{"id":2957,"date":"2019-01-18T17:21:04","date_gmt":"2019-01-18T17:21:04","guid":{"rendered":"http:\/\/www.morawealth.com\/?p=2957"},"modified":"2019-01-18T17:21:06","modified_gmt":"2019-01-18T17:21:06","slug":"end-of-cycle-anxiety","status":"publish","type":"post","link":"https:\/\/www.borealcm.com\/de\/end-of-cycle-anxiety\/","title":{"rendered":"End-of-cycle anxiety"},"content":{"rendered":"\n

The current economic expansion in the US is only five months away from\nbeing the longest ever recorded. And with unemployment near historic lows, and\nconsumer and business confidence showing great strength, it is difficult to\nforesee an imminent derailment of the US economy.<\/p>\n\n\n\n

However, human minds function largely on the basis of anticipation, and\ninvestors have been worried lately about the possibility that the economy will\ngo into recession in 2020; causing a sharp fall in the price of risk assets<\/p>\n\n\n\n

There are a number of reasons behind such a grim outlook. The expected\nfading of the stimulus caused by the tax reform \u2212 and the burden generated by\nthe resulting deficit \u2212 the end of an era marked by (brazen) support from\ncentral banks, concerns about a possible trade war, but also a certain\n„altitude sickness“ caused by the longevity of this cycle.<\/p>\n\n\n\n

All these factors indicate that the best is already behind us, and that\nwe are entering a new phase with fewer positive stimuli, in which avoiding a\nrecession will depend on economic agents managing the decline in a responsible\nmanner.<\/p>\n\n\n\n

Facing the end of a cycle requires psychological strength. As football\nfans know well, it’s hard to see your team go from glory to mediocre\nperformance. Decadence is not a linear process. After a good day, there is\nalways the temptation to think that it is still possible to stay on top, only\nto fall into despair when the team stumbles again.<\/p>\n\n\n\n

Consumers, investors and business leaders are experiencing a similar\nprocess, since macroeconomic data show mixed signals. Keeping up the economy is\na social enterprise, and the temptation to „piggy-back“ is large. If\neconomic agents reduce consumption and investment as a result of worsening\ndata, they can aggravate the slowdown and lead the economy into a recession, if\non the contrary they remain calm, the current expansion will continue.<\/p>\n\n\n\n

This type of end-of-cycle anxiety is aggravated by the fact that the\nprevious two recessions coincided, or rather, were triggered, by the collapse\nof a stock market bubble, and a once-in-a-century financial crisis. These\ncaused the S&P 500 to fall from its highs by -48% and -58% respectively; forging\na generation of traumatized investors for life.<\/p>\n\n\n\n

But not all recessions are equal and, for example, during the two\n„standard“ recessions experienced in the 80s and 90s, the stock\nmarket fell by only -25%. Taking into account that since the peak of October\nlast year, the S&P already corrected -20%, long-term investors should not\nbe too worried.<\/p>\n\n\n\n

Of course, the nature of the next crisis is still unknown; it can be a\nshallow recession followed by a rapid recovery, but it can also be a depression\nif, for example, China implodes. In addition, there is great concern about the\nroom for maneuver that policymakers will have when the next crisis finally hits,\nsince fiscal and monetary tools have largely been exhausted.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Time will tell whether we will face a „relief recession,“ that\nhelps dissipate accumulated anxiety, or a severe depression. What we do know is\nthat timing recessions is extremely difficult and that sitting in cash waiting\nfor the next one to come can have a large opportunity cost. Therefore, it is\nadvisable to focus on identifying companies with business models that can\nwithstand economic cycles well, instead of trying to guess the future by\nreading the tea leaves.<\/p>\n\n\n\n

Fernando de Frutos, MWM Chief\nInvestment Officer<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The current economic expansion in the US is only five months away from being the longest ever recorded. And with unemployment near historic lows, and consumer and business confidence showing great strength, it is difficult to foresee an imminent derailment of the US economy. However, human minds function largely on the basis of anticipation, and … Continued<\/a><\/p>\n","protected":false},"author":2,"featured_media":2954,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[131,132,326],"tags":[],"class_list":["post-2957","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-indicators-de","category-macroeconomics-de","category-valuations-2"],"acf":[],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts\/2957","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/comments?post=2957"}],"version-history":[{"count":0,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts\/2957\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/media\/2954"}],"wp:attachment":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/media?parent=2957"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/categories?post=2957"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/tags?post=2957"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}