There are real issues you need to address in your financial life if the economy actually slides into recession. One has been predicted now for many months but it has persistently not shown up. Is it actually coming? If it does, what should you do?
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Speaker 1 (00:07):
Welcome back to 30 Minute Money, the podcast that delivers action-oriented smart money ideas and bite-sized pieces. I'm Scott Fitzgerald. We're at Bushnell's Basin Studios. No, we're at Roc Vox Studios in Bushnell's Basin. , we'll get this right. One of these teams, uh, Steve Wershing from Focused Wealth Advisors. Where
Speaker 2 (00:22):
Do you work again, joining? I
Speaker 1 (00:23):
Don't know. Uh, joining me here at, uh, studio X it
Speaker 2 (00:27):
Somewhere Nice. There's in, in secret undisclosed location. Yes,
Speaker 1 (00:31):
Exactly. Underground, somewhere in Montana. . Um, speaking of underground, somewhere in Montana. What's this all about? This recession that people are talking about?
Speaker 2 (00:41):
Speaker 1 (00:42):
How's that for segue?
Speaker 2 (00:42):
Nice segue. You like that? Nice. Not this smooth. Now I see why you have your job, . Yeah, exactly. So, you know, we've been talk, I've been talking about our recession for a while now. Yeah. And you know, we have a, we have a bull market and we have all kinds of wonderful things going on. And so, you know, the one natural question is, so what's, what's all this? You know about? You've been talking about a recession for, for a while. What's up with that? Right? Yeah. So I thought it would be a good time to revisit that, especially because there's a bull mar, relatively new, newly declared nice, shiny nice. It has that new bull smell, and the markets people are feeling good. So why do I keep dwelling on this whole recession nonsense? So I thought it would be a good, good idea to revisit that topic.
Speaker 1 (01:27):
So , I'm still laughing at the new bull smell.
Speaker 2 (01:30):
Speaker 1 (01:31):
So what is, what is a recession?
Speaker 2 (01:34):
Yes. Well, a recession is, is a, is a general economic contraction. You have increased unemployment, reduced consumer spending, um, a general slowdown in business, um, stress in the banking sector, uh, stress in the financial sector, and just is typically accompanied by sort of a general melees among people about their prospects for the future. So that's, that's, that's generally what a, what a recession is. Was
Speaker 1 (02:02):
The last recession, 2008 was, was that No, no,
Speaker 2 (02:06):
We've had a recession since
Speaker 1 (02:07):
Then. We've had a recession. When, when was that?
Speaker 2 (02:10):
2018, I believe. Really? Um,
Speaker 1 (02:14):
Yeah. Okay. Okay.
Speaker 2 (02:15):
Uh, it, I mean, we remember 2008 because it was the worst recession we've had in many decades. Okay. And that was, that was, you know, that was really bad. But we have had a recession since then.
Speaker 1 (02:27):
I just, you know, just for my own context, because this is not how I view the world. Right. Um, so, so thinking about what, what my family was going through at a certain time in the last few years, and then kind of making that comparison with what we're looking at now, kind of, I don't know if anyone else is like that, but it helps me to go what is Yeah. You know, because there's other people that are, are, they're really into stocks. They're really into all this stuff. They live and breathe the financial world. Right. They watch the TV with the little ticker going by all the time. Uh, which I think I know a guy that's like that, but, um, I don't, I'm not like that. So Yeah, when you start talking about recessions, I'm like, so what, what exactly.
Speaker 2 (03:06):
Yeah. Well, and it, and it's, I'm, I'm glad, I'm glad you described that, because a recession is not something that happens in the stock market. It happens in the economy.
Speaker 1 (03:14):
Speaker 2 (03:15):
And so it's, it's not, you can be watching that ticker all day long, and that won't necessarily tell you about recessions. Like we had a, we had a pretty significant decline in the stock market last year, but the economy was great. So not, not quite the same thing. Recessions are often accompanied by a down market, but it's not absolute and it's not the same thing. So that, that's why I wanted to talk a little bit about recessions and what they are and, and why I'm still worried about 'em with this, you know, with this bull market going on.
Speaker 1 (03:46):
Speaker 2 (03:46):
So, um, so let, let's talk about that melees for a minute. You know, how long have, have you been running rock fox here?
Speaker 1 (03:54):
We've been here for five years. Okay. Started in 2018. That's why I was, yeah. Okay.
