Recession Soon?? What It Means For You & Your Portfolio!!

Summary

This video delves into the concept of recessions, explaining their technical definition as two consecutive quarters of negative GDP growth. It explores indicators such as yield curve inversion and the Duncan leading index to predict recessions, and the Su rule to confirm them. The script discusses potential triggers for a severe economic downturn and how government spending and debt levels can influence the severity and duration of a recession. It also examines the varied impacts on jobs and investment portfolios, suggesting that while some industries may suffer, others could benefit from government infrastructure spending. The video concludes by highlighting the importance of active investment strategies in a potential stagflationary environment.

Takeaways

• 🌐 The global economy has been strained by high inflation and interest rates, leading to concerns about a potential recession.
• 📉 A recession is characterized by a slowdown in the economy, often resulting in job losses and significant market downturns.
• 👥 Unemployment and market crashes are practical effects of recessions, with the last major one occurring in 2007.
• 📊 Technically, a recession is defined as two consecutive quarters of negative GDP growth, which measures a country's economic output.
• 🤔 The National Bureau of Economic Research (NBER), a group of eight economists, unofficially determines recessions without clear criteria.
• 📈 The US economy technically experienced a recession in 2022 due to negative GDP growth, but it was not officially declared.
• 🔢 Predicting a recession involves assessing indicators such as the yield curve inversion and the Duncan leading index.
• 📈 The yield curve inversion occurs when short-term interest rates exceed long-term rates, signaling economic weakening.
• 🛑 The Su rule recession indicator suggests that recessions occur when unemployment rises rapidly compared to the previous four quarters.
• 📊 Real-time indicators like state unemployment rates and earnings reports from major companies can provide insights into the economy's health.
• 💼 The impact of a recession on jobs is typically felt most by industries closely related to consumption, such as retail, hospitality, travel, and manufacturing.
• 💰 The effects of a recession on portfolios depend on the assets held, with manufacturing companies potentially performing well due to infrastructure spending.
• 🏦 The severity of a recession could be influenced by factors in the financial system, such as commercial real estate and banking crises.
• 💵 High inflation combined with economic weakness could lead to stagflation, complicating the response to a recession and affecting asset performance.

Q & A

What is the current strain on the global economy?

The global economy is currently under significant strain due to high inflation and high interest rates, which have led to concerns about an impending economic downturn or recession.

What is the practical effect of a recession?

The practical effect of a recession is widespread job losses and massive losses in the markets, leading to economic hardship for many individuals and businesses.

What is the technical definition of a recession?

The technical definition of a recession is two consecutive quarters of negative GDP growth, which translates to a 6-month period of economic decline.

What does GDP stand for and what does it measure?

GDP stands for Gross Domestic Product, and it measures the economic output of a country, including consumer spending, investment, net exports, and government spending.

Why was there debate about the recession in 2022?

There was debate about the recession in 2022 because although the US economy experienced a technical recession with GDP declining in the first two quarters, an official recession was never declared.

Who decides when the economy is in a recession in the United States?

In the United States, the National Bureau of Economic Research (NBER), a nonprofit organization consisting of eight economists, decides when the economy is in a recession.

Why is the NBER's method of determining recessions controversial?

The NBER's method is controversial because the criteria they use to determine a recession are unknown, and they have a history of announcing recessions long after they have started, which can be unhelpful for economic planning.

How can the yield curve inversion be used as a recession indicator?

An inversion of the yield curve, where short-term interest rates are higher than long-term rates, is a popular recession indicator. It suggests that investors expect the economy to weaken in the future, which can lead to reduced lending, borrowing, and economic growth, eventually causing a recession.

What is the Duncan Leading Index and how does it predict recessions?

The Duncan Leading Index is an economic indicator that looks at specific measures within the GDP figure, particularly those related to personal consumption and private investment. It compares these measures to broader GDP growth to predict economic conditions, and a falling ratio suggests that a recession may be on the horizon.

