>advisors<\/a>). Ireland\u2019s National\u00a0Treasury Management Agency stated that the likelihood of the Irish Economy<\/a> experiencing another\u00a0recession is 100%! \u2014 well, economists aren\u2019t known for their prudence in public\u00a0relations…<\/p>\r\n

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While many economic metrics may be similar to\u00a0pre-2007, the means for recovery in the event of a recession are not similar.\u00a0Interest rates are much lower in the U.S. and negative in Europe<\/a>.\u00a0 Governments around the world, especially the\u00a0U.S., are more constricted with fiscal policy because of long-run budget\u00a0deficits. So being a risk-averse, proactive financial planner is essential.<\/p>\r\n\r\n\r\n\r\n

Let\u2019s\u00a0Take a Breath and Review the Facts<\/strong><\/h2>\r\n\r\n\r\n\r\n

Ok. So, some alarm bells are starting to ring,\u00a0but should we duck and cover? Well, we have to peer beyond the trade wars, inflation\u00a0and budget battles, because history can be our best crystal ball \u2014 really what\u00a0else do we have? Two notable economists, Maurice Obstfeld and Kenneth Rogoff,\u00a0looked beyond the shocks caused by mortgage backed securities and credit\u00a0default swaps to find the truth in the aftermath of the last U.S. financial\u00a0crisis. They found that the shocks were devastating because they played upon\u00a0existing economic weaknesses which were allowed to fester for years.<\/p>\r\n

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