Bear vs. Bear,
Are we headed for a recession?
really wants to know if we are headed for a recession. The
answer does not matter as much as you think. Why?
I still believe we will not hit an official recession,
however, it does not mean we will not have a bear market (down
20%). In fact, many of the areas have already hit this as of
mid to late August.
What we really need to be asking is how far will it go down
and how long will it last? The answer is just about the
same for a recession (2 negative growth quarters in GDP) as it
is for a non recession.
The average non recession bear market is a decline of
27.1% and lasts for about 6.5 months. The average
recessionary bear market decline is about 36.9% and lasts
on average about 21 months.
So if we are truly entering a non recession bear market the
average length of time until it is over is just after
Halloween. This will set up a solid run into the start of next
However, if we fall much more than the 1000 mark on the S&P
500 we could see a self-fulfilling prophecy and actually enter
another recession. I think we are in the former camp and may
have a negative quarter, but not an official recession.
OK, what to do now? Keep investing in the defensive
plays like a balanced fund or invest in an income fund until
you feel the market has run its course down for the most part.
(FYI - If your portfolio isn't set up to be 'defensive' or
you don't know if it is or not, I can review & analyze it &
recommend changes to make.)
Gold is not necessarily the place to be because from the time
Nixon got rid of the gold standard until today (nearly 40
years), the market and gold have performed almost equally.
In fact with the run gold has been on, this is usually
indicative of market tops, not bottoms.
Regardless of which Bear market we are in or headed towards,
there are still opportunities in currencies, stocks, and yes
albeit much less bonds. I am going to taper my annual
outlook to around 1350 on the S&P this year, meaning we
may have already hit our top.
This means we may see another higher top at the beginning of
next year. Earnings momentum is staying strong, but has slowed
relative to the previous four quarters.
I have mentioned before we would see this at the end of this
year and more so into 2012.
As always you can call our offices if you have any
questions about investing, retirement or any other tax & accounting related issues, at 360-659-8502.
Regards, David Rumsey, CPA/IAR