Speaker 2 (03:57):
So, so, you know, you, you might be, you, you might legitimately worry about a recession because if there's this general malaise and consumers start cutting back on things and businesses are pessimistic and they want to cut back on some expenses because they don't think the future is gonna be so bright in the next year or two, well, that's probably gonna affect their marketing budgets. Yeah. So that's gonna affect you. Right. And that's one of those things, you know, that's one of those things that we want to be, that we want to be wary of. That's why we're concerned about when recessions come and go, is because it can affect family finances that way. If you run a small business, then you worry about when recessions come, because that may mean that your top line drops for a while.
Speaker 1 (04:39):
Yeah. That's one. And it's not something that is, is anything that we want to hear. Yeah. Right. Exactly. Ever. Sure. But also, I'm fortunate because I ha I know a guy who's good at this stuff and who could say, Hey, this is something you can think about. This is something you can do. Yeah, exactly. And he's a podcast.
Speaker 2 (05:02):
You could, he does . Where can I
Speaker 1 (05:04):
Hear it? 30 minutes. That sounds money. Sounds awesome. Yeah.
Speaker 2 (05:08):
So, um, you know, so I have been, you know, like a lot of people I've been anticipating, uh, one later this year. Now there there are, there are lots of people that are saying, Nope, don't think so. You know, everybody's worried about it. They keep predicting it. It's not happening, it's not likely to happen. As, as one example, there's, um, Dr. Charles Lieberman at a company that, that, you know, I know well and that I do some business with advisors capital in New Jersey, and he just put out a, an opinion lately that, you know, basically what if, what if, you know, there was a recession and nobody showed up, I think was basically the name of his blog post. Yeah. And he's looking at a lot of different statistics and, and, and concluding that, nope, there's not one on the, on the horizon. And I've, I've talked with a bunch of people that feel that way.
On the other hand, um, there are a lot of people that I respect who are saying, oh yeah, it's coming. You know, all the, all the statistics are lining up and we can see one coming. And I only bring that up because there are a couple of statistics that I think are actually, you know, one, one that's, that's a pretty straightforward economic statistic, but one that I think is kind of fun. So the straightforward one, it has to do with unemployment. So during a recession, unemployment goes up and it stays there for a while. So just this week, um, we found that first time unemployment claims were at the highest level since October of 2021. And that's concerning, but what's a bigger concern is that ongoing claims, uh, have a, are have in, in 19 states show a 25% year over year increase. Um, and that's the highest percentage outside of a recession since 1990. Now, in the past, when four states have gone past that 25% increase year over year on continuing claims, it's resulted in a recession. Now we have 19 states. So, geez, that's just one of those things that's really leading us, you know, that we, that, you know, we feel pretty confident that yep, this probably won't coming later this year, and we don't necessarily know when, but it's probably on its way. I
Speaker 1 (07:07):
Could have sworn I just saw something recently, now we're recording this in June. I don't know if it was maybe May or April or something, but it was something about, uh, jobs, you know, unemployment was low.
Speaker 2 (07:22):
Speaker 1 (07:23):
Is it low compared to other years? Is that what they're talking about?
Speaker 2 (07:27):
Yeah. All of this is still relative. So, you know, um, it used to be that 5% unemployment was considered to be the floor. Um, well, you know, for the past bunch of years it's been well under 5%. So, you know, a lot of it is just on, it's, it's a relative thing.
Speaker 1 (07:44):
And is the, the pandemic factor into this still? Well, is the unemployment?
Speaker 2 (07:49):
Well, it's wearing off it, you know, I, I think that's one of the, I think that's one of the, one of the things is that, um, the effects of the pandemic and, um, you know, the government giving, you know, a lot of people money so that they could, you know, they could tie over and, and have more money to spend in those kinds of things. A lot of that is wearing off. People are spending that down. And, you know, it seems like, um, it seems like a lot of that is, has now been spent. And so we get back to more of a kind of a normal kind of a circumstance. Right. And so unemployment becomes a bigger worry.
Speaker 1 (08:21):
So what's the other, what's the other, uh, factor that you were referring
Speaker 2 (08:26):
To? Cardboard boxes.
Speaker 1 (08:27):
. I saw that on this list, and I'm like, do tell.
Speaker 2 (08:30):
Yes, exactly. Well, this is, then, this is one of those fun statistics, you know, Elliot Eisenberg, who's the bow tie economist, puts out some of these fun statistics every once in a while. And, um, he, he posted something in the past week or so that said, the year over year percent change in the demand for cardboard boxes as measured by a three month moving average is down 8.3%. Now, let's think about what that means. Um, if demand for boxes is down, why, why, why, why would, why would demand for boxes be down?
