Now for the recession

[SimonPB]

On the back of junk status, we now also have a recession and unexpected or not the economy and consumer have been under severe pressure for a while.

What can the government do?

• Cut interest rates. We have space for this, maybe as much as 1% over the next several MPC meetings. But we can’t get overly aggressive here as rates are already close to historical lows.
• Cut taxes to try stimulate the economy. Not likely, if anything tax increases were the plan and we don’t have the money to cut them just as we need to raise them.
• Increase government sending. Again, we don’t have the money and more debt could see rating agencies pushing us even lower into junk.
• Work with business to get business spending and stimulating the economy. There is lots of talk about this, but not much action?

So very little the government can do and as such I expect this to be a long painful recession rather than short and sharp.

On the personal side, we’ve had since December 2015 to prepare as below;

• Quality stocks only with a strong bias to offshore earnings.
• Be very careful of SA Inc. stocks as they are going to seriously struggle.
• Be very careful of small / mid cap stocks as liquidity is drying up and they will struggle in the weak economy.
• Reduce personal debt and spending.
• Keep investing, keep buying ETFs and funding your tax-free account.

What’s your thoughts and ideas?

Simon