What is the Su Rule recession indicator and how does it work?

The Su Rule recession indicator, named after economist Claudia Sahm, suggests that recessions tend to occur when unemployment in one quarter is rising faster compared to the last four quarters. It emphasizes the rate of change in unemployment as a key factor in predicting recessions.

How might the current fiscal spending in the US affect the prediction of a recession?

The current fiscal spending in the US, which has been abnormally high due to various factors including upcoming elections, can distort economic indicators and make it more challenging to accurately predict a recession.

What are some real-time indicators that can be used to assess whether the US is in a recession?

Some real-time indicators include unemployment by state, which is published monthly, and earnings reports from major retail outlets and fast food companies, which can provide insights into consumer spending habits and economic health.

What are the potential catalysts for a severe recession in the US?

Potential catalysts for a severe recession in the US include issues in commercial real estate and banking, as well as fiscal problems caused by excessive government spending.

How might a recession affect different industries and job sectors?

A recession typically affects industries closely related to consumption, such as retail, hospitality, travel, and manufacturing. However, the impact can vary, and some sectors, like infrastructure-related manufacturing, may continue to perform well due to government spending.

What could be the impact of a recession on an individual's investment portfolio?

The impact on an individual's investment portfolio during a recession depends on the assets they hold. Stocks in industries most affected by the recession may suffer, while assets like bonds could rally as investors seek safety. However, if inflation is high, other inflation hedges like gold might be more suitable.

What is stagflation and why is it difficult to manage?

Stagflation is a situation where the economy experiences both stagnation and high inflation at the same time. It is difficult to manage because measures to stimulate growth can exacerbate inflation, while measures to control inflation can lead to more economic weakness.

How might a recession affect the financial system and the value of bonds?

A recession could lead to a decrease in the value of bonds if there is a need for higher yields to compensate for inflation. If bonds, which are a primary form of collateral in the financial system, lose value too quickly, it could potentially lead to a crisis in the global financial system.

What are some of the potential strategies governments and central banks might use to address a recession?

Governments and central banks might use a combination of strategies such as reducing spending, restructuring debts, redistributing wealth, and printing money to address a recession. The challenge is to balance these tools effectively to deleverage the economy without causing further issues.

Outlines

00:00

📉 Understanding Recessions and Their Impact

The video begins by addressing the current strain on the global economy due to high inflation and interest rates. It explains what a recession is, its historical context, and its practical effects, such as job losses and market crashes. The technical definition of a recession is two consecutive quarters of negative GDP growth. The video mentions the 2022 technical recession in the US and discusses the role of the National Bureau of Economic Research (NBER) in officially declaring recessions. The lag in NBER’s announcements and the complexities of GDP data collection are highlighted, emphasizing the need for proactive measures.

05:02

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10:03

📈 Indicators Predicting Recessions

The video discusses various indicators that predict recessions, focusing on the inversion of the yield curve, where short-term interest rates exceed long-term rates. This inversion suggests expectations of economic weakening. The video explains the lag effect of interest rate hikes by central banks, which typically takes about two years to impact the economy. The Duncan Leading Index is introduced as another indicator, focusing on personal consumption and private investment within GDP. This index's decline since 2021 suggests a potential recession in the near future.

15:04

📊 Su Rule and Real-Time Recession Indicators

This section introduces the Su Rule Recession Indicator, which predicts recessions based on rapid increases in unemployment. The Su Rule has accurately predicted past recessions but tends to trigger after a recession has started due to its reliance on lagging data. Real-time indicators such as state-level unemployment rates and earnings reports from major companies like McDonald's and Starbucks are also discussed. These indicators suggest that the US may have been in a recession since October 2023.

20:06

💼 Potential Severity of the Upcoming Recession

The video explores the potential severity of the upcoming recession, noting that a 2008-style recession is unlikely due to lower levels of floating-rate debt in the US. It discusses the concept of a rolling recession, where different sectors are affected at different times. Key potential catalysts for a severe recession include issues in commercial real estate, banking, and government fiscal policies. The video explains how government spending and borrowing could exacerbate inflation and impact the financial system.

