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COVID-19 recession: One of America’s deepest downturns was also its shortest after bailout-driven bounceback

An economist explains what a recession is, who decides and why it took so long to learn that the COVID-19 downturn was officially over.

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The U.S. economy bounced back in record time. AP Photo/Gerald Herbert

Thanks to a roaring economy, plunging joblessness and a consumer spending spree, it probably won’t come as a surprise that the COVID-19 recession is officially over.

We didn’t know this, formally, however, until July 19, 2021, when a group of America’s top economists determined that the pandemic recession ended two months after it began, making it the shortest downturn on record.

As an economist who has written a macroeconomics textbook, I was eagerly waiting to know the official dates. This is in part because I recently asked my Boston University MBA students to make guesses, and we all wanted to know who was closest to the mark. While many of my students ended up nailing it, I was off by a month.

But why did it take over a year to learn the recession ended?

What’s a recession?

When an economy is in recession, it simply means economic growth is falling.

You may have read in a news story that a recession means two quarters of consecutive declines in gross domestic product, which is the market value of all goods and services produced within a country’s borders.

This is basically shorthand used by journalists because the formal way of determining when a recession ends can take a long time – in this case over a year.

America’s economic scorekeeper

In the U.S., the dates of when recessions begin and end are determined by a nonpartisan organization called the National Bureau of Economic Research. Or more specifically, a group of eight prominent economics professors makes the call.

The group, however, does not use two quarters of falling GDP as their guide.

Instead, the National Bureau of Economic Research uses changes in GDP plus many other factors like employment, personal income, industrial production and even retail sales. The group relies on its members’ expert judgment rather than fixed rules.

The National Bureau of Economic Research didn’t officially declare a recession had begun until June 2020, three months after its actual start in February. Technically, it declared the peak of an expansion lasting 128 months, the longest ever.

And now we know that the recession ended in April. One reason the economists wait so long to declare the start or end of a recession is because they don’t want there to be any doubt.

Though it was the shortest recession on record, it was also the deepest since the U.S. began recording quarterly data in 1947. The trillions in dollars of spending by the federal government and Federal Reserve in March and April 2020 likely contributed significantly to the swift return to expansion.

Most recessions last a while

A two-month recession is incredibly brief.

The previous shortest recession, which began in January 1980, was six months long.

Economists have tracked the length of U.S. recessions since 1854, shortly before the U.S. Civil War began. Since then, the average recession has lasted 17 months, even when including the most recent one in 2020.

Recessions have gotten steadily shorter. Since the end of World War II, they’ve lasted an average of just 10 months, in part because governments have become more active and have had more tools to fight their effects. This activism started in 1946 with the “Employment Act” whose goal was to “promote maximum employment, production, and purchasing power.”

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Avoining a double-dip

Could there be a “double-dip” recession?

This happens when an economy returns to recession before fully recovering from the previous one. The U.S. experienced this in July 1981, a little more than a year after the six-month recession in 1980 ended.

While some observers were concerned about a double-dip recession late last year, the U.S. government has showered the economy with about US$3 trillion more in additional aid since then, which has led economists to worry more about spurring too much growth than too little. Too much growth can be a bad thing, because it can lead to high inflation, which may force the Fed to raise interest rates. That can result in a recession.

There’s nothing you or I can do to stop another recession if it’s in the cards, but there are actions we can take to prepare during times of growth. Try to set aside extra money in your savings. Pay down credit card debt and other loans.

Doing these things during times of relative plenty will prepare you for when times aren’t so abundant.

Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Economics

Top 5 Rubber Stocks to Buy in 2021

Here are some of the best rubber stocks to buy right now. Increased demand and supply chain disruptions are putting pressure rubber prices.
The post Top 5 Rubber Stocks to Buy in 2021 appeared first on Investment U.

