Friday, April 3, 2020; 1:21 pm CST
Dear Friends, Family and Clients,
If the United States wasn't already in a recession before the recent all-time high of the S&P 500, you can just about a bet the ranch that we're in recession now, with;
- economic growth slowing / temporarily shut down
- unemployment jumping to 4.5%
- residential and commercial real estate slowing
- an economy filled with public health uncertainty
- an old-fashioned oil price war between Russia, Saudi Arabia and the US.
After a 11 ½ year economic expansion we got just what we can expect:
A Recession
Question: What happened?
Answer: The Inevitable.
Just because we went 11 ½ years without a recession and had ourselves the longest economic expansion since World War II, didn't mean the business cycle was suspended.
Everybody believes that trees don't grow to the sky but few people remember the business cycle
always reasserts itself.
Look carefully at the infographic I created this morning showing recent recessions and the subsequent rebound in stock prices.
 Occasionally, the economy needs to lay down and bleed for little while.
Every few years it literally catches the flu and needs lots of rest and to drink plenty of fluids.
Maybe even take an Advil or two to keep the fever down and stop your kidneys from hurting.
Right now, we're in Recession City since the corona virus burst the bubble, and governments shut down the economy here and abroad.
But we can start using everything we know about how markets behave in a recession and make
some smart investment decisions today.
Recessions don't usually last all that long and there have been many recessions since World War Two with the average lasting between 10 and 11 months.
Putting aside the question of
how deep they are, or when it started we must focus on the knowledge that recessions
are relatively short lived.
All Stocks Get Killed in a Recession; But All Companies Don't
There are many companies that are actually "recession resistant" but when the whole market gets routed these stocks tend to get equally mangled.
There are few things are more recession-proof than food and drink companies, but when the market turns negative these companies get thrown into the bargain basement for no reason other than when a recession shakes off the stock market. Are companies like Apple, Microsoft, Intel, and Berkshire going away? I doubt it.
About halfway through a recession the market starts looking "across the valley to the other side" and discounting the beginning of the next economic expansion. The market doesn't start going up
after a recession ends. It starts going up 6 months before the recession ends.
Remember that the market tends to discount the reality of things about six months out, so if we're in a 2 or 3 quarter recession, that for argument sake started this year; or in the Fall of 2018 for smaller companies, or perhaps even for shipping and transportation stocks around mid- 2018-early 2019, you'd be looking for the market to start bottoming just about any moment.
WHEN THE MARKET GOES DOWN EVEN THE FINEST COMPANIES SHARES GO DOWN.
THEY JUST NEVER STAY DOWN.
In the whole universe of investments, only one financial asset consistently outgrows your living costs. Only one asset can consistently keep up with the "everything costs more in the future" syndrome.
It's called "owning pieces of really good businesses that pay dividends"; like those in found the S&P 500 and Russell 2,000.
The seeds of an enjoyable and dignified retirement are being planted in today's weather. April showers (tornados, thunderstorms & flooding) bring May flowers.
Let's plant a gorgeous, income stream-centric retirement garden today while amateur investors are BEGGING us to take these companies off their hands.
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