The Only Recession-Proof Investment - a Totally New Outlook

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Then they ALL turned bad. Not by large amounts, but by small incremental ones, frequent enough to notice. The big one has been the March Nonfarm Payroll Report , which printed a soft ,, was far below the recent average of , As recently as this morning, the National Association of Home Builders Sentiment Inde x dropped a point from 70 to When you see one cockroach, it is easy to ignore. When it becomes a massive infestation, it is a different story completely.

The potential explanations for the slowdown abound. Decisions on major capital investments by companies were a slam dunk three months ago. Now, many are definitely on hold. There is abundant evidence that the Chinese are scaling back investment in the US and pausing new trade deals with American counterparties. They have been boycotting purchases of new US Treasury bonds for eight months. The new import duty for Canadian timber is raising the cost of low-end housing, worsening affordability, and causing builders to cut back. Instead they are refocusing efforts on high-end housing where profit margins are much wider.

SBUX presentation , you can count on a solid base of customers. Finally, SBUX shows a great balance of growth and dividend increase. While management aims to grow their brand year after year, investors also receive a bigger payout. SBUX shows several growth vectors different store sizes, larger menu, strong reward membership program that will help this company when they go through the next market crash. I've selected Starbucks for its growth potential and its brand strength.

I often refer to JNJ as the mother of all dividend stocks. This is the kind of company that has been built for decades with the shareholder in mind. JNJ is one of the rare companies to be part of the elite group of Dividend Kings, with over 50 consecutive years of having a dividend increase. JNJ has been able to achieve such milestones due to its impressive diversification strategy including both product and geographic diversification:.

No matter if you have a good job or not, you will spend money to stay healthy. JNJ's current medical product offerings is quite impressive:. JNJ also benefits from another advantage when their drug patent expires; most of them have been developed around specialty drugs which are harder to make for generic competitors such as the Remicade.

Those specialty drugs can also benefit from higher pricing since there are fewer alternatives. As a dividend king, JNJ is well known to keep increasing its dividend payments. Therefore, even if JNJ stock is hurt by a potential crash, its dividend is safe and will continue to increase during challenging periods. After all, JNJ has been through several crisis's and it has never let their shareholders down. Showing such a strong position for almost all of their products gives CLX another strong advantage: Most products benefit from a price premium due to the perceived quality from customers.

This leaves the competition always a step behind.

Do You Own Those 3 Recession-Proof Stocks?

CLX is a good stock to hold during challenging times on the market as most of their products are consumable and repetitive purchases. The company brand portfolio is strong enough to go through a recession and generate sufficient cash flow to enter in a price war with smaller competitors if need be. This protects the company from currency swings while opening the door for growth on the international playground. ErikH — Kudos to you for bringing this up. As a young professional living in Chicago, working in downtown, and living on the west side, I see all different forms of people making bad decisions with their money.

I try to take it upon myself to educate as many of my peers as I can about the dangers of debt, and NOT viewing your paycheck as a license to attain more and more debt and worthless items. In the end, a more educated group of people will help reduce hurt during recessions. JessDarb June 21, , 2: MrTater June 25, , 4: While I am personally doing everything within my power to limit spending to achieve this eliminated CC debt and car payments, lowered my rent situation, opened multiple bank accounts to better manage money flow, max k, etc , a recession in my industry at the wrong time could severely hurt my long term financial planning.

I am sure I am not alone in this regard. Some people simply entered the market at an unfortunate time, and wishing a sharp and sudden downturn for ones personal gain at the expense of thousands of your fellow citizens seems uncouth, to say the least. Mighty Investor June 20, , 8: For anyone in the asset accumulation phase and who is living mostly off of work-related income, a recession is a boon.

You get to scoop up index fund shares at much better valuations. So, so long as you keep your job, a recession is hugely helpful to your long-term finances—assuming you keep investing through the entire cycle. Curtis June 20, , 9: FISeeker June 21, , 7: Many of the folks who I saw during the last recession who lost their job were not willing to make the sacrifices needed to support themselves. Lynne June 23, , 2: Being able to do that can really put a lot of wind in your sails. Of course some situations make that difficult or even impossible, but I have also seen people hamstring themselves by voluntarily staying in one place even though moving would definitely be feasible for them and almost certainly improve their position.