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When it comes to investing, all the attention tends to go to healthcare, tech and increasingly renewable energy. But these aren’t the only stocks on the block, and some old mainstays can also add value to your portfolio. One of those old, reliable industries is rubber: it always has some level of demand, and that won’t likely change anytime soon. But recent economic conditions make rubber even more intriguing than usual. One of the biggest uses of rubber is car tires, and sharp economic recovery is likely to mean a sharp demand for new cars. Hence, we may also see a sharp increase in demand for rubber as many people head to the dealer to buy a new car. There’s more to it than just the auto industry, of course. CNBC reported that disruptions in the supply chain are also causing major disruptions. And we use rubber for many different essential items, including personal protective equipment and countless other items. With increased demand and supply chain disruptions, rubber stocks are poised for a rise. Here are some of the best rubber stocks to buy:
  • Goodyear Tire & Rubber (Nasdaq: GT)
  • Trinseo (NYSE: TSE)
  • Michelin (OTC: MGDDY)
  • Carlisle Companies (NYSE: CSL)
  • Protolabs (NYSE: PRLB)
If you’ve never invested in rubber stocks before, you might be wondering if they are a good investment. Let’s consider that question before looking at each stock more closely. And if you want to see how your investment portfolio might grow, check out our free investment calculator.

Is Rubber a Good Investment?

Rubber can certainly be a good investment because it is nearly ubiquitous; it is used in many different products, including tires, footwear, pharmaceuticals, textiles and many other products. As Zacks notes, rubber is among the most profitable industries when it comes to natural resources. But rubber isn’t exactly the most innovative product. Perhaps it was decades ago, but these days, it’s something most of us are just used to seeing. We don’t really demand rubber so much as the products that contain it. Hence, it’s only when demand for those products increases that the demand for rubber spikes. And as mentioned earlier, we are at a point right now where many people are looking to buy new cars, and rubber’s use in tires could cause a surge in demand. However, these things can be very cyclical. The Zacks page linked above highlights this very well. There, you can see the rubber tires industry has a YTD performance of 42.90% compared to 16.09% for IVV, an S&P 500 fund. But as good as that sounds, the 5-year performance for rubber tires is -33.71% compared to 112.67 for IVV. Given the downside risk, rubber is probably best used as part of a balanced portfolio containing more well-round assets, such as funds like IVV.

Rubber Stocks to Buy Now

If you want to “bounce” your returns upward with rubber stocks, here are some of the best rubber stocks to buy right now. Keep an eye on them as the situation with the auto industry progresses.

Goodyear Tire & Rubber

Goodyear Tire & Rubber is a tire manufacturer that makes tires for a variety of uses. Tires for automobiles are one of the biggest uses of Goodyear tires. However, they are also used on buses, trucks, aircraft, motorcycles, mining equipment, industrial equipment and farm equipment. In addition to the Goodyear name, it also has Dunlop and Kelly tires under its belt. Goodyear has been around since 1898 and was the first global tire manufacturer to enter the Chinese market. It produces a range of tires, rubber products and chemicals across the U.S. and Canada.

Trinseo

Trinseo is a global materials company that manufactures latex, plastics and synthetic rubber. Notably, it produces plastic for Lego. When it comes to rubber, Trinseo produces styrene-butadiene rubber (SSBR). This material is primarily used in high-performance tires. In addition to Legos, its plastic is used in automotive applications, LED lighting and medical devices. Trinseo is growing rapidly, with 17 manufacturing and 11 research facilities worldwide. In addition, it is already seeing healthy revenue increases as it continues to grow. Its website notes Trinseo is “dedicated to making a positive impact on society,” and it will support the “sustainability goals of our customers in a wide range of end-markets.”

Michelin

Michelin is another name that is big in the tire manufacturing business, and the demand for new cars places it squarely on this list. In addition to the Michelin tire brand, the company also owns BFGoodrich and Uniroyal. BFGoodrich is a premium tire brand for sports cars, offroad vehicles and light trucks. Michelin is the largest tire manufacturer in the US and the second-largest in the world. It has 34 plans in two countries and had over $8 billion of sales in 2020. Its revenue has been increasing, as has its stock price. As the situation with the auto industry evolves, it will be interesting to see how Michelin fares.

