Recession has been a month away, for the last 18 months. How should we think about that as private market investors?
Well, Armageddon is great clickbait.
The Wall Street Journal, to pick on just one outlet, seemingly has an Armageddon clickbait generator that goes “[insert metric] Flashes Recession Warning.”
Partial sample:
- Yield Curves Flash Recession Warning, Aug. 2, 2022
- Global Economies Flash Recession Warning, Aug. 23, 2022
- Trucking Flashes Recession Warning, April 25, 2023
- Debt Markets Flash Recession Warning, May 31, 2023
But a funny thing happened on the way to Armageddon. The S&P entered the bull market territory. Inflation dropped by 50% from the 2022 peak. And the job market stayed solid.
Will the good times last forever? Obviously not. It’s been 13 years since the last recession. We’re overdue.
In particular, one-time exogenous forces have radically increased prosperity. Top of the list: mountains of covid stimulus that temporarily increased total household savings by $2.5 trillion.
But households are drawing down on that, fast, spending $100 billion a month more than they’re saving, halving the historical average U.S. personal savings rates to 4% or less. All that covid money may be gone within 6-9 months.
Could that drive the long-hyped recession? Quite possibly.
But in the meantime our sense as private market investors is not to hit the panic button just yet. We’ll endeavor to take advantage of the more investor-friendly valuations and terms.
And as the Oracle of Omaha says, to strive to be fearful when others are greedy, and greedy when others are fearful.