Fear of change is real. Luke June 20, , 8: This post describes that brilliantly! Also, Australia has been officially recession free for 26 years now. Also, thanks to this blog, my wife and I are debt free, renting a nice apartment in a nice suburb, and saving as much as we can each month. No fears of the recession here! Adventure Rich June 20, , 8: It is so easy to get lulled into complacency and comfort when things are going well… it allows one to assume that the current state of plenty is guaranteed.

It reminds me of the advice a coworker of mine once gave me. That always stuck with me and made me realize that I had to prepare for whatever came my way, good or bad. Thank you for another great post, MMM! Paul June 20, , 9: Q3 to Q3 sounds about right to me. People come back from the long summer holidays, where their money-driven endorphine levels had time to go down, then they look at the real numbers and… SELL!!!

TYMP June 21, , 2: Nick June 20, , 8: I say the next recession will hit by Q3 Reason for the recession? Usually takes 9 months for the impact to be felt and it went negative in Q4 Looking forward to buying some assets on sale. Kerry June 21, , 3: Banks in New Zealand are already requiring loans to be subject to a debt to income ratio, even without being regulated to do so, and loan to value limits are already being applied. I am not a betting person but am preparing for September to be increasing my assets … I think there will be something that happens in August that might tip things over the edge, concurrent with that timing.

Likely to be something to do with Mr Trump …. CBT14 October 26, , 5: Money Mustache October 26, , 6: Indeed — I found these predictions to be ridiculously specific. You just CANNOT predict recessions or stock movements based on news headlines, graphs, or guesses on the macroeconomic picture.

Common June 26, , 1: Pretty good return for 9 months. Kevin June 20, , 8: June 20, , 9: I seriously doubt that will be the reason. The recession will be triggered by something else. Rob June 21, , 9: Many, many Dems have said there is no evidence, the FBI and others said no evidence, etc. Worse thing that may happen is someone below Trump may have missed a financial disclosure and get slapped on the wrist. At least in the US, GDP growth this cycle has been so abysmal compared to typical boom periods that I believe a recession will look more like than Only thing that could happen that could cause another IMO is China imploding with debt.

Bill June 21, , 1: The economy has expanded both in number of people, and trade per person per year since ten years ago. Money Mustache June 21, , 3: These are good points, Tom — sloppy on my part. Maybe another year before we get to inflation-adjusted debt per-person parity with the previous peak? Or nowhere near as bad. With mortgage crisis, there were plenty of people betting against it, shouting from the rooftops more than 12 months before things fell apart.

It was pretty obvious. This time, mortgages are pretty reasonable, and there is no obvious repackaging of toxic mortgages, nor auto loans, which have crept up doubled but still a small fraction of the total.

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Not yet life-threatening to the system, but not exactly healthy. Also, congrats on near-perfect timing advice on the previous article predicting bull market and telling everyone how the whole stock market was on sale. LK Beland July 13, , 2: Dave June 21, , 5: The lack of knowledge regarding macro economics in this MMM posting and many of the comments is staggering. For those readers who are still working, cheering for a recession is problematic in that many jobs disappear, perhaps yours.

MMM postings are usually outstanding — well research, well written, and, best of all, thought provoking. What do you think about GDP growth? I certainly am more prosperous retired, and I spend and earn much less than I did as a clueless jobby. Dave June 22, , 9: MMM and many, many other FIRE bloggers are spot on by relentlessly and meticulously writing stories about the joys that accompany frugality and the miseries that accompany consumerism. Controlling consumer purchases is easy compared to showing up in an ER with a broken leg or fill-in-the-blank bad luck medical outcome.

Senators are on the case. Kevin June 23, , 8: Get back to me after you read this: This will turn out to be one of the biggest political scandals in US history. Gwen June 20, , 8: I say bring it on! I think it will hit sometime mid Bet ya a case of the winners alcoholic beverage of choice! On thing though, as a 26 year old I was impacted by the Great Recession.

James June 20, , 9: Might I ask what you drink? Gwen June 21, , 6: Jeremy June 20, , 8: Recessions always seem great, except for the chance of loss of a Job and troubling finding another one during a recession. Anyone have any additional advice for a young guy who has never had a recession during their adult life? Seth June 20, , 8: Steve June 20, , 9: Best thing a young guy can do no matter what. Get your personal profit margin up by cutting expenses to the bone. Jamie June 21, , Build up your 6 month low-risk cushion. Make sure you have the buffer. The scarier things look, the more you want to invest.

