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A Greater Recession Could Be Ahead for the U.S. Economy: Investors Beware Lombardi Letter 2020-08-04 07:33:17 recession US economy If you thought the Great Recession of 2008–2009 was bad, the current economic slowdown could end up being dubbed as the “Greater Recession.” Here’s why. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2020/08/2020-recession-prediction-67M7Z6N-1-150x150.jpg

A Greater Recession Could Be Ahead for the U.S. Economy: Investors Beware

U.S. Economy - By |
A Greater Recession Could Be in the Cards for the U.S. Economy

If You Think the Recession of 2008–2009 Was Bad, This One Will Be Much Worse

About a decade after the Great Recession, the U.S. economy could be on the cusp of a “greater” recession, if not an outright depression. A lot of misery could be ahead. The faster that investors realize what’s happening, the better they will be able to allocate their portfolios.

Understand this: the U.S. economy is highly dependent on its consumers. If consumers don’t buy products and services, the economy doesn’t go very far.

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After the initial wave of the COVID-19 pandemic, the U.S. government and the Federal Reserve were very quick to act to make sure the consumption doesn’t stop.

The Fed made sure banks had enough money to lend, so they wouldn’t cut back on credit (something they did during the financial crisis of 2008–2009). In return, banks allowed Americans to delay their mortgage payments and other related payments. That was to make sure consumers are not hurt.

The U.S. government also handed out checks to Americans so they would have spending money.

Great.

But here’s what no one seems to be asking: what’s ahead?

This is all short-term. What the Fed and the U.S. government have done is nothing but a band-aid solution.

Banks have been lenient, but they will eventually need those who have asked for forbearance to pay up.  If those people don’t have work, will they be able to pay?

The U.S. government has given out a $1,200 check to individuals and it has increased unemployment benefits. At the moment, there are no other government checks ahead, and unemployment benefits are expected decline back to normal levels really soon.

With all this in mind, one really has to wonder what will happen to consumption levels. Will Americans be able to spend the way they did in the past few years? It’s hard to see it happening.

How Could This Slowdown Become a Greater Recession?

Dear reader, in the coming months, I will be keeping a very close watch on the consumption statistics and employment figures. If employment figures remain high and consumption doesn’t improve, the U.S. economy could be in a world of hurt.

Don’t be shocked to see mortgage defaults, personal bankruptcies, and businesses getting in trouble because they don’t have many customers.

As such, investors should be very careful.

I will say this: the pandemic was a match that lit a massive fire. It’s still going strong, and the longer it continues, the bigger the problems will get. The U.S. economy was already struggling before the pandemic. Now it’s in much deeper trouble.

For investors, this may be time to pause and reflect. The stock market could be moving ahead of reality. Will we see a crash again in 2020, or even in 2021? It’s possible.

It might not be a bad idea to have stops in place. If you have made money in the stock market since March, it may not be a bad idea to take some profits. Plus, be very selective: pick stocks that have the highest odds of increasing in value and tend be less volatile during times of a market sell-off.

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