When is the next recession, and what will usher it in?

[TexasHusker]

I am predicting we enter a recession late 2019 to early 2020. Concerns over the national debt, a late 2019 stock market sell-off lasting about 5 weeks bringing the Dow to the 16,000 range, unemployment crossing the 4.5% mark, and a slightly inverted treasury yield curve, will begin the contraction process. That's my prediction!

[TexasHusker]

I also forgot to mention that unemployment hovering in the mid 3s sounds really good, but it's a killer for prices. As businesses are forced to bolster wages to attract qualified workers, prices will have to rise to compensate. I am facing this in my own business currently: There are no qualified workers to take good jobs, even with sign on bonuses! The Fed can keep raising rates in an effort to cool things off, but the cat is out of the bag.

[kork13]

My crystal ball is fogged up right now, so let me ask the 8-ball: "Try again later" .... Hmmmm....

I'm guessing around this time next year. I don't necessarily see a huge recession on the way, but at least an extended downturn while things normalize again. I think trade issues will come to a head at some point in the near-ish future, and the President will lead us off a cliff. I don't mean to make this political, merely observing that his brash, bullying style may blow up international trade on multiple fronts.

[corn18]

No clue. If I could predict recessions, I wouldn't need to be posting on SA. The Fed has correctly predicted 12 of the last 8 recessions and they have a lot more data than I do.

The real question is, what would you do if you knew when the next recession was coming?

[TexasHusker]

The real question is, what would you do if you knew when the next recession was coming?

look busy?

[disneysteve]

No clue. If I could predict recessions, I wouldn't need to be posting on SA. The Fed has correctly predicted 12 of the last 8 recessions and they have a lot more data than I do.

The real question is, what would you do if you knew when the next recession was coming?

1. A recession isn't a recession until at least 6 months into it since there needs to be 2 consecutive quarters of negative growth. Will one start in 2019 and actually become one in 2020? Maybe. That seems to be what the consensus is from leading economists, but they've certainly been wrong before.

2. I agree with kork that the current administration isn't helping matters.

3. I was going to ask the same question as corn: what if anything are you doing to prepare for it?

Not specifically because of an upcoming recession but partially so, we have been increasing our cash allocation. We're a lot closer to retirement than we were last time (2008) so less time to recover. Of course, last time it really only took about 2 years to get back to where we had been which wasn't bad at all, but there's no guarantee the recovery will be that fast next time around. That's not the only reason we're accumulating cash but it should buffer the effect of a significant downturn somewhat.

[TexasHusker]

1. A recession isn't a recession until at least 6 months into it since there needs to be 2 consecutive quarters of negative growth. Will one start in 2019 and actually become one in 2020? Maybe. That seems to be what the consensus is from leading economists, but they've certainly been wrong before.

2. I agree with kork that the current administration isn't helping matters.

3. I was going to ask the same question as corn: what if anything are you doing to prepare for it?

Not specifically because of an upcoming recession but partially so, we have been increasing our cash allocation. We're a lot closer to retirement than we were last time (2008) so less time to recover. Of course, last time it really only took about 2 years to get back to where we had been which wasn't bad at all, but there's no guarantee the recovery will be that fast next time around. That's not the only reason we're accumulating cash but it should buffer the effect of a significant downturn somewhat.

You can actually have a bull market in a recession and vice versa. The two aren't necessarily related.

There does seem to be an inverse relationship between natural resources and recessions, so if you wanted to move your money into a bull market in the teeth of a recession, your typical natural resources/energy fund might be a prudent play.

[disneysteve]

You can actually have a bull market in a recession and vice versa. The two aren't necessarily related.

There does seem to be an inverse relationship between natural resources and recessions, so if you wanted to move your money into a bull market in the teeth of a recession, your typical natural resources/energy fund might be a prudent play.

There are definitely businesses that are more "recession-proof" and tend to do well in slower economic times.

[corn18]

look busy?

Well, that is the boglehead philosophy. Don't just do something, stand there. At least with respect to investing.

I have made some changes to my investing, but not because of an impending recession. My job security is in question due to the upcoming merger, so I have put enough money in a money market account to cover our next 2 years of expenses. I wouldn't normally have that much in cash. I am also going to put the next tranche of RSU's into a MM or bond fund. This will be enough cash to payoff this house or move and buy another house. If I still have a job and some degree of job security at the end of the year, then I will re-evaluate my plan.