I hope it comes soon although it may be years out yet. A good recession now would be wonderful. Mark June 20, , 8: I think housing prices are super high now, but not because of the same reasons as before. We have too little building and not enough housing for people. Before it was too much building and easy credit. The quality of loans for housing is much higher than before. I could see a slow down and the other factors you mentioned may cause a recession, but I would not count on housing prices plunging.

MikeM June 21, , 3: House prices are a product of ability to pay and interest rates. Supply and demand are secondary- housing of the right type is always in short supply. MartyfromMaine June 21, , 1: The wild card is always mortgage rates, however those are based off the 10 yr treasury in the US, so bond prices would have to collapse for rates to go up high enough to crash the housing market, which in an event like a stock equity selloff the opposite happens in a flight to safety. I do not care to bet, but I will anyway. Since my crystal ball is cracked and clouded I firmly state, as every respectable economist does, that the next recession will happen when it does.

It will start next year unless it leaves the gate sooner or after It can go either way. Well, it could be debt or weaker than expected demand. If it is like most previous recessions the economy will not actually contract, it will only slow down. The inflation adjusted numbers is decline for at least two quarters only.

The Fed could also cause the recession with higher interest rates. Then again, I can find just about any excuse I want for why the next recession happens, or why any previous recession happened. Heck, they still debate what cause The Great Depression! BTW, I like the charts you used. I review the Shiller PE Ratio chart and similar charts from the same website frequently. Must have been looking over my shoulder! Call me a good student. Hard L June 20, , Does anyone care why the stock market roars, as long as it does so?

There is a big difference between the cause of the recession and the trigger. The cause is always some form of irrational exuberance, the trigger can be almost anything- and does not really matter. If not one thing it will be another, because the time is ripe. June 21, , 7: BTW, I rarely drink beer, but when I do their is a cow on the label. You know, that would make a nice meme. Josh Jensen June 21, , 6: I have family in Wisconsin Rapids, and every time I visit my suitcase is full of New Glarus beer cushioned by laundry for the flight home!

Beautiful brewery too, worth the visit if you are near Madison. Dave June 21, , 6: Lots of excellent beer being brewed in Wisconsin. June 21, , 8: Forget beer, I can get good micro brews in VA. I need a place that can get me quality deep fried cheese curds…or even just cheese curds period. That is the true void created by moving out of Wisconsin.

The Wealthy Accountant June 23, , 8: Anthony C June 20, , 8: If only I had the scratch then I could be rolling in crazy rent income now. Stacy H June 26, , 1: BestPal June 30, , Now is a good time to sell especially if you can avoid capital gains. Good luck with your decision. Stacy July 6, , 2: Troy Rank June 20, , 8: MAD Wealth June 21, , 9: Auto Loans are definitely getting out of hand. I even wrote about it last year. I follow all the loan sectors mentioned above. You can find that in the public sector. I think we start to see a crisis starting to unfold in and continuing into That has the potential to carry over into private sector debt markets.

All it takes is confidence to erode in a sector or two. I was just explaining all these points to an eager to learn young lad. Hope the lesson stuck. They forget there are debt markets, real estate, commodities, etc… Speculation exists in every market. Jason June 22, , 8: Highway driving is fundamentally dangerous and self-driving cars will admittedly imperfectly ameliorate that. That definitely matters for transporting the whole family between cities.

PE ratios are just a distraction to try and get the steady handed investor to break from their financial plan. Mine is age in bonds and the rest in stocks plus a rental property. Since a recession is imminent, now is the time to sell your car, pay off the mortgage, and bike everywhere. Lets get this party started.

What is the duration of your bond portfolio? What happens to the vale of your bond portfolio when interest rates rise? Half my bonds are in inflation protected index vanguard vipix avg duration 8. LosPadresHiker June 27, , Here is a good explanation on bond fund duration and interest risk. Colin Weir June 20, , 8: There are two big crises sneaking up on the country right now: Malinda June 21, , 8: It is amazing how much momentum retail disruptors have picked up recently. It has been devastating to traditional brick and mortar businesses but a boom for online retailers.

Thank you for the Atlantic article suggestion! One thing you might want to look at is index funds. They apparently believe that in the long run, they will make lots of money. However, in the past, hardly anyone invested in index funds. They owned mutual funds, which picked individual stocks that the fund manager thought were good values, or picked the stocks themselves.

