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Double Dip Recession Redux

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3 years ago

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The phrase “double-dip recession” is one I am hearing a lot recently given the economic data coming out detailing the impact of COVID on 2Q 2020. To me, this rings similar to the double-dip recession calls from 2011.

For curiosity sake, I rang up the Google machine to go back in time nine years and came across the article below from the International Business Times:

Global Recession 2011: It’s Real, and It’s Going to Hurt

Within this article are a few quotes that I’d like to draw your attention to, if for no other reason than to cite how smart pessimism can sound, even when it turns out to be terrible information to act on for the main street investor. Below are a few quotes with a little commentary from yours truly.

Let’s face the mounting facts and just say it in plain English: The world is slipping into Global Recession 2011, and governments don’t have the gunpowder to ward it off.

The U.S. economy is barely growing at all. Companies aren’t hiring. The federal budget deficit is above $14.5 trillion. Companies are stockpiling cash because, as Ford CEO Alan Mulally said in a press conference this week, because the consumer has pulled back.

It’s worth noting that this article came out about a month after the S&P downgraded U.S. debt and the market was in a tailspin.

It’s been two years since the official end to the Great Recession, the worst financial collapse since the 1930s, and despite billions in global government spending and efforts to stave off a double-dip recession, it now appears that those efforts have failed. Just because a new recession hasn’t been officially declared doesn’t mean we’re not at the threshold.

What’s scary to many economists about the Global Recession 2011 is that governments are both less equipped and less interested in dealing with financial crisis this go-round. Most are spent from prop-up efforts that began in late 2007 and 2008 during the Great Recession, which has lingered in needs and impact ever since.

Apparently, it gets worse.

For instance, the U.S., the world’s largest economy, is saddled with debt and political turmoil — illustrated by a credit rating downgrade last month by Standard & Poors by one notch from AAA amid deep political divide during the debt-ceiling debate in Congress.

So far, however, the U.S. Federal Reserve has taken the strongest action in the fragile economy, announcing this week a historic — if not highly unorthodox, according to MSNBC — program of reshuffling $400 billion of its bond holdings to try to push interest rates lower than they already are (which seems nearly impossible, considering they are close to zero).

[Author note: Federal Funds Rate in Sept 2011 was 0.08% which is the same today. However, the 10-year Treasury yielded 1.84% on Sept 23, 2011, which today stands at 0.55% so rates have fallen 70% since this time.]

But the Fed’s aggressive action was seen by many as more of a few crackers thrown out to feed a starving society. If anything, it spooked global markets rather than calmed them as with the action, the Fed revealed its deep concern about conditions while also showing there’s little more it can do beyond a try-anything approach to make a small dent in a big problem.

What I love about reviewing crashes from the past is that it helps us remember the context of a decline, but without the emotional cues that so often accompany the times. I can assure you that this was a scary time just as all market sell-offs are scary.

The day this article ran, the S&P closed at 1,136. By the end of that year, the market would close at 1,257 or 10.5% higher. Additionally, the market only closed below 1,136 on three days during the remainder of 2011. Thinking of it in an even more interesting way, other than the three days that offered investors an opportunity to invest at prices below 1,136, those lows have not been seen since as the S&P currently stands at 3,306 despite the 36% decline we so recently experienced.

So, I guess we can safely say that the double-dip recession never fully materialized.

It’s so easy to look back and say we should have known better. But the truth is that during these market sell-offs, it always seems like the world is coming to an end. It seems that way because it’s during these times that “smart people” come out of the woodwork to tell you all the reasons this is going to or could get worse. Sell-offs are always scary. It’s the way these things work.

Back to 2020 for a moment. Is it possible that the COVID crash, where the market closed at 2,237 on March 23rd, will be the last time we will ever see those prices again? Remember how scary it was to be a buyer or a holder of equities at that moment? I don’t know if we’ll see those levels again, but the higher the market goes, the less likely that scenario becomes.

But old news is just that, old news. One day – regardless of how many years it takes – we will be reading about the decline(s) of 2020 as a distant memory and will likely be asking ourselves why we didn’t put more money to work when we had the chance.

It is only through the lens of history that we can look at these types of events with clear eyes because we know how the story ends.

In the short-term, all investing a gamble which is why I don’t believe anyone should invest money in the stock market that they may need in the near term. But human ingenuity and progress have a way of making pessimism look silly over the long-run.

Stay the Course,
Ashby

Retirement Field Guide Mission:

“To help 10 million people make better retirement decisions.”

If you would like to join us in achieving our mission, I hope you will consider sharing our site if you have found it helpful in your own retirement planning.

This post is not advice. Please see additional disclaimers.

The post Double Dip Recession Redux appeared first on Retirement Field Guide.

—————–

By: Ashby Daniels, CFP®
Title: Double Dip Recession Redux
Sourced From: retirementfieldguide.com/double-dip-recession-redux/?utm_source=rss&utm_medium=rss&utm_campaign=double-dip-recession-redux
Published Date: Sat, 08 Aug 2020 12:54:00 +0000

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Retirement Planning

Ends-of-the-World Every Year Since 1970

Published

3 years ago

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August 14, 2020

By

There always has been and always will be a reason not to invest or not to stay invested. This is all the mainstream media reports to us. Below you will find a list of some of the worst global events each year since 1970. I have some commentary to follow.

