How To Protect Yourself From A Possible Recession

You may soon start hearing pundits talk about the dreaded term “recession.” It’s one of those words used by finance people that comes across as ominous and foreboding. When people discuss recessionary times, it conjures up fears of long lines at the gas station, a fading economy, high inflation, job losses and general malaise.

A recession is a decline in GDP for two or more consecutive quarters. Although it’s not a perfect science, there is an old joke about economists who often get things wrong— “He’s predicted nine of the past five recessions”—implying the prognosticator is merely guessing and missing the mark on too many occasions to be taken seriously.

The Signs Of An Upcoming Recession

The United States is starting to see some of the warning signs of a recession. When the stock market plummets by 20%, it’s called a “bear market” and the massive losses contribute to a recession, as people lose faith in the economy and curtail expenditures. When people invest in the market and realize substantial profits, there is a wealth effect created. The windfall from investing emboldens people to spend more money, as they are confident that the good times will last forever.

When dramatic declines in stocks, bonds and cryptocurrencies happen, it has the opposite effect. Fear and panic take hold. Risk-taking is over and people go into survival mode, ruthlessly curtailing expenses.

Another factor for a recession is that inflation is raging to 40-year highs, further causing Americans to lose confidence. To pour more cold water on the economy and stock market, the Federal Reserve plans on continuing to raise interest rates. There is a fear that all of the strides the U.S. has made since the economy reopened will evaporate.

Many, if not all, of the stock gains from the meme subreddit Wallstreetbets crowd over the last year have already been lost. The same holds true for other investors too. If you have a company-sponsored 401(k) plan or IRA account, don’t look at the statements, as it will ruin your day.

Deutsche Bank economists wrote in a report to clients last month, “We will get a major recession,” becoming the first major bank to bearishly predict a U.S. recession. Bank of America has publicly stated that the mood in financial markets has been “recessionary.” Goldman Sachs said the tight labor market has “has caused a meaningful increase in the risk of recession.”

What Happens In A Recession

Recessions are usually characterized by job losses. You may think to yourself that is not indicative of the current labor market. Within the past year, the job market has seen a robust recovery. Last Friday, the U.S. Department of Labor reported that 428,000 jobs were added in April, with the unemployment rate remaining steady at 3.6%.

Job openings hit a record 11.5 million in March. That same month, a historic 4.5 million people quit their jobs, showing that Americans feel confident enough to quit their positions, as they believe there are plenty of other opportunities available.

Nevertheless, depending upon how things progress, there could be further downsizings in other industries, as the U.S. has seen in the tech sector. As there has been so much hiring due to the buoyant economy, it could turn out the executives were too optimistic and now need to trim the staff.

Concerns over a slowing economy could take the steam out of the venture capital engines that have been producing numerous unicorn startups. The unprofitable outfits may not gain further funding and resort to layoffs.

What happens is that the U.S. could enter a situation in which things spiral downward. Rapidly rising unemployment is also another driver of a recession. As more people lose their jobs and business conditions deteriorate, those who find themselves in between roles will find it harder and take longer to procure a new role.

Fear Takes Over

It’s almost a self-fulfilling prophecy. Fear of a recession prompts businesses to cut costs to conserve financial assets. They want to have the cash to get through the rough patches. The aggressive cost-cutting measures usually include pay cuts and job losses. Unfortunately, this is a common occurrence. The economy goes through these boom-and-bust cycles fairly regularly. For many people, there are not many other choices than to hunker down and ride it out until better times arrive.

There is a behavioral component too. As there is an eroding level of confidence in the economic and financial system, demand for goods and services declines. There comes a point in which the business cycle reverses course, due to the toxic confluence of rising inflation, loss of faith, joblessness, plunging stock market and housing prices, followed by a fear of further losses, making the economy contract.

How To Get Through A Recession

Now is the time to hyperfocus on your job and career. Make sure your position is secure. Lock in any verbal agreements for a raise, promotion and bonus. It will be awkward and uncomfortable, but ask your boss about how stable the company is and where you fit in. Ask them if they view you as irreplaceable and a future rising star.

If the answers are not to your liking, don’t sulk. Take action. Immediately go into job-hunt mode. Get in touch with top recruiters in your space. Speak with career coaches and résumé writers. Start networking on LinkedIn. Now is not the time to be shy. Push yourself to ask everyone in your network for job leads and introductions.

If you lose your job, make sure you put money aside to get through the time between now and when you secure another position. Keep expenditures down and pay down your credit card and other balances that charge ludicrously high interest rates. Switch investments from risky assets to something more secure or dividend-paying.

