Money Rehab with Nicole Lapin - Are We in a Recession?

Episode Date: June 27, 2022

Your questions on these topsy-turvy economic times, answered.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Recently on Money Rehab, I talked about the cycles of the stock market,

which are generalized into two stages, bear markets and bull markets. The most simplified definition of these stages is that bull markets are extended periods of time when the stock market is up and bear markets are extended periods of time when the stock market is up and bear markets are extended periods of time when the stock market is down. And yes, right now we are in a bear market. Since then, I've had some money rehabbers write in with questions about the bigger cycles within the economy itself. Here's Peter with his question. Hey, Nicole, my name is Peter and I'm calling from Salt Lake City. I just wanted to know, what are the chances that we'll go into a recession?

And if the likelihood is high, how should I prepare? So, Peter, opinions are pretty split on this question. Earlier this month, Morgan Stanley CEO James Gorman said, quote, it's possible we go into recession, obviously, probably 50-50 odds right now, but we're unlikely at this stage to go into a deep or long recession. Last month, Goldman Sachs chairman Lloyd Blankfein said that we're at, and I quote here, certainly a very, very high risk factor for recession. However, he added that recession is not baked in the cake. Whatever that means.

I certainly wouldn't call this economy a piece of cake, but that's just me. This week, Bank of America analysts put the risk of a recession at 40%. So projections are really all over the place, but increasingly creeping up. My opinion? I think we're in a recession, even though technically we aren't. I'll explain. Recession is a macroeconomic term that has traditionally been defined as two consecutive quarters of economic declines using markers of GDP or gross domestic product. In recent years, however, that definition has expanded a little bit to include more markers of economic health.

Now, NIBR, the fun folks who actually determine if there is a recession, says a recession is, quote, a significant decline in economic activity spread across the economy lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales. We've already had one quarter of negative GDP, so we can't technically call it a recession until we have the data to assess these economic markers at the end of next quarter. I've always had a hard time with this definition because it relies on what economists call lagging indicators. And lagging indicators are basically indicators that

you can't recognize until they've already happened. In other words, the way all of this data works and all of the revisions to said data, we don't know if we're in a recession until we've actually been in economic decline for half a year. And who does that help? Should we open an umbrella and wait for it to rain? Or worse, should we leave our umbrella at home and wait for it to rain? Nah, I'd rather be prepared. And I am preparing for a recession. As scary as it sounds, recessions are a natural part of the economic cycle. Yes, there are a lot of crappy parts of them. Recent media fear-mongering has laid out the vicious cycle of recessions at length. When consumers start to spend less or hoard out of fear, then businesses start to face more financial stress consumers start to spend less or hoard out of fear, then businesses

start to face more financial stress and start to hire less. Then waves of unemployment. Then income falls. Then consumers spend even less. Lather, rinse, repeat. But we haven't not recovered from a single recession yet. And they could be big money-making opportunities as soon as you reframe that fear. So, Dani, stick to all the healthy habits we talk about all the time here on Money Rehab. Recessions are times when great fortunes can be made if you really lean into financial literacy. Lots of investments are on sale. But remember, just like a clearance or ax sale, just because it's a deal doesn't necessarily mean it's a deal for you. However, there are real gems that your future self will thank you for buying. I mean, I would have loved to have extra money and all of this knowledge back in the 2008 recession.

Dang, would this future self have loved that recessionista if she bought more instead of panicking? Just like any other difficult situation, there are always ways to mitigate challenges by being prepared. We'll be talking about how to prepare for a recession a lot on the show in the upcoming weeks. But for now, here's a tip you can take straight to the bank. Do some credit score hygiene. During recessions, lenders tend to make borrowing more restrictive. As the economy continues to slow down, potential borrowers will need higher credit scores or larger down payments to qualify for loans. Listen to Money Rehab episodes 71, Insider Hacks for a Credit Score Glow Up, and 23, Don't Get Screwed by Bad Credit, five ways to boost your credit score

for the best tips on how to recession-proof your credit. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic,

and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.