"Recession" - Says Who?
I bought my dog, so I get to name it whatever I want. Her name is Lucy if you are curious. Who gets to name our economy a 'Recession'? Everyone is talking about it, but who gets to put the label on it and make it 'real'?
First, what is a recession? It is typically defined as two consecutive negative quarters of economic growth using our GDP (Gross Domestic Product) as the key benchmark. In reality the people that say we are in a recession, (or not) look at other factors.
That leads us to an obscure group of people, the NBER (National Bureau of Economic Research) which provides a non-profit private view of our economy through their 1,700+ economists and 120 conferences they offer each year. They say when a recession starts, and they say when the recession officially ends. Their main two factors are time (how long was it) and severity (how bad was it).
Are we in a recession? The NBER hasn't said 'yes' to that question yet, and based on recent estimates this quarter will be our second in a row of negative growth... so many would say we are in a recession, but it's not official 'yet', BUT the very idea of talking so much about a recession changes our behavior, and in a way makes the recession more likely.
Remember as the old saying goes, it's not what you make, but what you keep... and in recessions it's not what you lose, it's what you keep. We've had the worst start to a year since the 1970's, but as you'll see here the low point in 'red' is what you may have seen on your statement at some point, but the gray bar is where you actually finished the year.
Note how many RED drawdowns finished the year positive? It's not what you lose, it's what you keep. Since 1980 (that's 42 years) only 10 of the years actually finished the year with a loss. And ALL of them - were back to positive within 12 months (with the exception of 2000 technology bear market - that took a few more years to recover.)
2000 technology bear market saw house prices increase 25% over three years.
2007 financial bear market saw house prices drop 45% over three years.
Coaching Tip: This feels like a 2007 financial bear market for equities, and a 2000 technology bear market for housing prices.