It sounds great in an action movie: “This is no time to panic!” But… is it ever a good time to panic? Sounds like a lot of work, anyway. 😊
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cyclical markets
The Weirdest Recession Ever?
It’s been months, but one of the biggest words from 2022 is still in the air: recession.
Are we headed into a recession?
Are we currently in a recession?
Are we already recovering from a brief, sort-of recession?
Depending on how you want to answer, any of these might be true. The definitions vary, so the answers do too.
The most common definition is based on multiple quarters of falling gross domestic product—the sum of all national economic activity. With GDP numbers declining slightly throughout the first half of the year, we technically found ourselves in a recession.
But the next important figure economists look at to determine recessions is unemployment, which remains near 50-year average lows. So by that measure, the economy is still sizzling!
Through the lens of the stock market, we again find conflicting answers. For most of the statements investors received in 2022, many holdings were down. But at the same time, many of those companies were reporting record earnings. According to stock prices, we are in a recession; according to stock earnings, we are still in a growth cycle.
So how can investors make informed decisions, when even economists struggle to agree on the nature of a recession?
Here, we believe taking the long view is instructive: we cannot say with full certainty whether we are currently in a recession, nor whether we will be in a recession a month or two from now. But we can know with absolute certainty that there will be recessions in the future—which also means that recoveries are still on the horizon, too. Night, day. Recession, recovery.
We know that the economy is cyclical. It has its upturns and downturns. But if you are investing for the decades ahead—maybe your future retirement or for a legacy for your children and through generations—your concern should not be on what the economy is doing today, next quarter, or even next year.
Your focus should be on trying to grow the bucket the best we can for the long haul.
We don’t ignore the day-to-day action, of course. But in good times and bad, we allow ourselves to be guided by simple, timeless principles. We focus on avoiding market stampedes and looking for the best bargains we can find. And these principles, we believe, are equally important whether we are in the depths of recession or a roaring expansion.
The talking heads can keep on debating whether we are in a “real” recession or not. That is what they are paid to do, after all. Meanwhile, we are going to keep on doing what we are paid to do: trying to grow the bucket, find opportunities, tweak portfolios.
Feel free to drop in or give us a call if you’d like to talk about this, or anything else.
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The Weirdest Recession Ever? – 228Main.com Presents: The Best of Leibman Financial Services
This text can be found at https://www.228Main.com/.
The Latest: Connecting the Dots
Fast Times, Slow Times
The past two years require some context: the fastest bear market ever then became the fastest recession ever that then became the fastest recovery ever. In fact, the S&P 500 stock index doubled from the low point faster than ever. At the start of the pandemic, with so much fear and uncertainty, the five-week drop was sharp but short.
Then things turned around.
All we had to do as investors was sit tight, rearrange things a little where we saw a chance at a bargain, and wait a short while.
Long-time clients will remember the slow times of the past, when bad weeks in the middle of bad quarters in the middle of bad years seemed to go on forever.
When account balances were lower than the year before.
When it seemed like the economy would never recover.
The human tendency is to believe that current trends or conditions will continue: it makes it difficult to keep the faith in the slow, bad times. But we know how this works, so we keep the faith despite it all. Spring comes after winter. Recovery and growth follow recessions.
The fast times we’ve had recently will inevitably slow down. The next recession, the next bad year is out there. No one knows when. Those who claim to know are so often wrong they can’t be relied upon. We find solace in knowing the tough times may bring us the bargains that make the good times good.
Clients, we will continue to rely on the principles that have served us well over the many years we’ve been at it. Looking for bargains, avoiding stampedes, seeking to own the orchard for the fruit crop. Whether trends are moving fast or slow, up or down, we seek to understand the seasons and the cycles of the market.
We cannot guarantee results, but we’ll still be here doing what we do when times change. Clients, if you would like to reminisce about the olden days or talk about the future, please email us or call.
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Play the audio version of this post below:
Fast Times, Slow Times – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
Fast Times and Slow Times
On Not Hulking Out
Forget willpower, forget control. What if the big secret in life was just letting things be?
We were reminded the other day of the classic Marvel character the Hulk. There have been too many versions of this giant green guy to count, but his whole deal comes down to losing his composure. “Hulking out” has come to mean flying off the handle, usually in a rage.
When new acquaintances learn what we do for a living, they wonder how much of our time we spend just sitting with upset or aggravated clients: does every new headline set people off? How do we handle all the turmoil?
Clients, you can imagine how I just smile through these conversations! You know that you’ve come to be the best clients in the world by the way we navigate things together. We know how to put short-term downturns in perspective, how to ride the highs and lows with our eyes on the big picture.
Of course there’s turmoil: so much of life is that way! Why would it shake us?
The Hulk reveals his big secret, how he has harnessed his anger to put it to his own uses (in his case, to fight villains of all sizes). It’s not about taming his anger; it’s about living with it.
“I’m always angry,” he says.
Clients, that’s the ticket right there: things are always a little uncomfortable. And we can choose to accept it as part of the deal.
Want to talk pain, gain, or anything in between? Email or call the shop, anytime.
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Play the audio version of this post below:
On Not Hulking Out – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
Minding the Bears
One recent morning, I was lucky enough to be hiking on a mountain trail with my sister. The air was crisp and clear, the smell of the pines was thick—a beautiful day.