Speaker 1 (09:01):
I would say that people aren't buying things that need to be shipped.
Speaker 2 (09:04):
Exactly. Right? I mean, you know, what's the, the big thing, you mentioned the pandemic a minute ago. What, what's the company that benefited most arguably from the pandemic was Amazon. Right? Because we couldn't go anywhere. We had to have people bring things to us, right? Yeah. And there's no bigger company that brings things to us than Amazon. So if people are ordering less stuff and they don't need as many boxes to ship stuff in, um, you know, that could potentially be troubling. Interestingly, that this 8.3% decline is the biggest since the Great Recession, which you talked about a little while ago in 2008 when, uh, when, when it fell by 12%, and the last four times that demand has fallen year over year by 4% or more. Um, our recession occurred in three of them. So it's actually got a pretty good record of, uh, of, of predicting a recession coming. I might
Speaker 1 (09:56):
Have an, I might have a reason for the decline in, uh, the cardboard box demand. Okay. Uh, because Amazon has really gotten good with what they're doing, and so now they're shipping more things in fewer boxes. Oh.
Speaker 2 (10:09):
Or in those little plastic bags
Speaker 1 (10:11):
Or the little plastic bags too. Yeah, we got, we used to order stuff and we, my my wife is kind of a little bit addicted to Amazon , and so the, the guy comes to our house every day, and I used to think, are you really ordering things? But no ,
Speaker 2 (10:23):
Um, is he cute? ?
Speaker 1 (10:26):
I hope not , but there would, there would be three or four boxes there, you know, three or four boxes a day, and then it's like two boxes, but she's still ordering the same amount of stuff. So you go, okay, you get the box and there's like six different things in the box because they have them all in the Okay. On stretch. It's stretch. It's a stretch. Well,
Speaker 2 (10:42):
But you never know. I'm trying to, but, um, anyway, I don't want to
Speaker 1 (10:44):
But the recession,
Speaker 2 (10:45):
That's why. But the statistic has a pretty good track record. Yeah, yeah. Three of the last four. That's, that's not, that's not a bad record. So,
Speaker 1 (10:51):
And I'm not gonna argue with a guy that wears a bow tie.
Speaker 2 (10:53):
Yeah, exactly. I mean, you know, that takes some skill to do that. It does. I, I can't, I, I can't do that without YouTube, you know, it's, I, I
Speaker 1 (11:00):
Can't do it with YouTube ,
Speaker 2 (11:03):
So, you know, so why do we care? Yeah. Whether there's a recession coming. Well, because, uh, again, unemployment typically goes up during a recession. Um, there's trouble in the banking sector, which means that credit gets restricted mm-hmm. and it, it is often associated with declining investment markets. So, um, you know, thing, you know, it, it, having a recession affects many families', finances, and it's worth being prepared so that if one comes, it's not gonna affect you more than it needs to.
Speaker 1 (11:38):
Yeah. That's the key right there.
Speaker 2 (11:40):
Yeah. Now, of course, you know, a lot of, a lot of what we do is investments. So, you know, we talk about investments, and I've mentioned before that the correlation between recessions in the stock market is not perfect. Usually a recession is accompanied by a down market. But again, we had 2022 when the market went down a lot and the economy was fine. And so I don't know that that's adequately explained. And stocks are a leading indicator, you know, they have, uh, a lot of people think, oh, well the economy's bad, so stocks go down. But it doesn't, it really works the other way around. Usually stocks go down before the, before the economy goes down, it's possible that the stock market has already had its recession, and that when we finally get the recession in the economy, it's just sort of living out what the stock market did last year.
