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Is a recession looming?

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Two four-letter words, “debt” and “jobs,” are hanging over the economy like a noose that keeps tightening. This is not news; we’ve known for several years that the debt is too high and jobs too scarce. Unfortunately, they’ve become nagging problems with no solution in sight.

Recently, the government reported the U.S. economy had a net gain of zero jobs in August. On top of that, the unemployment rate remained stuck at a disappointingly high 9.1 percent and the number of unemployed people rose to 14 million. This includes the more than 6 million workers who have been out of work for 27 weeks or longer.

With jobs hard to come by, consumer confidence is also suffering. The Conference Board reported its consumer confidence index for August fell to the lowest level since April 2009.

The weak economy and uncertain outlook have led to a dramatic decline in interest rates. The yield on the 10-year Treasury dropped to 2 percent last week and the 30-year Treasury yielded 3.3 percent. This decline in longer-term interest rates is “a sign of heightened fears about a recession in the U.S. and more actions from the Fed,” according to The Wall Street Journal.

When you put the pieces of the economic puzzle together, it starts to paint a picture that a new recession may be looming. While I’m not in the business of making projections like that, we do monitor the economy and, right now, it’s sending unsettling signals.

However, the word “recession” can be very confusing. Most credible experts believe the stock market has already “priced in” a recession — meaning we’re already at, or near, the bottom as if we were in a recession. The debt and jobs issues are already dismal. Technically, a recession means two consecutive quarters of negative gross domestic product (meaning for two consecutive quarters the output of goods and services within our economy shrinks). That hasn’t happened yet, though level-headed experts say the odds of it are greater now than they were six months ago.

They call it the “double dip” when you come out of one recession and rather quickly fall back into another one. That’s not likely, but the discomfort of being in a recession is already here. The next six to 12 months will be very telling as the causes of our discomfort will have the opportunity to go one way or the other. However, for those who have the luxury of a 10-year horizon, here’s some interesting food for thought.

Credible experts believe that the most consistently accurate predictor of long-term stock market returns is the S&P 500 Index price-to-earnings ratio (P/E). Those experts believe the current P/E of about 12 forecasts a better decade of performance ahead. America is on sale, and they think buying opportunities abound. But you must have a long-term horizon.

But for right now, you simply cannot live your life wondering which way the wind will blow. Structure your portfolio with an investment process that will accommodate any future outcome. Accept that buy, hold and hope as an investment philosophy is dead and gone. Hope is not a strategy and doing nothing is, in itself, a decision. This too shall pass!

Tommy Williams is a Certified Financial Planner professional with Williams Financial Advisors LLC. Securities offered through LPL Financial, Member FINRA/SIPC. Branch office is at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.

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Written by demon53

September 26, 2011 at 3:28 pm

Posted in Uncategorized

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