📉 Effects of a Recession on Jobs and Portfolios

The video concludes by discussing the effects of a recession on jobs and investment portfolios. It highlights that jobs in retail, hospitality, and travel may be most at risk during a recession, while manufacturing jobs could be more secure due to infrastructure spending. For investment portfolios, the performance of different assets during a recession depends on the level of inflation. Bonds, commodities, and gold are discussed as potential safe havens, with the impact of stagflation complicating investment strategies. The video emphasizes the need for active investment management in a stagflationary environment.

Keywords

💡Recession

A recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months. It is typically characterized by a fall in GDP for two consecutive quarters. In the video's context, it is the main subject, with discussions around its definition, indicators, and potential impacts. The script mentions the debate over whether a recession has already occurred and the technical definition involving negative GDP growth.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video script discusses how high inflation has put a strain on the global economy and is one of the factors that could potentially trigger a recession.

💡Interest Rates

Interest rates are the cost of borrowing money and are used by central banks to control the amount of money that is being borrowed and spent in the economy. The script notes that high interest rates have contributed to economic strain and discusses how central banks raising short-term interest rates can lead to an economic contraction.

💡Unemployment Rate

The unemployment rate is the number of unemployed workers as a percentage of the total labor force. The script uses the unemployment rate as an indicator of a recession's impact, mentioning the 10% unemployment rate during the 2007 recession and the potential for job losses during a recession.

💡Gross Domestic Product (GDP)

GDP is the monetary value of all finished goods and services made within a country during a specific period. It is a key indicator of a country's economic health. The video explains that a recession is technically defined by two quarters of negative GDP growth and discusses the limitations of relying solely on GDP data to predict or confirm a recession.

💡Yield Curve

The yield curve is a line that plots the interest rates, or yields, of bonds across different maturity dates. An inverted yield curve, where short-term rates exceed long-term rates, is traditionally seen as a predictor of a coming recession. The video script explains this concept and its significance as a recession indicator.

💡Duncan Leading Index

The Duncan Leading Index is an economic indicator that uses specific measures within the GDP figure to predict economic downturns. The script mentions this index as a tool for gauging the timing and severity of a potential recession, noting that it considers personal consumption and private investment.

💡Su Rule

The Su Rule is an economic rule that suggests recessions tend to occur when the unemployment rate in one quarter is rising faster compared to the last four quarters. The video script uses this rule to discuss the timing of recessions and how it can confirm when the economy is in recession.

💡Stagflation

Stagflation is a situation in which the economy experiences both stagnation (slow growth and high unemployment) and a high inflation rate at the same time. The script mentions stagflation as a potential economic condition that could complicate the effects of a recession on the markets and the economy.

💡Fiscal Policy

Fiscal policy refers to government actions, such as spending and taxation, intended to influence economic activity. The video script discusses how fiscal policy, particularly government spending, can distort economic indicators and affect the timing and severity of a recession.

💡Asset Classes

Asset classes are categories of investments that are considered to have similar characteristics and behave in a similar way. The script discusses various asset classes, such as stocks, commodities, bonds, and crypto, and how they may perform differently during a recession.

Highlights

Global economy is under strain due to high inflation and interest rates, leading to concerns about a potential recession.

A recession is practically characterized by job losses and market downturns, with the last one occurring in 2007.

The debate over what constitutes a recession, with a technical definition being two quarters of negative GDP growth.

GDP measures economic output, including consumer spending, investment, net exports, and government spending.

The US experienced a technical recession in 2022, but it was not officially declared, leading to confusion.

The National Bureau of Economic Research (NBER), a nonprofit organization, decides if a recession has occurred, with unclear criteria.

NBER has historically announced recessions long after they started, which is not helpful for timely decision-making.

Predicting a recession requires digging into data beyond the official GDP growth figures.

