chatter is back.
skipping worrisome talk for a few months, a handful of
respected analysts again are trash-talking the economy
and flinging wet blankets at people oblivious to
among the less-than-enthusiastic voices on the economy
have been Bank of America Merrill Lynch strategist
Savita Subramanian and Russ Koesterich, BlackRock head
of asset allocation. In a report circulated widely on
Wall Street this week, Subramanian said, "We found
evidence for an imminent recession."
Koesterich wrote in his blog: "Are investors
underestimating the risk of a recession?" He
faulted people for drifting inattentively from one day
to the next without examining risks that may be
mounting, potentially threatening IRAs, 401(k)s, pension
funds and other investments. Tremendous stock gains over
the last eight years have crowded out cash and bonds in
investment portfolios and consequently may have left
people defenseless against the stock market crashes that
sometimes accompany recessions.
people are supposed to monitor their investments at
least once a year to make sure their small-size portions
of stocks havenít turned into big-gulp portions,
Koesterich fears people have neglected the monitoring.
He suggests that professional investors as well as
casual savers may have been put into a state of
unconsciousness by "imbibing the nectar of cheap
the money the Federal Reserve and its global
counterparts in Europe and Japan have been spewing into
the economy in the hope it would finally give a normal
heartbeat to an economy thatís been in therapy since
the 2009 recession. The global economy still hasnít
recovered its strength, but trillions of dollars of easy
money have poured into the market and lifted stocks
about 270 percent since the those scary days.
gains probably are reassuring to people watching their
wealth grow, but instead people should look at them with
a wary eye. If there is a recession, stocks could go
into a bear market ó a decline of 20 percent or more
ó that could last several months. Such declines can be
ignored by people years away from retirement.
they can be a disaster to people close to retirement, or
in retirement. As protection, financial planners
typically suggest retirees invest in some stocks all the
time, but hold about three years of cash so that if a
bear market hits, people can cover retirement needs with
cash rather than touching their stocks until they heal.
In the last recession, people recovered from losses in
about two years if they had portfolios invested half in
the stock market and half in U.S. government bonds.
in mind none of the analysts talking recession last week
was predicting an immediate problem. They are merely
leery after some recent U.S. economic news such as
slowing job gains and continuing threats from
financially weak countries abroad. In the last couple of
weeks, investors have become aware once again of the
fragility of the global banking system as strains in
giant Deutsche Bank have reignited "too big to
fail" concerns and as the British pound plunged on
Brexit worries in the United Kingdom.
seems to be mounting hysteria about the prospects for
the global economy," Edward Yardeni, of Yardeni
Research, wrote to clients. Yardeni is in the camp of
analysts who see neither a boom nor bust economy ó
just an economy that fails to pick up the sizzle that
usually comes at this stage in a recovery after a
too said she canít be sure there will be a recession,
but if economic data continue "to weaken in line
with the recent pace, history would point to a recession
in the second half of 2017."
even in a recession, Subramanian isnít promising
people a bear market.
every bear market coincides with a recession, but the
most painful ones do," she said. Of the 13 bear
markets since 1928, 10 have coincided with a recession.
And there have been several recessions, including 1945,
1953, 1959 and 1980, when market declines have been less
severe than the 20 percent drop that comes in a bear
message now, she said, isnít to bolt from stocks, but
to check stock exposure to make sure you are positioned
well for any downturn. Note that stock markets typically
sense recessions early and broadcast warnings through
declines. The general rule of thumb: The stock market
leads the economy by one to two quarters and on average
peaks seven to eight months before a recession.