Consider going back to school to learn a new profession that is marketable and pays well. This is what happened after the dot-com bubble burst, the financial crisis and the beginning of the pandemic. People took shelter, not only at home, but in colleges, MBA programs and law school.

They used the economic downturn to learn and earn more, once they’ve finished their education. You could also take on gig work, start a side hustle or pivot toward starting a business. Use the time wisely to reevaluate what you really want to do with your work-life.

I am a CEO, founder, and executive recruiter at one of the oldest and largest global search firms in my area of expertise

Source: Don’t Panic: How To Protect Yourself From A Possible Recession

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Gas Prices: How Your Driving Behavior Impacts Costs at The Pump

On Thursday, the national average retail price for regular gasoline surged to another record high, hitting $4.41 per gallon.

While you may not be able to control the prices at the pump, you can control how you drive. Certain driving behaviors can actually help consumers save significantly when it comes to filling up at the pump, Patrick De Haan, head of petroleum analysis for GasBuddy, told FOX Business.

It’s the “easiest” thing to do when trying to combat those rising fuel costs, he said. Keep your tachometer as low as possible. De Haan says drivers should keep feet light on the gas when accelerating. The heavier you are on the accelerator, the more fuel your engine is using, he said.

The tachometer should be used as a gauge for drivers to see how much fuel they’re actually using, according to De Haan.  The tachometer measures the working speed of an engine in RPMs, or rotations per minute. It is located next to the speedometer on a vehicle’s instrument panel.

“The higher the needle goes, the more gas your engine is guzzling,” De Haan said.  The objective is to keep your tachometer as low as possible and not to “bash on the pedal,” De Haan added.

Cars crowding the turn lane into Murphy Express at Beal Parkway and Racetrack Road as gas lines started popping up at numerous gas stations around the Fort Walton Beach area in Florida. (USA Today Network via Reuters Connect / Reuters Photos)

It’s also important to keep the speed of the car under control because speeding increases fuel consumption. According to the U.S. Department of Energy, gas mileage will decrease “rapidly at speeds above 50 MPH.”

The best way to control speed is using cruise control. Although cruise control may not be useful in some congested parts of the country, like New York or Chicago. However, the feature can be “more effective and efficient than a human trying to maintain the same pressure on the gas pedal,” according to De Haan.

Maintenance: Make sure your check engine light is not on If you have a check engine light on, especially if it’s flashing, it should be checked as soon as possible. A lot of sensors on cars are critically important, but the check engine light is the “most critical,” according to De Haan. When the light is flashing, “it’s basically telling you that it’s in distress,” De Haan said.

The car essentially goes into “limp mode,” which means “the car has lost some critical sensor or something is critically wrong and … is basically using up to twice as much fuel to protect itself from catastrophic damage,” De Haan added. Another thing motorists should be checking is tire pressure.

A man checks gas prices at a gas station in Buffalo Grove, Ill., March 26, 2022. (AP Photo/Nam Y. Huh / AP Newsroom). When a tire loses air pressure, there is more friction between the tire and the road. That increase in friction will lower a car’s fuel efficiency, according to De Haan.

Removing access weight

Leaving heavy objects in the back seat or truck of a car can also hurt fuel efficiency. In fact, every hundred pounds will reduce fuel efficiency by one to two miles per gallon, according to De Haan.

Racks that sit on the roof of cars, typically in the summer or winter months, are also working against drivers. Those racks will “absolutely destroy the aerodynamics of your vehicle” and drive down fuel efficiency by 25 to 35%, De Haan said.

“They’re just like a mattress on your roof,” he said. “Your car is working harder to offset that object on the top of your car.”

Keep an eye on your AC this summer

When the air conditioning is running in your car, “you’re generally putting more of a load on your engine. You’ll burn a lot less fuel if you crack a window instead, according to GasBuddy. 

MYTH: It takes more gas to restart your car

That may have been true 30 years ago, “but that’s why vehicles have adopted that start stop technology,” according to De Haan. In fact, if you’re going to be sitting in traffic more than 10 seconds, it makes more sense to shut the vehicle off.

Source: Gas prices: How your driving behavior impacts costs at the pump | Fox Business

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Technicals Point To More Stock Market Carnage Ahead

The S&P 500 index cratered 3.6% Thursday, erasing Wednesday afternoon’s gains following this week’s Federal Reserve meeting and needing a last-minute bump to close ahead of last Friday’s lowest point since May 2021.