An inversion of the yield curve is a popular recession indicator, signaling expectations of economic weakening.

The Duncan leading index uses specific GDP measures to predict recessions, suggesting a severe downturn may be ahead.

The Su rule recession indicator uses changes in unemployment rates to predict recessions, currently signaling weak economic conditions.

Unemployment by state is a real-time indicator that can suggest a recession when it's rising in all states.

Earnings of major retail and fast food companies can provide insights into economic health and potential recessions.

The US economy's size means that a US recession often leads to a global economic downturn.

The severity of a potential recession may be less than 2008 due to less floating rate debt and some segments of the economy remaining strong.

Commercial real estate and banking, along with government fiscal issues, could be catalysts for a more severe crisis.

In a recession, jobs in industries related to consumption are most at risk, while manufacturing may be less affected.

Portfolios holding stocks in affected industries will likely suffer, while commodities and certain government-funded sectors may perform well.

Bonds may rally in a recession as a flight to safety, but this depends on the level of inflation.

High inflation combined with economic weakness could lead to stagflation, complicating asset performance and requiring active investment strategies.

Transcripts

[Music]

over the last few years the global

economy has been under significant

strain because of high inflation and

high interest rates and it looks like

the cracks are finally starting to show

this has left some wondering when the

economic downturn AKA recession will

come others arguing that it's already

happened and a few believing that it may

never occur at all that's why today

we're going to to explain what a

recession is when it could begin and

what effects it could have on the

economy and the markets stay

tuned let's start with what a recession

is a recession happens when the economy

slows the Practical effect of a

recession is that lots of people lose

their jobs and the markets see massive

losses now the last recession arguably

occurred in 2007 and it resulted in an

unemployment rate of 10% and a market

crash of

55% now I say arguably because there's

been lots of debate about what counts as

a recession one popular adage states

that a recession is when your neighbor

loses their job and a depression is when

you lose yours the technical definition

of recession however is two quarters of

negative GDP growth for those unaware

each quarter is is 3 months long so 2 qu

equals 6 months as for GDP meanwhile it

stands for gross domestic product and

it's meant to measure the economic

output of a country GDP measures include

consumer spending investment net exports

and government spending keep that last

one in mind we'll come back to it in a

second as some of you will know the US

economy experienced a technical

recession back in 2022 that's because

GDP he declined in the first two

quarters of that year as such many have

argued that the recession already

happened I.E that it's now behind us the

catch is that an official recession was

never declared in 2022 so this begs the

question of who decides when the economy

is in a recession well in the United

States the answer is the National Bureau

of economic research or NB a nonprofit

organization ation what's crazy is that

just eight economists decide whether

there's a recession or not what's even

crazy is that nobody knows the criteria

they use so in other words a group of

eight people at a nonprofit decide

whether a recession has happened and

nobody knows how they make this decision

to add insult to injury the NBR has a

history of announcing a recession long

after it started it took them until

December 2008 to declare the 2007

recession by that point unemployment had

already risen to 7% and the stock market

had already fallen by

45% now obviously this lag isn't helpful

when it comes to figuring out what to do

with your job or your portfolio ideally

you want to know a recession is coming

before it happens so that you can adjust

accordingly in theory this is as easy as

assessing whether the economy has

experienced two quarters of negative GDP

or not however if you had followed this

approach back in 2022 then you still

would have been late that's because the

GDP data for q1 and Q2 didn't arrive

until August 2022 it takes months for

this data to come in meanwhile on the

flip side if you see that GDP growth is

increasing then you may be tempted to

change jobs or buy more assets expecting

the good times to continue the problem

there is that GDP includes government

spending which has gone off the rails in

the US and elsewhere presumably because

of all the upcoming elections the result

is not only that GDP has been abnormally

high but many of the other indicators

you would normally use to assess the

health of the economy have become

distorted because of fiscal policy for

instance unemployment remains low while

the average person simultaneously

struggles to find work in in practice

then predicting a recession and