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Now trillions of dollars are moving on autopilot, without any thought involved. The whole premise of an index fund is this: If there is a large-cap stock trading at a ridiculous price, we buy it. In fact, the more ridiculous the price is, the more we buy, because our fund is cap-weighted. Does anyone see a problem with this? The closest analogy I can see is the housing bubble of Backward-looking analysis showed that house prices had never declined substantially across all regions of the country in the past years, so therefore it was considered safe to make large mortgages to anyone, because house prices would always rise.

I am afraid index funds are the same thing. While they worked well when few people used them, now everybody and his brother is putting every cent they can lay their hands on into index funds. Will this end badly? I predict it will. Of course it will. When it is all or mainly indexing, a problem arises. As companies enter or leave the index, funds are forced to buy or sell at the same time as many others.

Prices move, and they get a bad deal. Ask any engineer about the effects of positive feedback. Suggestion- sell stock as it enters an index and buy it as it leaves- you get fire-sale prices.

I am not sure about the doom and gloom, but the observation on index funds transformation of market dynamics is spot on. The future is unknowable, but the growth in index funds shifts my expectation for a recession further into the future, not sooner. Add nine months to whatever else you were thinking. Fed is irrelevant to this cycle. Losses from sitting out are identical from losses from being in, even if psychological biases conceal it.

Buy regularly and rebalance. Kermit June 21, , 8: If everyone would buy and hold for year, yes there would eventually be a problem. However we out society do not buy and hold. They go to the next best thing. Also indexes are not the indexes of year ago. If the theory holds true, eventually someone, somewhere with a good marketing department will create the next best thing.

While the average MMM follower understands the value of index funds, they are in the minority in terms of why they purchase and for what length of time. Our current President will say something stupid and cause a negative reaction. BRIT Ex will cause things to slow Trumps plan of — Made in America will make things more expensive, and slow the world economy Tax cuts will get botched and not work as intended.

Andy June 21, , 9: My personal opinion on index funds is that they smooth volatility out rather than contribute to mass sell-offs. Paul June 21, , I think what you are describing is that speculation is essential to efficient-market theory. I agree, but at the same time if companies ultimately return profits to shareholders via dividends or share buybacks , relative ownership drives relative wealth which drives relative purchasing power.

Either we all buy in herd mentality via the index and we all maintain our relative wealth, or some break away and speculate, ultimately providing resiliency to the index.

Has The Recession Already Started? | Seeking Alpha

Tara June 22, , 9: I got a little nervous a few weeks ago when I read in Bloomberg Business Week that there are now more index funds than individual stocks. Will it end badly? So…diversify your index funds? Brent Weaver June 20, , 8: This has to be one of the few financial blogs out there that is in someways gunning for a recession.

Crazy how a mindset thirsty for challenge to express badassity changes the way you look at a world event that most fear and abhor. Micah June 21, , 9: This was my exact question. How has this not been answered. Peanuts June 21, , 4: Shannon June 21, , 5: GS June 20, , 8: All for buying more when stocks go on sale, but what about your current asset mix? Kenneth June 23, , I might be early but I do smell trouble brewing. Yes I am market timing but we all do it our own way. Ian June 20, , 8: Some of my older colleagues have recounted numerous stories about the Great Recession and some of the craziness they saw going on in banks in the years leading up to it.

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  6. Atypical June 20, , 8: I just put my money in the market religiously each month as soon as I have the money. So long as you put your money in each and every month, everything averages out. It seems the more effort you put into trying to time things, the more money you are apt to lose. Keep it simple and we can all be mustachians. Yes, I love a good sale. Mal June 20, , Renting fairly cheap out in the suburbs now and wanting to buy in a year. Dan June 21, , Recessions are often not countrywide so temper your expectations for Seattle housing prices accordingly.

    Greg June 21, , 3: Amazon is not recession proof: Layoffs will come fast and hard if the market takes a big drop. HeadedWest June 21, , I think Dan might be right. My wife and I reached FI in Houston, then bought a house in Seattle and will work longer in order to pay off our new, bigger mortgage. Take a look at the projected job growth in Seattle, then look at a map of Seattle.

    It looks a lot like SF years ago — crazy influx of high paying tech jobs, combined with geographically and socially driven restrictions on the number of new homes being built. At the risk of buying in near the top, we took the plunge because the odds are in favor of prices continuing to rise.