The Capitalist Investor - Episode 119 Recession, this. Recession, that. The word keeps popping up everywhere; in headlines, on the news, and on social media. When you hear the word “recession” does it send a shiver up your spine? People fear recessions. Or do they fear what recessions often allude to? Episode #119 of “The Capitalist Investor,” is all about the good, bad, and ugly that comes with recessions. The guys also touch on IRS tax refunds as well as what we’re currently witnessing with the car market –– or the lack of. If you’re looking for some reassurance about the impending recession, received an unexpectedly high tax refund, or if you are just losing your patience searching for a new car –– Derek, Luke, and Tony sort it all out.Outline of this Episode:[3:50] Let’s talk about…Recessions [13:45] What’s going on with this year’s tax refunds? [21:10] The concern over used car prices The fears that are often associated with recessionsRecessions are economic contractions technically defined by two quarters of negative GDP growth. They’re often accompanied by unemployment, business failures and oftentimes, bank failures. Many people often freeze up and become frightened whenever they hear talks about a recession –– and for valid reasons. We came out of the Financial Crisis just 12 years ago and felt the pain of the 2000 tech bubble crash. Although time has passed by, people still have those distant memories burned in the back of their minds. They panic when they hear the word recession because of what it affiliates with. People imagine massive job loss and the stock market plummeting 40-50 percent. But what history has shown is that by the time you realize you’re in a recession, usually the market has already sold off.We’re facing some recessionary pressures right now, let’s talk about themOur economy needs to take a breather. After pandemic lockdowns cleared up over time and the economy turned its lights back on again, we took off right out of the gate. We knew that things would be good. Everything is going to continue to grow but unfortunately not at a continued pace. We had quite a bit of growth these past couple of years and we pulled forward and gained quickly. But now we’re starting to stabilize and we’re in need of a recalibration. The inflationary environment we’re living in right now is lighting a recessionary path. People are or are going to be fed up with all of the overpaying. Eventually, they’re just going to take a break from splurging and spending on things. So, for an economy like ours where nearly 70 percent of our GDP comes from consumer spending, inflationary costs have cost a massive hit.Alongside high inflation rates, a lot of people are concerned with the inversion of the yield curve –– a graph that depicts the return measure on debt instruments, like bonds, versus the various years of maturity. The Wall Street Journal recently reported that the deviation between the two and 10-year yields is shrinking as the two-year yield continues to rise, flattening the gap between the yields. It shouldn’t be that way. Usually, an inverted yield curve is a sign for future recessions. The stock market sees this as a lack of confidence in the U.S. state of mind –– there’s not a lot of faith in the short-term future of the economy. So, what does this all mean? When these two-year yields start to invert, on the average, a recession will take place about 12 months from that time. We’re nearing that time now. A recession will probably be in our future, but it does not mean that it will be the end of the world or even be deep. We have a feeling that it will be short and fast, just a quick break for the economy to catch its breath. We might not even feel the weight of its presence until the new GDP numbers are published. We understand that all the talk about recession can be panic inducing. But we’re here to keep an eye on the numbers and watch how everything develops. The IRS tax refund amount exceeds last year’s with a month still left to goThis time of the year is always exciting… tax season. Fox Business recently reported that the IRS has sent out 45 million tax refunds so far. By March 11, the returns amounted to over $150 billion. The average payment so far is $3,352 –– roughly 20 percent more than last year’s average. What conclusions can we draw from this? The IRS wants to increase its funding –– they’re going to spend money to make money basically. Much of the tax news right now is also sparking a bit of conversation about retirement planning. It’s important to note for future retirees that when you start planning, don’t expect for today’s tax rate to be your end all tax rate. Where we’re at right now is unsustainable. We’re tallying major deficits every year and continue to pile onto national debt. Taxes have to go up at some point soon, because it just looks like the government doesn’t want to cut its spending –– on either side of the table. When refund checks increase by 20 percent in just one year, it begs the question: where’s the money coming from? In brief, some of it is from higher wages or lump sum payments brought from the great resignation of 2021. But the bulk is from all of the government spending that’s pumping into the economy. So, these higher returns are much of the result of increased government spending –– which as a reminder, is one of the leading factors in the inflation crisis we’re in right now. All of this has an impact, and it’s going to be a long-term one. Connect With Mark TepperTwitter: @MarkTepperSWPFollow Mark on LinkedInSend Mark a message hereThe SWP Connect YouTube ChannelConnect with Derek GabrielsenTwitter: @DerekGabrielsenFollow Derek on LinkedInSend Derek a message hereCheck out Derek’s YouTube channel!Connect With Luke LloydTwitter: @LloydBoyLukeFollow Luke on LinkedInSend Luke a message hereThe SWP Connect YouTube ChannelSend your questions and comments to us at info@SWPConnect.comSubscribe to The Capitalist Investor
