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Will there be a recession in 2020? The stock market is at it’s all time high. CNBC just published an article on their theory of what is pushing stocks so high, and it turns out it’s not institutional investors like mutual funds and index funds. Instead, it’s hedge funds playing catch up to this bull market. That's not a confidence inspiring sign.
I've been a dividend investor since 2014, saving my money, investing (using brokerages like Robinhood, WeBull, M1 Finance, and Vanguard). Over the last 5 years, with some luck, minimalism, and money management skills, I've managed to save and invest over six figures and $7,000 of passive income.
A lot of beginner investors ask me if they should wait for the stock market crash / economic recession, or start investing and buying stocks today. What is the right answer?
In order to understand the answer to that question, we have to understand why everyone is afraid of a financial meltdown in the first place.
Indicator #1 something called the inverse yield curve. What it means is when long term investments yield lower interest rates than short term investments. There is an increased risk in investments that are longer term, which doesn’t make any sense. If you’re going to invest and lock your money away for many years at a time, you want it to have a higher yield than a lower one.
When we’re talking about the inverted yield curve, it looks at bonds to see their yields or “interest rates”, and if short term bonds provide higher interest rates than long term bonds, then we get the inverse yield curve. When this happens, it is often times seen as an indicator for an upcoming recession and investors believe that interest rates will fall.
Historically, we have seen this in the past and it’s been a reliable indicator of showing us the last 7 recessions successfully. This happened in the 80s, during the Dotcom bubble bust around 2000, and it preceded the 2008 recession as well.
Indicator #2 - The ISM Index. This is a big one, this is is called the Purchasing Manager’s Index. This index looks at the economy’s manufacturing sector month to month. Specifically it looks at orders, employment rates, production, supply chains, and inventories in the manufacturing space which is a big sign of the health of the economy.
A PMI Index of more than 50 means that this important part of the economy is expanding and growing. A score of 50 means no change from last month, and below 50 means the economy is contracting and slowing down. As of right now, the PMI Index is 52.4, with forecasts for that number to be increasing. This means investors can probably expect to be bullish on the stock market in reaction to the higher profits when this index is above 50.
Indicator #3 - Warren Buffet indicator. You may have read somewhere that Warren Buffet has an excessively large cash position of close to $130 billion dollars. Does this mean Warren Buffet is preparing for the worst economic crash in US history? I don't believe so, and the video addresses why that is.
Indicator #4 Ray Dahlio. A very smart billionaire made an insurance bet of 1% of his hedge fund - the equivalent of 1.5 billion dollars indicating the market will move lower.
With all these indicators, what is going to happen to the economy and what is your plan?
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