Quantum Wealth Summary
- The challenges of the last two years have left the global economy bruised and battered.
- Some economists don’t believe that the world will fall into recession just yet. However, they warn that we may be at risk of entering a period of stagflation — lower growth and higher prices.
- Is there a defensive company out there that might hold its value and still prosper, regardless of which way the economy goes?
- We take a closer look at one legendary stock that could be recession-proof.
- As a bonus: we also reveal our Weekly Top 5 Quantum Trends. These are the most impactful global opportunities that we are currently watching this week.
Recession.
It’s a big word.
But for most younger people in the developed world — especially Millennials and Gen-Z — this feels like an alien concept that barely registers on their radar.
Of course, they have been blessed enough to take economic prosperity for granted. Perhaps more than any other generation before them, they have been able to enjoy a privileged lifestyle filled with safety, stability, and mobility.
Source: National Australia Bank
For example, just consider how fortunate youngsters have been in Australia. From 1991 to 2020, the Lucky Country experienced an extraordinary growth spurt. It benefited hugely by exporting commodities to a hungry and expanding China.
Right product. Right place. Right time.
Indeed, because of this, an entire generation of Australians have actually grown up without tasting the poisonous sting of recession. Chances are, they may only know it from the stories that their elders tell them — and even then, only as a vague concept.
It’s much the same in other parts of the developed world.
Sure, the occasional slowdown may bite from time to time, but never too harshly. By and large, economic hiccups usually come across as more of an inconvenience than a life-or-death emergency.
Indeed, the data on hand suggests that the average recession only lasts 11 months — while the average economic expansion lasts 67 months.
So, why has this trend prevailed? Why are recessions tamer than they used to be? Why are economic recoveries quicker and more sustained?
The Greenspan put
Source: The Atlas Society
Well, the answer is a complex one.
Certainly, since the end of the Cold War, the forces of globalisation, mechanisation, and computerisation have come together to create shallower recessions and quicker bouncebacks. It appears that labour, capital, and inventory are much more fluid than they have been in the past.
However, if I had to pick just one influencer with the most decisive impact, it would have to be this man: Alan Greenspan.
You could say he’s our MVP. Most Valuable Player.
In 1987, as the head of the US Federal Reserve, he introduced a policy with far-reaching consequences.
This became known as the ‘Greenspan put’.
Here’s how it works:
- The Fed — America’s central bank — will take a more aggressive role in intervening when cracks appear in the economy.
- A stock market decline of over 20% is considered a ‘red line’ — and the Fed may step in to lower interest rates and carry out quantitative easing (money printing).
- This will serve to ease panic. Restore confidence. Return stability to the economy.
- Lather, rinse, repeat.
So, Greenspan’s policy acts as a financial fortress against fear and turbulence. And it’s become hugely influential not only in America, but right across the world.
Indeed, every time a crisis so much as rears its ugly head, central bankers everywhere spring into coordinated action. They deploy enormous firepower to intervene.
Of course, there have been success stories over the years. Economies have been apparently been resuscitated and brought back from the brink of cardiac arrest.
However, as time has gone by, the Greenspan put has stirred up its fair share of controversy:
- Has it created asset bubbles in stocks, commodities, bonds, and property?
- Has it encouraged people to speculate and take on too much debt?
- Has it given the market blind faith that central banks will always be there to act as saviours?
The perfect storm
Source: Anadolu Agency
Well, in 2022, it seems like these questions are more relevant than ever.
These events of these past two years appear to represent a turning point for the global economy. The Covid pandemic has dovetailed into the war in Ukraine. And we’re now dealing with a flood of unruly issues.
Inflation. Disruption. Sanctions.
The emotional jitters are heightened.
In response, the tone from central banks around the world has turned hawkish. Quantitative easing has become quantitative tightening. And interest rates are being hiked sharply as central bankers try their damnedest to rein in inflationary pressures.
Suddenly, it’s no longer business as usual. The central bankers are no longer acting like cheerleaders for the market, but harsh disciplinarians. What do they have at their disposal now? Well, not a gentle cushion, but bitter medicine, which they will force-feed us with. The general consensus is that this is urgent and necessary.
At the moment, economists are cautious about the state of the global economy. But some of them don’t believe that the world will fall into recession just yet. Fortunately, there are some green shoots of optimism to be found — especially given the resilience of job markets, as well as historically low levels of unemployment.
Nonetheless, economists do warn us that we may be at risk of entering a period of stagflation — lower growth and higher prices. In other words, our pockets will continue to suffer the pinch. At the fuel pump. At the supermarket. Whenever we try to take a holiday.
As it is, riskier assets like overvalued stocks — or even overpriced housing — are feeling the pain as the credit crunch bites. With no more easy money out there, bubbles are collapsing, to the detriment of those who find themselves over-leveraged. Millennials and Gen-Z youngsters are now facing a system shock unlike any they have ever known.
Ouch.
Still, as hard as it is to believe it, some value investors are still coming out ahead, even in a market as bearish as this one.
How?
Well, it comes back down to fundamentals.
Amidst the turmoil, it’s still possible to find companies that can act as safe havens to anchor a well-rounded portfolio.
In fact, there’s one Company, in particular, that’s not only weathering the storm pretty well — but it’s actually staying ahead of the rest of the pack.
Yes, indeed. This Company is not only surviving but thriving. It has an evergreen brand that may well be bulletproof — and possibly even recession-proof.
This might sound like magic fairy dust, but once you see what it does, it makes complete sense.
Also, as a bonus, we are revealing our Weekly Top 5 Quantum Trends. These are the most impactful global opportunities that we are currently watching this week…
