I believe the recession is here.  You can blame the coronavirus, oil, or anything else, but the asset bubble is deflating.  I have said that my theme for 2020 would be the great stock bubble.  Now the stock bubble is slightly less big than it was a few weeks ago.

I have been warning about troubled times ahead for a while, so it almost doesn’t seem real now that it is happening.

My portfolio has taken a hit over the last couple of weeks, but nothing compared to what most people are experiencing.  My retirement account is down maybe 5%.

I had been planning to buy into at least one bear market mutual fund or something similar. I wasn’t going to bet the farm on it, but I thought it would be a good idea to throw a little money at what I saw as a massive bubble.

I hesitated because I actually thought the Dow had a decent chance of hitting 30,000.  That didn’t come to fruition, as it came just short.  I don’t think the Dow will be seeing 30,000 for quite a while.

I am still debating whether to get into a bear market fund.  Maybe I will lightly dip my toe into something.  That may sound crazy to some people.  I have been hearing many people say that they are buying on the dip (or dips).  I saw one person compare this to trying to catch a falling knife.

I still think stocks are a bubble.  If they fall another 50% over the next year, then a bear market fund would serve me well. Of course, I can’t be certain this will happen.  Maybe if things start to turnaround with the coronavirus hysteria, then stocks will get another pop up.

As I’ve stated before, I think the coronavirus is only a small piece of this puzzle.  It was just the last straw that broke the camel’s back.  It is obviously going to impact economic activity, especially with our global economy. But this is on top of an economic slowdown that I was predicting anyway.  The yield curve didn’t invert in 2019 because of expectations of a virus.  The Fed wasn’t already lowering its target rate last year in anticipation of a virus.

Speaking of the Fed, it already had an emergency meeting to lower its target rate by 50 basis points. It may lower it again by its next meeting.  It may lower it another 50 basis points, or even 75 basis points.  We will be near zero interest rates before we even know that we are officially in a recession.

I also expect a lot more quantitative easing (QE), also known as digital money printing. For this reason, I am still bullish on gold in the long term.

The Political Angle

The stock market is tanking and the world is in panic.  Meanwhile, the Democrats are about to nominate someone who is losing his marbles.

I don’t say this to be mean.  It’s just that it is kind of a relevant issue if the next president isn’t all there.  It will make it quite convenient for the establishment to dictate policy.  Or they may just eventually admit he is not all there and replace him with someone else.  Queen Hillary anyone?

Trump would absolutely destroy Biden in a debate.  I don’t know if it will be really fun or if I’ll actually just start feeling bad for the guy.  But Trump has his own problems.  He took ownership of this economy, particularly the boom in stocks. He can now blame the virus or the Fed or whoever, but he will ultimately take the blame.  He is right to blame the Fed, but he does so for all the wrong reasons.

Trump tweeted the other day that the lower oil prices are good for consumers.  I actually agree with him on this economic point. But where was that rationale when he was slapping tariffs on China?  If lower prices are good for consumers, then he should have eliminated tariffs on China and everyone else.

Now Trump is talking about a payroll tax cut.  There was even a suggestion that the payroll tax be eliminated until after the election.  I am all for this. The federal government is headed into bankruptcy or default anyway, so I might as well take the extra, mostly useless, money now.  The government (i.e., politicians) has made more promises than can be kept. A payroll tax cut may just move up the day of reckoning.

No matter who is president in 2021, it will be a dangerous time.  The government is going to further encroach on our liberty. It is important for libertarians to point out that this is not the result of the free market.  It is government spending, regulation, and central bank manipulation that caused these problems.

With Trump on the defensive about the economy, and with Biden being incoherent, I hope that Jacob Hornberger or some other libertarian is prepared to teach America some economics.  While war is the most important issue, I think this is a great time for a libertarian to sell a populist message of more economic freedom.  I hope Hornberger doesn’t waste his time on an issue like immigration while largely ignoring this major opportunity when middle class America is struggling.

Be Prepared

You should be prepared for a hard recession that may last for a while.  The most important thing is to do your best to keep your income source secure.  For most people, this is a job.

If you have investments, now is not the time to go fishing for bargains in the stock market. I still recommend a permanent portfolio.  If anything, I am lighter than 25% stocks right now.

It is important to pay down any debt outside of your mortgage.  You don’t want debt disrupting your cash flow every month.

And speaking of mortgages, mortgage rates are down.  I have no idea if they will go down more.  If you can refinance into a better situation, you should take advantage.  It has to make sense though.  You have to factor in closing costs, the amount left on your mortgage, the length of the loan, and how much lower of an interest rate you can get.

Aside from defensive strategies, I like to remind people that recessions can also be opportunities.  As Warren Buffett said, you should be fearful when others are greedy and greedy when others are fearful.  Sometimes there are unique opportunities in a recession where other people are afraid to spend/ invest any money.  This is another reason that cash is king in a recession.