assessing when we're in one requires

doing the work to dig into the data to

find the answers that's what we will do

next and at the end of the video we'll

examine how long a recession could last

if it comes as well as what it could

mean for your job and your portfolio and

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down

yeah okay so now that we understand what

a recession is and the effects it can

have on the economy and the market

markets we can take a closer look at

which indicators we can use to predict

when a recession could begin as you can

probably imagine there's no shortage of

such indicators and none of them are

perfect the most popular recession

indicator is an inversion of the yield

curve AKA short-term interest rates

being higher than long-term interest

rates for reference this isn't normal

normally long-term interest rates will

be higher than short term interest rates

to compensate lenders for the

opportunity cost when short-term

interest rates are higher than long-term

interest rates it basically tells you

that investors are expecting the economy

to weaken in the future funnily enough

these expectations of future weakening

essentially occur because central banks

have raised short-term interest rates

when central banks raise short-term

interest rates it makes it unprofitable

for most banks to lend this reduc

reduces lending and borrowing reducing

economic growth eventually causing an

economic contraction a recession it's

believed that it can take up to two

years for this so-called lag effect to

affect the economy now given that it's

been roughly 2 years since the Federal

Reserve started raising interest rates

we're nearing the upper bound of when

the lag effect should kick in and cause

a recession the caveat though is that

all that aforementioned fiscal spending

could be kicking the lag effect can even

further down the road more about that in

the description moving on now the key

takeaway with the yield curve inversion

is that it's unclear how long it takes

until it causes a recession even so it's

useful in so far as it tells you that

the conditions for a recession are in

place that means all we need is an

indicator that can give us some more

insight into the timing and severity

well one such indicator is called The

Duncan leading index which looks at

specific measures within the GDP figure

particularly those related to personal

consumption and private investment the

logic is that it's fundamentally these

areas of the economy that drive real

economic growth which does make sense

the Duncan leading index then takes

these specific measures and Compares

them to broader GDP growth to get a

sense of how much much of that headline

number is actual consumption and

investment versus Reckless government

spending when that ratio starts to fall

it suggests a recession is on the

horizon according to EPB research the

Duncan leading index started rolling

over in

2021 considering that it seems to have a

2 to fouryear lag then it could be

another year before the recession sets

in you might think this isn't useful but

it is because the severity of the

recession can be forecasted using this

indicator considering that the Duncan

leading index seems to be in freefall

this suggests that the upcoming

recession if it occurs could be severe

I'll quickly note that the Duncan

leading index we showed you here is a

modified version created by EPB research

the link to their video about it is in

the description anyways seeing as

leading indicators suggest that a

recession is indeed coming all we need

now is a few to tell us when it's

actually here well one of these is

called the Su rule recession indicator

it's named after Economist Claudia Sam

who found that recessions tend to occur

around the time that unemployment in one

quarter is rising faster compared to the

last four quarters this underscores

something that you always need to

remember when analyzing economic data

and that's that it's ultimately the rate

of change that matters if unemployment

is slowly rising or slowly falling then

it typically has a negligible effect if

it happens all at once though the

effects can be big as you can see the Su

rule has accurately predicted every

recession we've seen over the last few

decades and much sooner than the nbe the

catch is that the rule tends to be

triggered a few months after the

recession has already started this is

mainly due to the indicator using a

3month average the S rule is still worth

mentioning however because we can use it

to confirm when the economy is actually

in recession at least in the US for

confirmation that the US is in recession

the Su rule needs to be above

0.5 it's currently just under

0.4 and Rising steadily suggesting weak

economic conditions if the unemployment

rate for May Rises more when it's

published on the 7th of June then it

will be safe to assume that the psalm

rule will reflect that fact in a few

months time put differently it will

provide further confirmation that the US

economy is headed for recession mark

your calendars now as you might have

gathered most of these indicators are

inaccurate because they rely on lagging

