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What Goes Up Must Come Down

Author: Wendy J. English

It's time to prepare for the end of the economic boomWe are in the Indian summer of the business cycle, which means companies are pushing factories to produce more than their long term sustainable output, employees are working more overtime, demand is strong and inflation is rising, leading to an increase in interest rates.

We have been really lucky compared to times past. Our current expansion has been 110 months and the only time outlasting this was in 1991-2001, which went for 120 months. So we are due soon for a break down, and when break downs come, they tend to come en mass. Our upcoming challenges include:

  1. We don’t have enough workers.
  2. The trade war hurts our strongest US companies.
  3. Oil prices are rising.
  4. The federal debt is growing. As the federal debt grows, our government will be less able to apply the remedies of lowering taxes and greater spending. It’s not just the federal government that is in debt, many companies are in great debt as well. Corporate debt has risen to 73.5%! Higher than ever!

Why all the gloom? It’s time to prepare for the future. What can we do to get ready for rising interest rates, higher gas prices, etc.? One idea is to start putting money away. Avoid maxing out growth to the extent of risk and put a little money away every day to tide us over during the hard times. Another is to think about what people need during a recession and get prepared to supply it. For example, in recessions tend to spend money on inexpensive comforts, such as food and small items such as lipstick. Another idea may be to create a software that will increase business productivity and lower costs.

It may be a good time to take our money in stocks and put it in utilities, consumer staples, and telecom. Coming up on retiring? Sock away one or two years’ worth of living expenses in money markets and short term treasuries.

We may have another good year or two, but maybe not; 10 more months would put us at a match with 1991. So my warning cry to all of us is to prepare! The more prepared we are, the more opportunities we will have to make a profit when everyone else is struggling.

 

Article Source: Colvin, G. (2018, July). The End is Near For the Economic Boom. Fortune. Retrieved from http://fortune.com/longform/economic-expansion-end-is-near/