Carlisle Companies

Founded in 1917 and based in Scottsdale, Arizona, Carlisle Companies is about more than just rubber. It is more of an umbrella under which there are a number of different operations. Its products and services include healthcare, commercial roofing, aerospace and electronics, lawn and garden, agriculture, energy, mining and construction equipment, and dining. Of course, there are many uses for rubber and plastic across these industries. In 2018, Carlisle Companies released a plan called Vision 2025 in which it detailed how it will continue to grow over the next 100 years.

Protolabs

Protolabs is an intriguing company. It produces low-volume 3D printed, CNC-machining, sheet metal fabrication and injection-molded custom parts. These parts are then used for short-run production and in prototypes. The company describes itself as the “world’s fastest digital manufacturing service.” It also provides rubber, metal and commercial plastics. Given its business model, it was able to produce several items during the coronavirus pandemic, including face shields, plastic clips and items used in test kits. They were in turn used in Minnesota hospitals, where the company is based.

More Investing Opportunities

The rubber stocks above might produce some big returns for investors. Although, there are many industries and stocks to choose from. So, here are some more investing opportunities and research… If you’re looking for expert analysis delivered straight to your inbox, consider signing up for Profit Trends. It’s a free e-letter that’s packed with investing tips and tricks. Whether you’re new or already an experienced investor, there’s something for everyone. The post Top 5 Rubber Stocks to Buy in 2021 appeared first on Investment U.

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Economics

Shortest Recession In History Sets Up Next Recession

Shortest Recession In History Sets Up Next Recession

Authored by Lance Roberts via RealInvestmentAdvice.com,

It’s now official that the recession of 2020 was the shortest in history. 

According to the National Bureau of Economic Research, t

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Shortest Recession In History Sets Up Next Recession
Authored by Lance Roberts via RealInvestmentAdvice.com, It’s now official that the recession of 2020 was the shortest in history.  According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to April 2020. However, during those two months, the economy fell by 31.4% (GDP), and the financial markets plunged by 33%. Both of those declines, as shown in the table below, are within historical norms. Here it is graphically. The chart shows the historical length of each recession and the corresponding market decline. However, while the effects of the “recession” were all within historical norms, the recession itself was not. Let me explain.

A Non-Standard Recession

The statement from the NBER is as follows:
“In determining that a trough occurred in April 2020, the committee DID NOT conclude that the economy has returned to operating at normal capacity. The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”
As I said, the recession was non-standard. Conventionally, the NBER defines a recession as two consecutive quarters of negative GDP growth. Notably, while the recession did technically meet the criteria after GDP fell 5% in Q1, recessions tend to last more than three months historically. The difference was the massive interventions of 20% of GDP beginning in Q2, which created an “artificial growth surge” in the economy by pulling forward consumptive activity. That led to an explosive recovery in GDP in Q3 of nearly 30%. It is essential to note that the NBER stated that any subsequent downturn would get labeled as a “new” recession. That view accounts for the recovery driven by massive interventions even though that growth is not sustainable. As such, the “next recession” may not be as far off as many currently expect.

