What Is a Recession? Ep. 110

The media and the government have gotten creative with answering whether we are in a recession or not in order to make our economic situation better than reality. The traditional definition of a recession is being redefined. Historically, the definition of a recession has been two negative quarters of growth in the gross domestic production. In the first quarter of this year the GDP declined -1.16% and at the end of June the second quarter reading was -0.90%. We are by definition in a recession.

According to Tom Siomades , the chief investment officer of AE Wealth Management, the average recession has lasted on average six to twelve months since World War II. He states in recent commentary that we should be mindful of the possibility of another six months of negative economic growth.

Remember, we want three types of funds: Liquid, protected, and growth. Check out last week’s newsletter for a description of the three types of money.

We have become increasingly spoiled by the market popping back up after recent downturns like it did in 2020. This pop effect is due in large part to the government intervening in the markets to stabilize them. Now the government is on the other side of the table from investors.

Simodaes stated, “We are not seeming impetus for the market to come back up.” Why? Because if the government lowers interest rates or uses quantitative easing to create more new money, inflation runs away.

If you’ve lost money in the first half the year, brace yourself for the possibility of more losses. This may not be a bad thing if you’re properly allocated and have a plan in place. If you’re winging it right now though, you have reason to be concerned.

The government’s hands are tied with how much they can help the economy bounce back this time. This is a problem for folks who have gotten used to the market bouncing back and taking off for more growth. This may not happen this go around. It may take longer for the economy to right itself.

Adding lighter fluid to the issue is the Federal Reserve has not stated what it’ll do at its September meeting. They could give forward guidance as to where rates may go but they are not, which is driving market sentiment down. 

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