Your FP/CM Newsletter – April 2019
THE END OF THE CYCLE?
AARON COHEN, Ph.D., Partner, President, Portfolio Manager
Over the past few months we have heard many experts warn about an upcoming recession in the U.S. They point at slower global economic growth and the inverted yield curve. We disagree.
As night follows day, economic expansions get interrupted by recessions. Our current expansion, being the longest on record, seems overdue for one according to pundits. But, recessions do not just develop out of thin air.
Yes, it is true that recessions are sometimes due to unforeseen events (e.g. 9/11 attacks), but in most cases, they are caused by economic or financial disequilibrium in supply-demand conditions. Thus, a recession can develop due to a drop in consumption (e.g. lack of confidence, higher unemployment), excess inventories (companies become excessively confident on future demand that doesn’t materialize), capacity expansion (businesses over-invest in new capacity again due to overly optimistic growth assumptions), a drop in exports due to an economic slowdown overseas, or a drop in government spending (tighter fiscal policy or higher taxes).