Why Recessions Are Important

Our discussion must begin with a basic concept: “recessions” are not a “bad thing.”  It is a given you should never mention the “R” word. People immediately assume you mean the end of the world: death, disaster, and destruction. But, unfortunately, the Federal Reserve and the Government also believe recessions “are bad.” As such, they have gone to great lengths to avoid them. However, what if “recessions are a good thing,” and we just let them happen?
“What about all the poor people that would lose their jobs? The companies that would go out of business? It is terrible to think such a thing could be good.”
Sometimes destruction is a “healthy” thing, and there are many examples we can look to, such as “forest fires.”
Wildfires, like recessions, are a natural part of the environment. They are nature’s way of clearing out the dead litter on forest floors, allowing essential nutrients to return to the soil. As the soil enrichens, it enables a new healthy beginning for plants and animals. Fires also play an essential role in the reproduction of some plants.
Ask yourself this question: “Why California has so many wildfire problems?”  Is it just bad luck and negligence? Or, is it decades of rushing to try and stop fires from their natural cleansing process as noted by MIT:
“Decades of rushing to stamp out flames that naturally clear out small trees and undergrowth have had disastrous unintended consequences. This approach means that when fires do occur, there’s often far more fuel to burn, and it acts as a ladder, allowing the flames to climb into the crowns and takedown otherwise resistant mature trees.
While recessions, like forest fires, have terrible short-term impacts, they also allow the system to reset for healthier growth in the future.

No Tolerance For Recessions

Following the century’s turn, the Fed’s “constant growth mentality” not only exacerbated rising inequality but fostered financial instability. Rather than allowing the economy to perform its Darwinian function of “weeding out the weak,” the Fed chose to “mismanage the forest.” The consequence is that “forest fires” are now more frequent. Deutsche Bank strategists Jim Reid and Craig Nicol previously wrote a report that echos this analysis.
“Actions are taken by governments and central banks to extend business cycles and prevent recessions lead to more severe recessions in the end.” 
Prolonged expansions had become the norm since the early 1970s, when President Nixon broke the tight link between the dollar and gold. The last four expansions are among the six longest in U.S. history. Why so? Freed from the constraints of a gold-backed currency, governments and central banks have grown far more aggressive in combating downturns. They’ve boosted spending, slashed interest rates or taken other unorthodox steps to stimulate the economy.” – MarketWatch
But therein also lies the problem.

The Darwinian Process Of Recessions

As we discussed in our series on “Capitalism,” if allowed to operate, is a “Darwinian System.” As with Darwin’s theory of evolution, corporate evolution has the same essential components as biological evolution: competition, adaptation, variation, overproduction, and speciation. In other words, as an economic system, companies either adapt, evolve, and survive or become extinct.  However, in 2008, the Government and Federal Reserve began a process of “bailing” out companies that should have been allowed to go “bankrupt.”  The consequence of that process is the failure to enable the system to “clear itself” of the excess debt, which diverts capital away from productive uses. I have illustrated the continual increases in debt used to create minimal economic growth. Specifically, since 2008, the Federal Reserve and the Government have pumped more than $43 Trillion into the economy. But, in exchange, that debt generated just $3.5 trillion in economic growth, or rather, $12 of monetary stimulus for each $1 of growth. Such sounds okay until you realize it came solely from debt issuance. As Ruchir Sharma previously penned:
“Modern society looks increasingly to government for protection from major crises. Whether recessions, public-health disasters or, as today, a painful combination of both. Such rescues have their place. Few would deny that the Covid-19 pandemic called for dramatic intervention. But there is a downside to this reflex to intervene, which has become more automatic over the past four decades. Our growing intolerance for economic risk and loss is undermining the natural resilience of capitalism and now threatens its very survival.”
Such is an important concept to comprehend. Just as poor forest management leads to more wildfires, not allowing “creative destruction” to occur in the economy leads to a financial system that is more prone to crises.

Structural Fagility

Given the structural fragility of the global economic and financial system, policymakers remain trapped in the process of trying to prevent recessions from occurring due to the extreme debt levels. Unfortunately, such one-sided thinking ultimately leads to skewed preferences and policymaking. As such, the “boom and bust” cycles will continue to occur more frequently at the cost of increasing debt, more money printing, and increasing financial market instability. It is clear the Fed’s foray into “policy flexibility” did extend the business cycle. However, those extensions led to higher structural budget deficits. The cancerous byproduct of increased private and public debt, artificially low-interest rates, negative real yields, and inflated financial asset valuations is problematic. However, these policies have all but failed to this point. From “cash for clunkers” to “Quantitative Easing,” economic prosperity worsened. Pulling forward future consumption, or inflating asset markets, exacerbated an artificial wealth effect. Such led to decreased savings rather than productive investments.

