Monday, October 23, 2023

The most anticipated recession in modern history has yet to fully materialize. But I think it may still be coming.

Interest rate hikes take a long time to work their way through economies. The Federal Reserve started hiking rates almost a year and a half ago. To be blunt, the pig must pass through the python, and I don’t think it has yet.

Credit card balances, auto loan delinquencies, and more are all experiencing trouble. However, the labor market remains strong, even though it’s weakened some. Still, the bad signs are plentiful.

I recently spoke with a retired banker. He mentioned how many regional banks hold commercial loans that could implode because they have interest rates in the 2% area and are going to reset to rates around 8% or more. That will have profound economic implications.

It’s been a while since we had a real recession. The one during the pandemic was quick, as was the one in 2015. We haven’t had a prolonged, down business cycle since 2008’s financial crisis. When the next one happens, it will be a new experience for many people.

Also, while this is anecdotal, my inbox is filled with client emails saying business conditions aren’t that good. One large blue-collar recruiting firm in the area said the phones aren’t ringing. Could this be a grassroots economic issue? Perhaps, and it shouldn’t be ignored.

If/when a recession occurs, we’ll likely see interest rates decline. The price of gold will probably increase, and stocks will suffer. Spending will slow in almost all forms. Unfortunately, this is the nature of business – it’s cyclical and not always pleasant.

This storm isn’t done either. The latter portions of bear markets, which can last a long time, tend to be the worst. I’m not saying people should worry, just that it’s better to be prepared than stunned.

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