data that's often revised unfortunately

there's no getting around this because

it takes time to gather data about the

economy and even more time to analyze it

particularly in the public sector

fortunately though there are a few more

real time indicators we can use to get a

sense of whether the US is in a

recession or not oddly enough one of

these is apparently unemployment by

state which is likewise published every

month for context unemployment means

that you're looking for work but can't

find any now according to former fed

adviser Daniel D Martino Booth when the

unemployment rate is rising in every

state then historically the US has been

in recession well the unemployment rate

in all 50 states Rose in October last

year as a result Danielle believes that

the US has been in recession since

October 2023 additional evidence for

this can be found in the earnings of

major retail outlets and fast food

companies such as McDonald's which had a

rare earnings Miss due to people being

unable to afford its food of course

McDonald's is supposed to be cheap yet

it's becoming unaffordable for many

Starbucks Pizza Hut and KFC were other

food chains that experienced an

unexpected contraction in earnings in Q2

what's strange though is that chipotle

managed to Buck the trend by beating

estimates macro analyst Jim biano

believes that this is because Chipotle

portions are large enough to eat for two

meals whatever the case by this point

you're probably wondering why we're

focused on the US well the short

explanation is that the US is the

world's largest economy as another

popular adage States when the US sneezes

the world catches a cold if the US goes

into recession the rest of the world

will too and worse anyhow knowing that a

recession could be imminent the next

step is to assess exactly how severe it

could be

assuming it happens at all if you've

been listening to lots of content about

recessions chances are that you've been

given the impression that the next one

will be as severe as

2008 this though seems unlikely at least

in the US that's simply because there

isn't as much debt more accurately there

isn't as much floating rate debt recall

the inverted yield curve and why it

predicts recessions besides making

lending and borrowing more expensive it

also makes existing loans more expensive

the thing is that only 11% of household

debt in the US is floating rate as of

2023 in plain English most of the

household debt in the US isn't being

affected by higher interest rates and

the same is true of corporate debt only

around 16% of corporate debt will need

to be refinanced in the next 2 years to

be clear this doesn't mean that the

average Aver person isn't struggling

they most certainly are however there is

a large portion of the US economy that

has been relatively unaffected by Rising

rates those with lots of cash are even

benefiting as they can earn over 5% on

their massive piles of money it seems

that the consequence of this Dynamic has

been a sort of rolling recession where

certain segments of the economy are

strong and others are weak White Collar

jobs are an easy example here big tech

companies continue to cut their

headcounts but homebuilders are or were

struggling to hire for there to be a

2008 style recession there would need to

be some major Catalyst like for instance

the collapse of Lian Brothers which

caused financial institutions to stop

lending to each other overnight today

there only seem to be two catalysts

commercial real estate and Banking and

the government itself now if you've

watched any of our videos about the

commercial real estate or banking crises

you'll know the two are intertwined the

tldr is that many small and medium-sized

Banks invested in Office Buildings which

have since become almost worthless due

to the increasing tendency to work from

home post pandemic while the collapse of

these small and mediumsized Banks

wouldn't be enough to cause a crisis the

resulting run on bigger Banks would be

this is precisely why the US US

Government bailed out Silicon Valley

Bank if it hadn't it could have caused

runs on other banks that would have

threatened the banking system and

speaking of the US government all the

spending that it's been doing to prop up

the economy has simultaneously created a

fiscal problem that could trigger a real

crisis to put things into perspective

the US government is apparently spending

as much as it does during recessions

only there isn't one makes you think in

any case a lot of this spending is being

financed by borrowing this involves

selling pieces of paper called bonds to

investors these contain a promise to pay

them back the borrowed amount plus

interest naturally there are concerns

that Bond investors will be less likely

to buy if this spending continues that's

just because this spending is likely

causing a lot of the inflation we're

currently seeing if it continues then

the value of $100 being lent at 5%

interest today may only be worth $80 in

real terms by the time it's paid back to

compensate for this Bond investors will

want higher yields the issue is that the

US government would have difficulty

paying these higher bond yields the

