Investor Predicts Recession by 2024

Table of Contents

1. Introduction
2. Concerns about the Federal Reserve
   • Delay in raising interest rates
   • The yield curve and unemployment rate
   • Consumer confidence and major indicators
3. The concept of "higher for longer"
   • Impact on the economy and small businesses
   • Fiscal situation and interest expense on the debt
4. Potential recession in 2024
   • Weakness in the economy and job market
   • Government data and revisions
5. The need for fiscal responsibility
   • Wasted government spending and investments
   • Mathematically unsustainable path
6. Message to investors
   • Moving to quality and equal weighted baskets
   • Diversifying into non-US equities and emerging markets

The Concerns and Impact of Federal Reserve's Actions on the Economy

The current state of the economy and the Federal Reserve's decisions regarding interest rates have raised concerns among many individuals. The delay in raising interest rates and the rate at which they were initially raised have had significant implications. If the Federal Reserve had followed the advice to raise interest rates to a higher degree earlier, the current situation may have been more favorable.

One of the main concerns is the inverted yield curve. It has been observed that major indicators, such as the unemployment rate and consumer confidence, are showing signs of deterioration. While usually cautious about the future, people are becoming less optimistic about the present, leading to a cautious economic outlook. These recessionary signals have been present for over a year, and as a result, the Federal Reserve has stopped raising interest rates.

There is a worry about the concept of "higher for longer," where interest rates remain high for an extended period. This situation poses a significant challenge, mainly due to the fiscal situation of the country. The interest expense on the debt is increasing rapidly due to the need to reinvest bonds at higher interest rates. As a significant portion of bonds come due over the next few years, the interest expense is expected to rise even further.

In the event of a recession, there could be severe consequences. The problem extends beyond the national debt to small businesses, who are already struggling with increased interest rates. The notion of higher interest rates for a more extended period would make it difficult for many individuals and businesses to bridge the gap.

Potential Recession and the Need for Fiscal Responsibility

Considering the current economic situation, there is a growing concern that the country may already be headed towards a recession. The recent data on employment has added to this worry, with a noticeable lack of private sector job creation. While there have been positive jobs reports, revisions to previous data reveal a weaker job market than initially reported. This raises suspicions about the accuracy of government data and the underlying economic reality.

The fiscal situation, marked by out-of-control deficits, further fuels these concerns. It is no longer a problem that will only affect future generations; it has become a problem that affects the current generation. The tendency to run large budget deficits indefinitely, regardless of the administration in power, is a significant issue. Instead of wasteful spending, there is a need for fiscal discipline and more responsible use of resources.

This is not a partisan issue; it is a matter of mathematics. The unsustainable path of continuously increasing deficits must be addressed. While certain economic theories, like modern monetary theory, have emerged and disappeared, the reality is that spending endless amounts of money without consequences is simply not feasible.

Message to Investors and Recommendations

Given the challenging economic environment and potential recession, it is important for investors to make wise decisions to protect their wealth. Concentrating wealth in a few major stocks, often referred to as "The Magnificent Seven," can be risky. Considering the likelihood that these stocks may underperform during an economic downturn, it may be wise to diversify and invest in an equal weighted basket rather than relying solely on market-weighted baskets.

Additionally, it would be prudent to shift away from debt-based sectors such as finance and focus on manufacturing industries. As the fiscal situation worsens, the banking system may encounter significant challenges, and it is essential to minimize exposure to such risks. Gradually diversifying into non-US equities, especially in emerging markets, can also provide a means of hedging against future economic uncertainties.

In conclusion, the current economic landscape and the Federal Reserve's decisions regarding interest rates are causing concerns about the potential for a recession. The fiscal situation exacerbates these concerns, and it is crucial for individuals and investors to make prudent decisions to protect their wealth. By diversifying, focusing on quality, and considering non-US investments, it is possible to navigate these challenging times and mitigate potential risks.