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The Sun Always Rises

Over the past couple of months, I’ve noticed a lot of talking heads on TV and pundits in the newspapers talking about the odds of a recession after a rate hike. And with the next meeting just less than two weeks away, the chance of a rate hike just jumped with today’s jobs report.

The Labor Department says that the U.S. employers added 211,000 jobs in November, which is well above what most economists were predicting. Revisions to past data also show that payrolls grew by 35,000 more jobs than previously estimated in both September and October, a clear sign that the economy strong enough to withstand a modest a rate hike.

That’s especially true since, while the “official” unemployment rate is unchanged at 5%, the U-6 unemployment rate has also been falling steadily over the past several months.

Thinking back to the immediate aftermath of the Great Recession, a lot of pundits were telling us not to trust the “jobless” recovery. While the official unemployment rate fell rapidly, the unofficial U-6 rate peaked at 17.4% in October 2009.

The U-6 is an important number to watch because it includes workers for which unemployment benefits have run out, those who dropped out of the labor market and those who are working part-time for purely economic reasons. Given the broader base of workers included, it gives a clearer view of the true state of the labor market. That pool of workers is also why the official unemployment rate often doesn’t drop as quickly as you’d expected, since an improving economy draws them back into the labor market.

As of November, that U-6 rate stood at 9.9%. That’s barely a couple of percentage points above the 30-year average, so this recovery hasn’t been nearly as jobless as some would have us believe.

I bring this up because so many talking heads see a crisis around every corner, and you can spin most anything any way you want. The thing is, a recession after a rate hike is as much a certainty as the sun coming out after a rain. The only questions are when the rain will start, how long it will rain and whether it will be a sprinkle or a deluge.

I don’t have a fancy Doppler radar to tell you exactly when the rain will come, or even how bad it will be. In economic terms even a sprinkle of a recession isn’t good news; jobs will be lost and markets will go down. But as investors, recessions aren’t exactly bad news, either.

If you follow a system of investing that focuses on buying companies with strong fundamentals, odds are you’ll weather any recession fairly well. While my personal portfolio did lose value in the devastating crash of 2009, it came back even stronger thanks to the fact that I kept buying those same companies. Granted there is a matter of perspective there, since I’m just in my mid-30s and nowhere near retirement.

My point though is that the economy always has and always will run in cycles, so the fact that another down cycle is coming shouldn’t be a shock to anyone. But if you buy into the hyperbole that seems to draw eyeballs to televisions and newspapers, the chances are you’ll make rash moves that will lose more money for you than any recession will. That’s especially true since we’ll be going into it on fairly firm economic footing.

It’s understandable that folks are nervous since we’re in the third-longest bull market in history and haven’t seen a rate hike in a decade. But the sun always comes out and there’s always money to be made, and we’re going to help you not only protect your wealth, but add to it.


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