1970: War: US troops invade Cambodia.
1971: Civil Unrest: Anti-war militants march on Washington.
1972: Political: Start of Watergate Scandal.
1973: Economic: OPEC raises oil prices in response to US involvement abroad.
1974: Political: Nixon resigns as President of the United States.
1975: Political: Multiple assassination attempts on President Ford.
1976: World: Ebola virus.
1977: Political: Government shutdowns.
1978: Market: U.S. Dollar plunges to record low against many European currencies.
1979: World: Iranian militants seize the U.S. embassy in Teheran and hold hostages.
1980: Economic: Inflation spiked to a high of 14.76%.
1981: Political: President Reagan assassination attempt.
1982: Economic: Recession continues in the U.S. with nationwide unemployment of 10.8%.
1983: Economic: Unemployment in the U.S. reaches 12 million.
1984: Economic: 70 U.S. banks fail during the year.
1985: World: Multiple airplane hijackings around the world.
1986: World: Chernobyl Nuclear Power Station explodes.
1987: Market: DOW drops by 22.6% on October 22.
1988: Environment: Awareness of global warming and the greenhouse effect grows.
1989: Environment: Exxon Valdez dumps 11 million gallons of crude oil into Prince William Sound.
1990: World: Persian Gulf War starts.
1991: World: Mass shooting in Killeen, TX.
1992: Human Rights: Los Angeles riots following the death of Rodney King.
1993: Terrorism: World Trade Center bombing.
1994: World: Mass genocide in Rwanda.
1995: Terrorism: Oklahoma City bombing.
1996: Terrorism: Olympic Park bombing.
1997: World: Bird flu.
1998: World: Multiple U.S. embassy bombings.
1999: World: Columbine shooting.
2000: Economic: Start of the Dotcom Market Crash.
2001: Terrorism: Terrorist Attacks in NYC, DC & PA.
2002: Economic: Nasdaq bottomed after a 76.81% drop.
2003: World: The U.S. invades Iraq.
2004: World: The U.S. launches an attack on Falluja.
2005: World: Hurricane Katrina
2006: World: Bird flu.
2007: Economic: Start of the Great Recession.
2008: Economic: Great Recession continues.
2009: Economic: S&P bottomed after a 56.8% drop.
2010: Market: Flash crash.
2011: Market: Occupy Wall Street and S&P downgrades U.S. Debt.
2012: Political: Fiscal cliff.
2013: Political: Taper tantrum.
2014: World: Ebola virus.
2015: World: Multiple mass shootings.
2016: Political: Divided U.S. Presidential election.
2017: World: North Korea testing nuclear weapons.
2018: Economic: U.S. & China trade war.
2019: Economic: Student loan debt reaches an all-time high of $1.4 trillion.
2020: World: COVID-19.

While many of these events were undoubtedly terrible (and there are certainly others not named here that were worse), most of these were broadcast as end-of-the-world events for the stock market. Despite that attention, it is worth noting that these were, for the most part, one-time events. In other words, most faded into the newspapers of history. We moved on.

Obviously, some caused monumental shifts in the way the world works. Just think about how much air travel continues to be impacted by the events of 9/11. But, outside of the resulting inconveniences (if we want to call safety protocols inconveniences) associated with air travel, flying is safer than ever before.

Take a look at just about any of the events and you will find there are many that people will hardly remember. My point here isn’t that these events are to be ignored or that they were easy to stomach at the time, but that they have become a distant memory.

I want to also make the point that we should expect these types of negative events. As investors, we know these types of crises, economic catastrophes, and global phenomena are going to happen.

But in almost all cases, here is what we can say in the next breath – this too shall pass.

Will there be legal, humanitarian, economic, or some other aid required as a result of these events? Almost certainly the answer is yes, but that doesn’t mean it they won’t eventually fade into history.

Lastly, what’s worth noting is how the market has performed over these last 50 years despite the continual advertisements of the world crashing down around us. On January 2, 1970, the Dow Jones stood at 809 and the S&P at 90 -> those are not typos. These same indexes have grown (not including dividends) to 26,387 and 3,232 respectively. Amazing, no?

Perhaps what gets overlooked more than anything else is what separates the above one-time negative events from the positive stories that go largely ignored over our lifetimes. And that is a story worth telling. See the companion post below:

Unheralded Positive Events Every Year Since 1970

Stay the Course,
Ashby

Retirement Field Guide Mission:

“To help 10 million people make better retirement decisions.”

If you would like to join us in achieving our mission, I hope you will consider sharing our site if you have found it helpful in your own retirement planning.

This post is not advice. Please see additional disclaimers.

The post Ends-of-the-World Every Year Since 1970 appeared first on Retirement Field Guide.