The Fed’s “Moral Hazard”

A growing body of research shows that constant government stimulus is a significant contributor to many of modern capitalism’s most glaring ills. Wealth inequality is the most obvious. However, another more important but not noticeable side effect is that it keeps alive heavily indebted “zombie” firms.  When a company is “kept alive,” it comes at the expense of startups, which typically drive innovation. All of this leads to lower productivity which is the prime contributor to the slowdown in economic growth and a shrinking pie for everyone. (See chart above.) By not allowing “recessions” to perform their natural “Darwinian” function of “weeding out the weak,” it creates a macroeconomic problem. As previously noted by Axios:
“Zombie firms are less productive, and their existence lowers investment in, and employment at, more productive firms. In short, a side effect of central banks keeping rates low for a long time is it keeps unproductive firms alive. Ultimately, that lowers the long-run growth rate of the economy.”
If “recessions” are allowed to function, the weak players will fail. Stronger market players would acquire failed company assets. Bond-holders would receive some compensation for their debt holdings. Shareholders, the ones who accepted the most risk, would get wiped out. Furthermore, assuming capitalism was allowed to function, investors would require appropriate compensation for the risk when loaning money to companies. As such, credit-related investors would get compensated for their risk rather than the current state of abnormally low yields for junk-rated debt. The consequence, of course, is that since the “Darwinistic process” of a recession did not occur, and the macroeconomic system is even more fragile than previously, the next downturn could happen sooner than later.

The Next Recession

While the interventions certainly salvaged the economy from a more prolonged recessionary event, they also made the economy more fragile. Furthermore, by dragging forward future consumption, the interventions only gave the appearance of economic activity. As excess stimulus fades and assuming interventions don’t repeat, the economy will return its pre-covid growth trend of 2% or less. Such should not be a surprise given that economic growth is roughly 70% consumption. With wage growth well below inflationary pressures, consumption will get impacted by higher prices. With Treasury yields dropping and the yield curve reversing, these are early warning signs that economic growth is indeed slowing. While the NBER declared the 2020 recession the shortest in history, such does not preclude another recession from occurring sooner than later. All the excesses that existed before the last recession have only worsened since then.
  • Excess Debt
  • High Stock Market Valuations
  • Investor Complacency
  • Financial System Fragility
  • Weak Economic Underpinnings
  • Declining Monetary Velocity
  • Low Interest Rates Detering Productive Activity
  • Financial Liquidity Required To Keep Asset Prices Elevated
Given the dynamics for an economic recession remain, it will only require an unexpected, exogenous event to push the economy back into contraction. Such is why the NBER is clear in saying they will classify the next downturn as a separate recession. If you are quick to dismiss the idea, remember no one expected a recession in 2020 either. But we did warn you about it in 2019.
Tyler Durden Sat, 07/24/2021 - 10:30

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Economics

What Can Penny Stocks Investors Expect in August 2021?

What do penny stocks investors need to know about trading small-caps in August?
The post What Can Penny Stocks Investors Expect in August 2021? appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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3 Things to Keep In Mind If Investing in Penny Stocks in August 

With August only a week or so away, there are plenty of things on penny stocks investors’ minds. And, after a week of wild trading commences, many investors are left wondering what next month will have to offer. On July 19th, much dismay was felt around the stock market as the S&P 500 dropped by over 700 points. This was a sharp response to higher case numbers as a result of the Delta variant. 

