Clear Direction for Your Retirement:
Are You Ready For A Recession?
Summer is upon us my dear reader so get your beach bod ready and tanning memberships renewed so you’re ready to hit the hot Texas months with a bang!
In all seriousness, Texas summers are not the only thing that’s dangerously heated. As you have experienced thus far this year, it is another year of craziness in the markets and in global affairs. It has left many of the folks I’ve spoken with perplexed as to exactly where it’s all headed. I can’t say I know for sure, but I’d like to give you some reasons as to why we might just be headed into a recession and what that means for your retirement savings.
First, and one the most historically accurate indicators, is the inversion of the yield curve on the two and ten year treasury. Every recession for the last 60 years has followed this yield curve inversion where short-term rates become higher than long-term rates. This has already happened this year and it’s the first time since 2019. Additionally, the five and thirty year yields have also inverted this year for the first time since 2006.
Secondly, current market volatility in U.S. equities is not unusual around market tops that are warning of a coming drop in value. There’s no way to time this but there are signs that precede precipitous drops. Stocks are very expensive right now and when they correct (for real) they usually overcorrect to the downside. In fact, stocks would need about a 55% decline to get back to average CAPE ratios currently. This is not an environment where a buy and hold investor wants to get caught, especially if you’re within should be nimble, liquid and prepared and if you don’t know what I’m talking about, you’re not and you need to call us NOW.
Thirdly, the Fed is way behind the curve on raising interest rates and is drastically changing policy from quantitative easing (“free” money and propping up markets) to now liquidating some of their $9 trillion balance sheet. Historically, when they’ve raised rates, most of the time a recession followed. The Fed is hoping that they can bring the U.S. economic plane down for a soft landing (without collapsing markets and ushering in a recession) and I hope they’re right. But the odds are not in their favor in that regard.
Fourthly, supply chain bottlenecks while improved are still causing a multitude of problems. However, there are more problems than this that are flashing the recessionary signal. A few would be rising mortgage rates which will hurt housing (a large segment of the U.S economy), declining consumer and business sentiment, rising inflation with lowering real wages, declining retail sales and exuberant speculation in many investment arenas.
Bottom line, I work in a world of prob-abilities and the probability that we are entering a recessionary period is currently very high. That said, I would be ecstatic to be wrong and not have to watch many of you go through what would follow if I’m right.
The lesson here is that you must be the master of your retirement destiny. Get some help! Retirement success is not going to happen by osmosis. Again, it starts with planning and hopefully preparing as much as possible in advance. If you don’t know where you’re going, you’re probably already there.
I hope this is helpful to your retirement journey. Call us, come see us or visit us at www.woottonfinancial.com, we’d love the opportunity to help address your questions and concerns and provide you Clear Direction for Your Retirement®.