—————–

By: Ashby Daniels, CFP®
Title: Ends-of-the-World Every Year Since 1970
Sourced From: retirementfieldguide.com/ends-of-the-world-every-year-since-1970/?utm_source=rss&utm_medium=rss&utm_campaign=ends-of-the-world-every-year-since-1970
Published Date: Tue, 04 Aug 2020 13:26:19 +0000

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Wildfire prone property insurance bill in California due for hearing

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3 years ago

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August 14, 2020

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The post Wildfire prone property insurance bill in California due for hearing appeared first on Live Insurance News.

The bill is expected to be heard in upcoming weeks as opposing sites prepare for major battle.

A new California bill, the outcomes of which will have a lot to say about coverage for wildfire prone property in the state, will soon be headed for hearing. The hearing is expected to be a heated one as strong opposing opinions have the opportunity to be voiced.

Opponents of this bill are calling it a direct attack on consumer protections in insurance.

That said, proponents of the bill claim it is the best method for making coverage available to wildfire prone property in California. The bill in question is Assembly Bill 2167. It was written by Assemblyperson Tom Daly (D-Anaheim). If it passes,it will create the Insurance Market Action Plan (IMAP) program. The IMAP program is meant to protect residential properties.

So far, AB 2167 has progressed quickly, when taking into consideration that a chunk of the legislature has been considerably restricted by pandemic crisis precautions. It was first presented in early June and backers have been saying that it was brought forward in good timing and that it has all the momentum it needs to be passed.

That said, AB 2167 has not been without opposition. In fact, it has faced considerable opposition, having been called an attack on Proposition 103, insurance consumer protection law. California Insurance Commissioner Ricardo Lara lobbed that argument at it, calling it an “insurance industry wish list, with nothing to help consumers,” and Consumer Watchdog, whose founder, Harvey Rosenfeld, was the original author of Proposition 103.

The insurance industry strongly supports the bill, saying it will help wildfire prone property coverage.

Insurance organizations such as the American Property Casualty Insurance Association and the Personal Insurance Federation both support AB 2167. The bill also has the support of the California Association of Counties (CSAC), as well as Fire Safe Councils of California, and the CalFIRE union.

The Consumer Federation of America, another watchdog organization, has predicted that if AB 2167 passes, it will cause 40 percent increases in insurance rates. On the other hand, insurance groups claim that the bill offers owners of wildfire prone property a greater opportunity for choice and competition among insurance companies based on coverage and premiums while avoiding the limitations and high costs associated with FAIR Plan coverage.

The post Wildfire prone property insurance bill in California due for hearing appeared first on Live Insurance News.

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By: Marc
Title: Wildfire prone property insurance bill in California due for hearing
Sourced From: www.liveinsurancenews.com/wildfire-prone-property-insurance-bill-in-california-due-for-hearing/8549884/
Published Date: Fri, 14 Aug 2020 09:00:14 +0000

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Is this the last hurrah for bonds?

Published

3 years ago

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August 13, 2020

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Recently, I have written quite a bit about the long-term return expectations for investing in bonds. See here, here, here and here.

Spoiler alert: I don’t think it’s good.

But long-term bonds this year have been quite an amazing story as the COVID pandemic has caused the Fed to take historically monumental actions. As a result, we’ve watched long-term Treasuries tear the roof off the market. For instance, a 20+ Year Treasury Bond ETF (name withheld for compliance purposes) is up more than 31% YTD as of July 31st.

That is insane!

But there is a good reason for this increase shown below.

The red circle shows a decrease in the 30-year Treasury rate of almost 40% over a span of six months. That’s practically unprecedented with only two periods (2008 and 1981-1982) having similar declines over such short periods.

But this begs the question: Is this the last hurrah for bonds as a driver of any meaningful return? Below is the 30-Year Treasury rate over the last 40+ years.

For what it’s worth, people have been forecasting the end of the bond bull market since 2012 (maybe even earlier) and yet it has continued despite those predictions. But at some point, the bond party will come to an end.

The Fed has been clear that they are going to keep rates stable until at least 2022 which means this may not change for a little while longer. Or in the near term, I could even see the high returns continuing if we experience pandemic economic shutdown round two.

But, I can’t see a world where this is the case for much longer than that – most importantly over the span of a 30-year retirement.

The official end of the bond bull market depends on a recovery from the pandemic economy as well as a few other factors causing rates to rise. But when they do, it seems likely to me that this may be the last great hurrah for bonds for quite some time.

The question is when to get off that train and that undoubtedly requires a personal answer.

Stay the Course,
Ashby

Retirement Field Guide Mission:

“To help 10 million people make better retirement decisions.”

If you would like to join us in achieving our mission, I hope you will consider sharing our site if you have found it helpful in your own retirement planning.

This post is not advice. Please see additional disclaimers.

The post Is this the last hurrah for bonds? appeared first on Retirement Field Guide.

—————–

By: Ashby Daniels, CFP®
Title: Is this the last hurrah for bonds?
Sourced From: retirementfieldguide.com/is-this-the-last-hurrah-for-bonds/?utm_source=rss&utm_medium=rss&utm_campaign=is-this-the-last-hurrah-for-bonds
Published Date: Wed, 12 Aug 2020 13:47:16 +0000

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