[kork13]

I'm not necessarily preparing for a recession, so much as I have been preparing (since October) for the uncertainty that my family is staring down.... (1) My wife is getting medically retired next month (she'll end up with ~20% of her current pay in a disability pension), (2) she'll be going back to school to become a Physical Therapist, (3) we're coming up on our next PCS move as my current assignment ends in October, (4) we'll likely be selling our current house & possibly buying a new one at the next place, (5) I've also applied for a new career field (find out selections in a week!), so if that works out it'll be alot of new changes (6) .... I don't even know what else..... So with all of that, I've been building up our cash/MM position and adding less to our mutual funds, shooting for at least $50k in cash by October (we're ~halfway there, and close to "on-track"). But that can definitely pull double duty if/when the next recession rolls in. Once we get through most of this uncertainty, I'd be quite happy to find the markets down a fair bit to throw any of the (remaining) stashed cash into the market.

All of that said, no changes to retirement investing. In spite of their rather....rabid....obsessiveness.... I think the Boglehead folks have it right when it comes to long-term investing. Just ignore the noise and press on.

[disneysteve]

I'm not necessarily preparing for a recession

All of that said, no changes to retirement investing.

Same here. We are increasing our cash allocation but not to prep for recession, though it may help there too. We are starting to think more seriously about buying a home in Florida or, at the very least, renting a place for a year to "test drive" having our own space down there. So I want some extra cash on hand for that. We may also have some home repair projects coming up in the next year so I want to be prepared for those. And finally, my car is a 2006 so although the mileage isn't terribly high, it's starting to show its age in other ways and may either need some work or may get replaced sooner than the mileage might other suggest.

And yes, no changes to retirement investing. My 401k money is still going where it's been going since I opened the account. We can no longer fund our Roths but I fund a taxable account instead that is going into a stock fund.

[Singuy]

Many variables at play here and "we are due for a recession" is not really a reason for one.

So about that low interest rate, heavy debt load by businesses that can be a cause of the next recession. The thing is, inflation is currently in check despite of low interest rates for almost a decade now. I believe the reason for this is what the Bernie bros are citing, flat wages. Even though our unemployment rate is low, flat wages and low wage jobs fulfill most of this sector. As Corn pointed out, his 200k/year jobs have no takers because there are not enough qualified candidates..while I get hundreds of applications for 10 dollars/hr job.

So you have all this companies growing like gangbusters due to cheap debt but are running out of real people that can cause inflation(like high wage earners, or giving everyone a higher wage)..which keeps the interest still relatively low. I feel this is why everyone has been predicting a recession since forever but are just not getting it. A massive interest spike can potentially rock the boat but inflation rates doesn't justify such a drastic move. A slow methodical climb gives company the ability to weather such increases vs runaway bumps.

As for the national debt causing a recession. It's complicated. Unless the U.S defaults, there will not be a spike in interest rate which means a recession wouldn't happen due to the national debt. We also need to look at what all this national borrowing is doing. If there's GDP growth than borrowing for the time being is okay given our gdp to debt ratio is 104% which is middle of the pack.

I remember a comment I made about bit coin can cause the next recession. Good thing the bubble burst way before it got out of control. Most of the people(like 65 year olds) I know who bought in only lost a few hundred bucks. If BTC keep raising and people end up borrowing/owning more and more of BTC that a crash can bankrupt them, then we should worry.

So I'm looking around for actual bubbles..easy cheap money with nothing to back them up..and it's not as clear cut as before like the dot.com era. Companies that are borrowing like crazy are also producing like crazy..so...

[disneysteve]

So I'm looking around for actual bubbles..easy cheap money with nothing to back them up..and it's not as clear cut as before like the dot.com era.

That's very true. During the dot.com bubble, it was ridiculously easy to see the train barreling off the tracks and just waiting for the crash to happen. With real estate, same story as more and more people got interest-only mortgages for 6 times their income, it was just a ticking time bomb. Today, I'm not really seeing anything that obvious. Consumer debt is at a record high level but I don't think that alone will crash the market.

[TexasHusker]

That's very true. During the dot.com bubble, it was ridiculously easy to see the train barreling off the tracks and just waiting for the crash to happen. With real estate, same story as more and more people got interest-only mortgages for 6 times their income, it was just a ticking time bomb. Today, I'm not really seeing anything that obvious. Consumer debt is at a record high level but I don't think that alone will crash the market.

Yes when things go parabolic it's easy to see that it can't continue. I am seeing this with real estate in the Gatlinburg TN market currently and it is very tempting to cash out. Homes are staying on the market a day or two with multiple offers at the ask or even above, with zero concessions from the sellers. I wonder how long it can continue.

[disneysteve]

Yes when things go parabolic it's easy to see that it can't continue. I am seeing this with real estate in the Gatlinburg TN market currently and it is very tempting to cash out. Homes are staying on the market a day or two with multiple offers at the ask or even above, with zero concessions from the sellers. I wonder how long it can continue.

You could potentially really clean up if you sell at the peak, sit on the sidelines for a bit, and then jump back in. The problem is you can never be quite sure where the peak is. Plus, as you've noted before, you'd need to find something else to do with the money in the meantime or else you lose the income you would make while you're out of the game.