And, while Covid had not had a major effect on the market over the past few months, Monday marked the day that it showed its ugly face once again. While no one can predict where the pandemic is headed now, many believe that it will still work its way into trading both penny stocks and blue chips. And for this reason, it’s one of the most important aspects to keep in mind right now. The next thing we have to consider is the effects of Reddit and Robinhood on penny stocks

Both of these have shifted the way that stocks trade over the past year and a half, and continue to do so. As you can see, buying and selling penny stocks is all about understanding how different factors will affect the market. And with so much to consider, let’s go in-depth into a few need-to-knows for next month. 

3 Things Penny Stocks Investors Should Know For Next Month

  1. Volatility With Penny Stocks is Here to Stay 
  2. Keep an Eye on Current Events 
  3. Know Your Investing Strategy 

Volatility With Penny Stocks is Here to Stay 

When it comes to trading penny stocks, volatility is one of the mainstays that investors have to deal with. On Friday, we saw massive price swings with certain stocks. This includes those such as Meta Materials Inc. (NASDAQ: MMAT), Medigus (NASDAQ: MDGS), GameStop Corp. (NYSE: GME). But if you have the right tools at your disposal, volatility can be put to use as an asset rather than something to incite fear. 

The best way to take advantage of large price swings is to have a trading strategy. This is something that all great traders utilize and is also something unique to your investing strategy. With so much movement, it can seem like a lot to keep track of everything at once. But, with individual rules for your portfolio, trading can become automatic once you find a penny stock you’re interested in. 

And, with several geopolitical events occurring at once combined with the inherently volatile nature of penny stocks, we will likely continue to see prices move up and down during next month’s trading. But, to stay ahead, investors should consider what is driving price movement and how to take advantage. 

Keep an Eye on Current Events 

Keeping an eye on current events is one of the best methods to making a profit with penny stocks. As mentioned earlier, volatility may be up and down, but speculation is occurring almost all of the time and is the driving force of volatility. For this reason, we can use speculative events to our advantage to try and predict price movement. 

current events penny stocks

As an example, let’s say Covid cases rise as they are right now. This would drive investors to both safeguard stocks such as mining stocks, but also to reopening penny stocks. It’s important to consider the time frame that you wish to invest in as well because this can help to determine which stocks you may be interested in. So, besides Covid, we have to consider what else is going on in the market. 

Right now, another factor is Reddit and the effect of social media on penny stocks. This is nothing new per se, however, it has only become a major mover and shaker in the past year or so. The effect of social media on penny stocks began with the likes of GME stock and AMC stock but quickly extended into a wide range of both blue chips and penny stocks. And in 2021, this notion does not look like it is going anywhere. So, considering all of this, understanding what is making the market move, will be a major asset to your portfolio. 

Know Your Investing Strategy 

This has been mentioned frequently in this article, and across other articles on the site. However, having an investing strategy remains one of the most important things you can do to align your portfolio with your investing goals.

investing strategy penny stocks

Let’s say you’re looking for long-term growth in your account. You would likely not go for the most volatile penny stocks, but rather for those that could break out of penny stocks territory in the long term. And, this goes for the opposite as well. Without a trading strategy, investors are subject to FOMO (fear of missing out), and potential losses based off of trading on emotion.

Ask any pro trader and they’ll likely give you a quick list of the principles that they follow on a daily basis. And, what better time to make a trading strategy than with a new month ahead. So, considering this, are you a long-term or a short-term trader? What are your goals in that time frame? And, what area of the stock market is your portfolio focused on? These questions will help to align your August penny stocks watchlist with your overall likelihood of meeting your goals. 

Will Penny Stocks Continue to See Gains Next Month?

The short answer to this question is that it’s anyone’s guess. While there is a lot of positivity in the stock market right now, penny stocks tend to change quickly on a daily basis. For that reason, using the above tips will help to give you the best chance at making money with penny stocks.

And while a new month may not be the cause of major gains off the bat, it is a symbolic reset that could help to put the market back on a bullish trajectory. Considering this, what do you think? Will penny stocks continue to see gains next month?

The post What Can Penny Stocks Investors Expect in August 2021? appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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