In the past few months, investors have gone from being generally bullish about the economy and stock market to increasingly concerned that we may be headed for another recession. For now, however, the consensus is still that we'll trudge along with slow growth but avoid an actual downturn.
One advisor who thinks that a recession is almost a certainty, however, is Lance Roberts, the Chief Economist at Streettalk Advisors, a $400 million advisory firm.
Roberts says he began warning clients about a recession more than 6 months ago, urging them to be more defensive. And now, after the string of lousy economic data in recent months, Roberts thinks another recession is almost a foregone conclusion.
So what should investors do, given that outlook?
Roberts observes that, in "normal" post-War recessions, the stock market tends to fall by about a third. He also argues, however, that this is NOT a normal post-War recession--it's a debt-fueled balance-sheet recession, which we haven't experienced since the Great Depression. To reduce their debts, Roberts says, consumers will have to continue to spend less money, and this will weigh on the economy. So if we do have another recession, Roberts argues, the stock-market fall could be more severe than usual.
In this environment, Roberts is maintaining a large allocation to cash and fixed income (bonds) and "hard" assets like gold. He has reduced his recommended stock allocation to 40%.
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See Also: Here's Why This Recession Is Different
- the Great Depression
- stock market