When Federal Reserve chair Jerome Powell took the possibility of raising interest rates by 75 basis points at once off the table, investors celebrated by pushing the S&P 500 3% higher on Wednesday. But the reality of the ongoing rate-tightening cycle to address 40-year highs in inflation sunk in a day later to take off the sugar high.

Rising interest rates have contributed to a disastrous start to the year for stocks. The S&P 500 is down 13.5% from its January 3 peak, and the tech-heavy Nasdaq Composite is down 22% after a 5% crash Thursday, fully in Bear Market territory.

For investors eagerly looking for an entry point, most strategists caution that there are still some storm clouds ahead. Powell said inflation is “much too high” at Wednesday’s meeting while announcing an interest rate hike of 50 basis points and said similar increases would be considered at its next couple of meetings.

“The one thing you learn in a bear market is that forecasting the bottom is like catching a falling pitchfork. It’s a spectacular feat if you pull it off, but it’s painful and dangerous to try,” says Jim Stack, founder and president of InvesTech Research, of Whitefish, Montana. “One of the dangers in anticipating a bottom lies an understanding that the showdown between Fed policy and inflation is just beginning.”

Sam Stovall, chief investment strategist at CFRA, called Thursday a “capitulation day” and said two technical indicators–the head and shoulders pattern and Fibonacci retracement–each suggest the S&P 500 could fall to 3,800 before it hits a bottom. That would be another 8.4% down from its current level at 4,147 and 20.8% down from its peak, broaching bear market levels.

Other experts agree that investors shouldn’t necessarily expect an imminent and sustained rebound.“We’re not expecting a runaway market to the upside where we’d have a strong bottoming process and then we rebound from there,” says Yung-Yu Ma, chief investment strategist at BMO Capital Markets.

“Even when some of these things turn the corner and the market stabilizes, it’s still a market that takes a step forward and a step back and just tries to grind its way throughout the rest of the year.”

One contrarian indicator leaning bullish is the American Association of Individual Investor’s weekly Investor Sentiment Survey, which surveys its members about the direction of stocks over the next six months. The most recent survey released May 5 reported 52.9% bearish respondents versus 26.9% bullish.

The historical average for bearish sentiment is 30.5%, and according to the AAII, “Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.”

Stocks are likely to remain volatile as the Fed continues to combat inflation, and the S&P 500 has already lost at least 1% on 26 trading days so far this year, more than the number of such days in all of 2021. The five biggest daily declines since 2020 have all taken place in the last two months.

Amazon, Netflix and Tesla were some of the day’s notable underperformers, each losing more than 7% while Tesla founder Elon Musk’s net worth plunged more than $18 billion. Netflix is among four S&P 500 companies that has lost more than half of their value this year, along with Paypal, Etsy and Invisalign maker Align Technologies.

“We are grossly oversold, and will continue to bounce along the bottom,” Louis Navellier, chairman and founder of wealth management firm Navellier, said. “While bad stocks bounce like rocks, good stocks bounce like fresh tennis balls.”

I’m a reporter on Forbes’ money team covering the wealthiest people and most influential firms on Wall Street. I’ve reported on the world’s billionaires for Forbes’ wealth team

Source: Technicals Point To More Stock Market Carnage Ahead

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Berkshire and Buffett Have 5 Words For Sellers Who Want Their Money: ‘Take it or leave it’

As fans flock this weekend to Omaha, Neb. for Berkshire Hathaway’s annual shareholders meeting hosted by Chairman and CEO Warren Buffett, you may be wondering what all the fuss is about.

The answer: unique mystique.  Buffett and Berkshire BRK.A, -2.94% BRK.B, -2.55% are distinct in the corporate world for a combination of unusual practices and styles that no rival matches.

Nor should any rival expect to match the Berkshire/Buffett model, which is a product of inimitable personality and circumstance. But being a “cafeteria Buffett” is possible: picking the best practices that suit.  Many companies have emulated parts of the Berkshire model well and there are plenty of executives as talented as Buffett when it comes to investment savvy or managerial insight.

Two of my favorite Berkshire/Buffett oddities concern how they find acquisitions and how they approach price.

To generate acquisition opportunities, they rely on their professional network. They put the word out that they are always open to acquisition opportunities within specific parameters and then look for business relationships to tee them up.

On price, they almost never haggle over but rather put their first-and-best offer up front. They know what things are worth and know what they are willing to pay.  They are also perfectly happy to walk away from any opportunity and part friends.