But it, but we never know until it happens. Mm-hmm. . So I don't wanna say that, oh, we're gonna get a recession. That means that the stock market's gonna go down. Doesn't necessarily mean that, but it often does. And so we should be ready for that too. Um, you know, the recessions back in the early nineties and back in the early two thousands, um, you know, the, the stock market did okay. It did it, it it, and that might happen this year as well. It could still affect your family finances. So we wanna be ready for that recession if it comes. Now, one of the challenges too is that recessions are always backward looking like a recession has generally been going on for two or three months before the government, uh, or the Bureau, bureau of Economic Statistics decides to declare it our recession,
Speaker 1 (13:12):
Because it has to be trending for a while, right? That's right. It has to
Speaker 2 (13:14):
Be. Yeah. It has to be, it has to be happening for you. And some people def, you know, defined a recession as two consecutive quarters of declining gross domestic product. But it's, that's a rule of thumb. It's not quite that easy. And we have had a couple of quarters of declining gross domestic product, and the Bureau of Economic Research said, no, no, hang on a second. We haven't called it a recession yet, therefore it's not a recession. Ah. So it's a little more complicated than that. But, but regardless, we, uh, we should be ready for it. Um, so what kinds of things might affect you, might affect your finances if there is a recession? Well, again, their unemployment goes up. Companies often cut back. If they seek declining demand from consumers, they will often do layoffs. And so if you are in a position that might be affected by sales for your company, then you wanna be ready for that. You know, you, you want to have a good cash reserve. You want to be be ready for it. Or if you own a small business like you, you wanna be ready for it because you can see your top line go down and you want to be, you know, you want, you want to have some plans in place on how you're gonna adjust for that. If you see sales fall off,
Speaker 1 (14:21):
Yeah, I lost my job in two, in 2008.
Speaker 2 (14:23):
Oh, there you go. Yep. Exactly. That's exactly
Speaker 1 (14:25):
For that reason.
Speaker 2 (14:26):
That kind of, yeah, that's exactly the kind of thing. So, you know, you wanna make sure that you're not overextended. You wanna make sure that your, um, that your spending is not absorbing all of your income because, you know, you may need to, you know, you may need to cut back a little bit. Yeah. If we do have a recession, the other thing is that, um, as I said, banks will typically cut back on credit if there's a recession because they're getting squeezed too. And so, um, if you have loans, if you have loans like rotating loans, um, if you have stuff on credit cards, um, some, some of that may be cut back a little bit, you may have less access to credit. And so you're gonna want to be rely on credit less. Does, if there's a recession, do,
Speaker 1 (15:11):
Do the interest rates, does that change according to the recession or anything like that? Or does that stay the same?
Speaker 2 (15:18):
It, it, um, it does and, and interest rates will often drop during a recession, but you know, right now the Fed is trying to fight inflation. In fact, they're fighting inflation may be the thing that triggers the next recession, because if they push interest rates high enough, it's gonna, it's gonna, uh, curtail business activity. Businesses won't be able to afford credit that they rely on to make the gears turn. Yeah. And the company, and so, you know, it's the, the, the record of the Fed engineering, what we call a soft landing, which is not triggering a recession, um, not real good . So it's, it's, it's a, they unfortunately, the Fed has only given some really blunt instruments to use. They don't have like, precision tools they can use to Yeah. Govern the economy. So it's not uncommon for them to overshoot it.
Speaker 1 (16:07):
Now, what's, what's your advice then?
Speaker 2 (16:09):
Speaker 1 (16:10):
For those of us, yeah,
Speaker 2 (16:12):
So you wanna make sure that your, um, the allocation of your portfolio is appropriate. That, that, uh, growth in different areas of the market has not distorted it. You wanna make sure that you have a good cash reserve so that if, if, if your income is affected for a short time, you can, uh, cover those expenses without going into debt. And you wanna make sure that you are careful about how much, um, debt that is on, uh, a variable interest rate you have out there. Because if the recession comes, the banks may, may increase those rates and, and increase the costs to your household.
Speaker 1 (16:46):
And what did you say in the past? You said six months for a cash reserve? Is that what you
Speaker 2 (16:50):
Three to six months. Three to
Speaker 1 (16:50):
Six months, yep.
Speaker 2 (16:51):
Yep. So if you, so, you know, if you can take a look at your cash reserves and, and if you don't have three to six months of expenses, this might be a good time to start, you know, putting those acorns away cuz the winner might be coming.
Speaker 3 (17:08):
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Speaker 1 (18:34):
All right, so, uh, recession coming, possibly 30 minute action item,
Speaker 2 (18:38):
30 minute action item. Take a look at your total income and total expenses. Um, if you, um, if you don't have a lot of leeway, you may wanna take a look at where you can cut back in spending or how much debt that you can get rid of so that you have a little bit of safety margin if the recession shows up
Speaker 1 (18:56):
And start liking acorns because start, that might be what you're going to eat. That might be what you're eating. . All right. No doom and gloom on this show. 30 Minute Money is where you can find the podcast. Of course we'd love for you to like, and share and subscribe and all those cool things the kids are saying these days. 30 minute money you can find, uh, steve at focusedwealthadvisors.com. And I'm at rocvox.com. You'll will catch you next time. 30 minute money.