bigger issue though is that this would

translate to lower bond prices and US

bonds are the primary form of collateral

in the financial system if they lose

their value too quickly the Global

Financial system could implode barring

these two catalysts though the recession

is likely to be mild and shortlived if

it comes at all as we've learned it's

possible that we're already in it and

it's even possible that we're already

exiting it some countries such as the UK

are reportedly coming out of their

recessions per their Q2 GDP prints anywh

who this brings me to the big question

and that's what effect a recession would

have on the economy and the markets if

it occurs make no mistake these are two

very different things the former has to

do with your job and the latter has to

do with your portfolio now here is where

things get interesting historically the

economic effects of a recession have

been felt the most by those working in

Industries closely related to

consumption such as retail Hospitality

travel and Manufacturing this is why

many analysts focus on manuf facturing

related indicators to spot recessions as

with the unemployment rate though the

manufacturing indicators have been

warped by all the fiscal spending which

is focused on infrastructure development

more importantly this means that you're

unlikely to lose your job if you work in

manufacturing if a recession comes at

least on paper in case it wasn't clear

enough those of you working in areas

like retail hospitality and travel may

be at risk of losing your jobs but only

if there's a severe recession as I

mentioned a few moments ago a severe

recession is unlikely unless something

in the financial system or the economy

breaks note that this Catalyst doesn't

need to be domestic per se it could be

geopolitical food for thought now when

it comes to the effects that a recession

could have on your portfolio this really

depends on the assets that you hold it

goes without saying that if you hold

stocks belonging to companies in the

industries that are likely to be most

affected your portfolio will probably

take a beating again though the

exception is manufacturing where

companies could continue to perform well

due to infrastructure spending

regardless of any recession if you're

wondering which companies specifically

just look at what exactly governments

are spending money on microchips weapons

energy the list goes on similarly

Commodities could paradoxically perform

well during a Cession in so far as

they're used in the infrastructure

projects that governments are funding

assets such as bonds would probably

rally as there would be a flight to

safety from other assets namely risk

assets but this depends on inflation if

inflation is low when the recession

starts then bonds will perform well and

risk assets that are sensitive to money

printing like crypto would be the first

to Rally after the fud driven dip note

that there wouldn't even need to be any

money printing per se investors would

expect it

automatically but if we enter a

recession and inflation is high then

bonds may not be the safe haven to turn

to instead inflation Hedges such as gold

would be better options as a fun fact

investors tend to accumulate gold

leading up to Bare markets and

recessions say did you hear that gold

recently hit an all-time

high now in all seriousness inflation

could complicate things and when you

combine High inflation with economic

weakness you get stagflation which is

notoriously difficult to get hold of

that's because stimulus causes more

inflation whereas raising interest rates

to fight this inflation causes more

economic weakness this is extremely

important to point out because if you're

into crypto or other assets that benefit

from money printing you need to know

that this stimulus may not come right

away if the recession is coupled with

high inflation recall that it's assumed

that the money printer will just turn on

at the first sign of a recession aside

from the fact that this stimulus may not

come as quickly if there's High

inflation it may also not be as big as

investors expect this is because of what

I just mentioned a few moments ago the

risk of more inflation according to

famous hedge fund manager Ray Delio we

would likely see a mix of everything we

would see a combination of governments

reducing their spending restructuring

their debts redistributing wealth from

the rich to the poor and central banks

printing money as Ry highlighted in his

video about how the economy works these

tools will need to be balanced in order

to deleverage without issues the impact

on the markets in a stagflationary

environment will therefore be mixed and

it will require more active rather than

passive investment this is something

that's been predicted by many Market

analysts and this prediction seems to be

coming true if history is any indication

though we ain't seen nothing

yet and that's all for today's video

folks so if you learn something new be

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much for watching and I will see you in

the next one Aros Ari aen or goodbye

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