A favorite story concerned a company called Tech Data, which reached out to Berkshire during its go-shop period for another merger. Berkshire made a proposal, Tech Data countered for more, Berkshire said no and walked, and the company was ultimately acquired by its initial pursuer.

For my book, Berkshire Beyond Buffett: The Enduring Value of Values, I collated the sources and pricing of Berkshire Hathaway acquisitions and present updated versions through the most recent acquisition, of Alleghany, in the charts below. Think about this the next time you read about another Berkshire buy.

Seller overture (in a pure sense; if it was the owner’s idea but prompted by other links, the deal is listed under those links):

Fechheimer Bros.; Helzberg’s Diamond Shops (walking down the street in New York City); Ben Bridge (Ed Bridge called, after talking with Barnett Helzberg); MiTek (subsidiary chief executive officer sent package in mail with parent company’s permission);

Larson-Juhl (call from owner); Forest River; Business Wire (actually from CEO; suggesting owner would approve); ISCAR; Richline owner heard Buffett speak at a Ben Bridge lunch); Star Furniture (through intermediary: endorsed by Blumkins and Child; contacted Denham), Willey (through intermediary: Child asked Irv Blumkin).

Business relationship

Gen Re (Ronald Ferguson); U.S. Liability (Ferguson); Applied Underwriters (Ajit Jain did deal with owners); Dairy Queen (banker introduced a year before Rudy Luther died; then done quickly); Benjamin Moore (Robert Mundheim); NetJets (customer; Richard Santulli called); Shaw Industries (after discussing aborted insurance deal); McLane (Byron Trott, Goldman Sachs); The Marmon Group (seeds date to 1954 when Buffett met Jay Pritzker), Alleghany (Joe Brandon)

Friend/relative

NICO (Jack Ringwalt); Central States (Bill Kizer); Kansas Bankers Surety (at niece’s birthday party); H. H. Brown Shoe (John Loomis golfing with Frank Rooney); XTRA (Julian Robertson); TTI (John Roach, friendship seemed to arise with Justin), MidAmerican (Walter Scott, Jr.)

Berkshire overture

Scott Fetzer (wrote CEO amid waning takeover contest); Jordan’s Furniture (implicitly, asking Blumkins, Bill Child, and Melvyn Wolff); Johns Manville (announced deal broke off; Berkshire stepped up); Fruit of the Loom (made offer in bankruptcy), Precision Castparts (was an investor and reached out in the course of Precision’s regular investor outreach activities)

Stranger

CORT (acquaintance sent fax); FlightSafety International (shareholder of both wrote Robert Denham), Justin (someone faxed about co-investing proposal).
Pricing of Berkshire Hathaway acquisitions
Alleghany Berkshire offered price. Seller asked for an increase. Berkshire said no.
Benjamin Moore  Berkshire offered price. No counter.
BNSF Berkshire offered price. Seller asked for more. Berkshire said no.
Clayton Homes Berkshire offered price. Board had CEO ask for more. Berkshire said no.
CTB Berkshire offered price, and actually went down a quarter-point for adviser fees. Berkshire said that’s it.
Dairy Queen  Berkshire offered price. No further discussion.
Fruit of the Loom Berkshire offered single bid in bankruptcy at end of auction process and won.
Garan Seller sought price above $60 a share. Berkshire offered $60 and that was that.
Gen Re Buffett proposed the exchange ratio and Gen Re went along.
Johns Manville Berkshire offered price. Board tried to get more. Berkshire said no.
Justin Berkshire offered price. Another bidder dropped out. No further discussion.
Lubrizol Berkshire offered price. Seller tried to get more. Berkshire said no.
Precision Castparts Berkshire offered price. Seller asked for an increase. Berkshire said no.
Shaw Industries Berkshire offered price. Board/banker asked for more. Berkshire said that’s our best price.
XTRA Berkshire offered $59 a share. Seller asked “Is that your best offer?” Berkshire said it was.

Source: Opinion: Berkshire and Buffett have 5 words for sellers who want their money: ‘Take it or leave it’ – MarketWatch.

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Berkshire Hathaway Chairman and CEO Warren Buffett is known as the Oracle of Omaha, and each year, investors gather to hear his wisdom at the company’s annual shareholder meeting.

Buffett took control of Berkshire, which was then a failing textile company, in the mid-1960s. Under his leadership, Berkshire has grown into one of the world’s largest conglomerates. As a result, he and other longtime shareholders have become extremely wealthy.

