The news has been filled with warnings of a global recession. There is some reason to believe that the probability is high. Consider the following indicators –
- Trump is an outstanding businessman that keeps close tabs on economy. Recdently –
- He pushed to lower the interest rate by pressuring the FED
- Started studying the impact of reducing the tax take on payrolls with an emergency payroll tax cut.
- Escalating trade war with China is not abating meaning that the Balance of Payments is still negative
- Trump suggests that FED should start a new quantitative easing. I believe that QE does not work and only helps the banks. They in turn invest in stock market driving it higher which creates the delusion of prosperity. It is in fact debt induced delusion.
- Spread between the 2 year and 10 year bonds inverted. This means that one can earn more on a 2 year bond vs a 10 year bond. Historically, this only occurs when a recession is around the corner.
- U.S Production index went into contraction territory.
- Stock market jitters – last month 4th and 7th largest falls.
- Bankruptcy filings went up 5% in July
- Freight shipment volume dropped for 8th month in a row.
- UK will leave the EU this October without a deal.
All in all, the above is not positive. What to do? A conservative approach would be to buy gold about 15% of liquid assets and go to cash another 15-20% of assets. If the market drops, you have reserves to get good buys. Also, go into recession proof stocks such as military defense stocks and utilities.
No one knows when the recession will go on its next leg down but it appears to be imminent based on the above. It is reasonable to plan for the worst as above and hope that it does not happen until 1Q 2021. Trump will do everything in his power to keep the economy going through the elections.
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