We came across animal tracks, then more animal tracks, on the muddy parts of the trail.
We knew before we started that there were bears in the neighborhood. (In fact, one might say we were in the bears’ neighborhood!) The tracks seemed to have the shape of claws, with a size and depth that impressed me with a desire to avoid a meeting.
It seemed as good a time as any to turn around, so we did. My senses were on high alert as we began to descend. We reached the trailhead without incident.
Later, I looked up the facts about bear attacks. Only one out of 175 million people worldwide is the victim of a fatal bear attack each year, fewer than two in the whole United States.
The danger I perceived was far larger than the actual risk involved.
This reminds me of where we are in the investment markets. It seems to be the economic equivalent of a beautiful day: the market has had a sharp rebound from the pandemic lows of 2020. Yet some are concerned about the bear (a bear market meaning, of course, a big decline).
Just as there are plenty of bears in the wooded mountains, there are regular declines in the stock market. Some estimate that 10 to 15% declines are routine each year. But fear of the bear often seems to be greater than the actual damage a bear market might do to long-term investors.
Learning to live with the ups and downs, one may benefit from long-term growth in value. But fear of a decline that proves to be temporary—and rarely truly catastrophic—may lead one to sell out long before money is actually needed, with future gains foregone.
Clients, thank you for inviting us to hike the trails of your life with you. If you would like to talk bears or mountains or markets, please email us or call.
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Play the audio version of this post below:
Minding the Bears – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
When the Thrill Is Gone
We’ve talked before about how the ups and downs of the market are like being on a rollercoaster. The anticipation, the buildup—those things don’t have to be scary when we understand they’re part of the ride. For some, they’re even thrilling.
This comparison is a little simplistic, sure. But there are valuable lessons in this image.
For instance, one difference between the markets and actual rollercoasters is that the peaks and valleys of the stock charts aren’t being designed by skilled engineers. Charts are historical: their goal is to map the ride that happened, not the best possible ride.
Take this example: as shown in the chart below, this company’s stock price climbed quickly during the tech boom. You can almost hear the coaster gaining steam—nearly vertical.
The company’s pre-2000 ascent.
And then, as with all thrill rides, the drop (pictured below). Some investors aren’t sure which fell faster: the price or their stomachs. A rollercoaster engineer would be able to design that part in a way that riders would forgive them the jarring rise and fall.
But what came next would probably get a rollercoaster engineer fired.
The company’s post-2000 fall.
After the pop in 2000, the stock price balanced out. No more steep climbs: the thrill ride became a lazy river through the lowlands. Investors who held for the climb, and the subsequent drop, expected another climb. But the thrill was gone; the ride wasn’t the same.
The map of the company’s whole ride.
Okay, we’ll drop the coaster-cum-lazy-river comparison. You may have realized by this point that what we’ve just described is a historical example of a bubble: an excess of hype that ends with a pop!
We mentioned that charts are maps of where things have been, so the lesson isn’t necessarily that they tell us where that specific thing is headed next… but they may be instructive in spotting similar rides in the future.
Is it a thrill we’re game for? Or is it shaping up to be a thrill we’re not interested in, like the pop of a bubble?
Clients, let us know when you have questions or want to hear more about what this all means for you.
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More Up Than Down
The Best Way to Get to Know a Recession
Tolstoy’s great novel Anna Karenina begins, “All happy families are alike; each unhappy family is unhappy in its own way.”
This seems like stretching a point. In my life, I’ve had the good fortune to know many happy families, all quite different. But the quote does capture the uniquely lonely feeling that can come with misery.
The market, we believe, operates in much the same way. Bull markets can cover up a lot of performance differences, and although no two bull markets are quite alike, most investors are generally going to be happy regardless.
But each and every recession hurts in a unique way. We just have to wait.
The market behaved very differently in the tech wreck of 2000–2002 than it did in the Great Recession seven years later. And what we see now is different than either of those!
In a conventional recession, heavily cyclical companies like manufacturers get hammered hard. But cyclical companies generally understand the boom-and-bust cycle and plan for it with their savings.
Consumer goods companies on the other hand might take it for granted that people will keep buying food and clothing and other necessities, so they generally do not keep as much cash on hand. The short, sharp shock we experienced earlier in the year took out a lot of retailers that might have weathered a longer, shallower recession.
Homebuilders are normally one of the biggest casualties in a recession, but they are doing booming business now. So are the companies that make the materials they work with. Many big tech stocks, normally volatile and erratic performers, have been scorching the markets.
This is a stark contrast to the 2007 recession, when the housing market cratered and took out a lot of homebuilders, or the 2000 recession, when growth tech stocks got demolished.
In all likelihood, those previous recessions helped set the stage for these sectors’ current outperformance. Going into this downturn “everyone knew” that homebuilders were going to get wrecked because it happened last time.
Perhaps in five or 10 years there will be big opportunities for investing in restaurants or cruise lines as the next recession prompts investors to flee the businesses that got hit hardest in this one. No guarantees.
Every downturn is different, and we have no way of knowing what the future will hold. All we can do is stick to our principles: avoid the stampede and seek out bargains. Sectors that get trashed in one recession may be found in the bargain bin before a different recession. This is why we study and keep our eyes open.
Clients, if you have any questions, please call or email us.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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