Berkshire Hathaway has in some ways set the standard for lavish annual meetings. The daylong, carnival-like atmosphere features comedy skits, disco balls, music, celebrities like Bill Gates, and even dancing characters from the various companies in the BH portfolio, including the GEICO gecko. Live online coverage of the proceedings provides real-time updates for those unable to attend.

All it takes is a single share to be considered a stockholder and join the party. You can own either the company’s Class A shares (BRK-A), which traded at $519,799.90 per share as of April 13, 2022, or the more affordable Class B shares (BRK-B), which ended the week on the same date at $346.22.

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Global Stocks and Oil Prices Hit By Fears of a Beijing Lockdown

Global stocks and oil prices fell on Monday as rising Covid-19 cases in Beijing sparked fears that the Chinese capital could join Shanghai and other major cities in lockdown.

China’s benchmark Shanghai Composite Index (SHCOMP) sank 5.1% to close at a 22-month low. It was the worst day for the index since February 3, 2020, when the initial coronavirus outbreak first rocked the nation’s stock market. Elsewhere in the region, Hong Kong’s Hang Seng Index (HSI) fell 3.7%. Japan’s Nikkei (N225) dropped 1.9%, and Korea’s Kospi (KOSPI) lost 1.7%.

European stocks also opened sharply lower on Monday. The FTSE 100 (UKX) fell 2.1% in London, while Germany’s DAX (DAX) slid 1.5%. France’s CAC 40 (CAC40) dropped 2.2%, despite market relief at  Emmanuel Macron’s election victory over far-right candidate Marine Le Pen.

The fall in Asian and European markets came after a grim session on Friday for US stocks. The Dow fell about 980 points, or 2.8%, following comments about likely aggressive interest rate hikes from Federal Reserve chairman Jerome Powell. The S&P 500 and Nasdaq each dropped more than 2.5%, too.

Fears about China’s worsening Covid-19 situation are adding to the downside momentum. On Monday, Dow futures were down 305 points, or 0.9%, while futures on the S&P 500 and Nasdaq were both down 1%.

Beijing, the capital of China with 21 million residents, began mass testing over the weekend and shut down residential compounds, raising concerns that more stringent restrictions could soon be implemented in line with other Chinese cities.

“Although some parts of China have been under restrictions longer than Shanghai, Omicron’s arrival in Beijing would be an ominous development,” wrote Jeffrey Halley, senior market strategist for Oanda, on Monday.

“China is the world’s second-largest economy and has shown no signs it intends to live with the virus,” he said. “With that in mind, the likely pressure valve is going to be disruption to China’s export machine, and a cratering of consumer confidence.” Oil prices tumbled on Monday as worries about faster US rate increases and China’s slowdown weighed on sentiment.

Futures for US oil and Brent crude, the international benchmark, both fell more than 4%. “It seems that China is the elephant in the room and markets feel that slowing China growth could materially change the supply/demand equation on international markets,” Halley said. The pressure to contain the outbreak in Beijing comes as cases continue to grow in Shanghai.

The lockdown in Shanghai has already forced many factories to suspend production and made shipping delays worse, threatening to deal a hefty shock to its vast economy and place more strain on global supply chains. Shanghai reported more than 19,000 new cases and 51 deaths on Sunday.

Source: Global stocks and oil prices hit by fears of a Beijing lockdown – CNN

.

Critics:

Oil prices opened slightly higher on Tuesday, after falling sharply the prior session on worries that continued Covid-19 lockdowns in China would eat into demand and as the U.S. dollar rose to a two-year high.

Brent crude futures settled 2.6% higher at $104.99 per barrel and U.S. West Texas Intermediate contracts settled the day 3.2%, or $3.16, higher at $101.70 per barrel.

Both contracts had settled down around 4% on Monday, with Brent down as much as $7 a barrel in the session and WTI dipping roughly $6 a barrel.

In China lockdowns to counter Covid in Shanghai have dragged into their fourth week. Meanwhile orders for mass testing, including in Beijing’s largest shopping district, have prompted fears of other Shanghai-style lockdowns.

“The hit from Chinese lockdowns is over a million barrels a day and the testing of 12 districts over the next five days will determine the next major move for crude prices,” wrote Edward Moya, a senior market analyst for OANDA in a note.

The U.S. dollar also hit a two-year high on Monday, making oil more expensive for other currency holders. “Supply fears are not the primary focus for energy traders, and now you have a surging dollar that is adding extra pressure across all commodities,” OANDA’s Moya said.

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