USA officially in recession since 2007
NBER, the official agency that dates recessions, announced today that USA has been in a recession since December 2007:
So the US has been in a recession for almost an year now.
For investors, even macro-inclined ones like me, none of this means much. It just means asset prices are down but the recession itself does not impact my investing.
I am still of the opinion that the economy will do better than the consensus thinks. However, asset prices, including stocks, may not do well since corporate profit margins have been very high in the last 5 years. Saying that the Bush economy almost solely benefitted the wealthy is not much of an exaggeration given that profits accrued primarily to corporations (and wealthy individuals own most of the assets in most countries.) Jeremy Grantham keeps saying that the most reliable metric that reverts to mean is corporate profits (in fact, he argues that if it did not revert, capitalism is broken.) If you look at the long term, when earnings were lower, valuations (say 10-yr Graham P/E) is not very low. This is why I maintain my view that stock prices are attractive but not exceptionally cheap. There is no need to rush and buy some asset because you think it is going to go up. I suspect you will get many opportunities to buy.
The United States fell into a recession in December, 2007, the NBER's business cycle dating committee agreed, saying the economic expansion that began after the 2001 recession came to an abrupt end a year ago.
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But the NBER looks at a broader array of economy-wide measures, including GDP, payroll employment, gross domestic income, real personal income, real manufacturing sales, wholesale-retail sales, factory output and household employment.
By one benchmark, a recession occurs whenever the gross domestic product, the total output of goods and services, declines for two consecutive quarters. However, the NBER's dating committee uses broader and more precise measures.
GDP did contract by 0.2 per cent at an annual rate in the fourth quarter of 2007. However, that drop was followed by a 0.9 per cent rate of increase in the first quarter and a 2.8 per cent spurt in the second quarter, when the economy was boosted by the distribution of millions of economic stimulus payments.
However, employment, one of the measurements tracked by the NBER, has been falling since January.
So the US has been in a recession for almost an year now.
For investors, even macro-inclined ones like me, none of this means much. It just means asset prices are down but the recession itself does not impact my investing.
I am still of the opinion that the economy will do better than the consensus thinks. However, asset prices, including stocks, may not do well since corporate profit margins have been very high in the last 5 years. Saying that the Bush economy almost solely benefitted the wealthy is not much of an exaggeration given that profits accrued primarily to corporations (and wealthy individuals own most of the assets in most countries.) Jeremy Grantham keeps saying that the most reliable metric that reverts to mean is corporate profits (in fact, he argues that if it did not revert, capitalism is broken.) If you look at the long term, when earnings were lower, valuations (say 10-yr Graham P/E) is not very low. This is why I maintain my view that stock prices are attractive but not exceptionally cheap. There is no need to rush and buy some asset because you think it is going to go up. I suspect you will get many opportunities to buy.
The recession isn't always a bad thing! Most people don't realize how much money there is out there. During economic times like this, there is more money to be had than ever. Because of the bailouts and economy, lenders are bending over backwards to bail you out too. Believe it or not, there is people getting tons of cheap money nowdays to start businesses, buy homes, pay off debt, and more. Profit from Recession
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