Real Estate

Bureaucrats insist there’s No recession, but That Doesn’t Change Reality!

The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee is the singular body in charge of calling a recession. It defines a recession as a severe fall in economic activity that people would feel throughout the economy and lasts for more than a few months. Some variables it tracks include actual consumer spending, real income less government transfers, and industrial production. There are no fast rules or thresholds set in stone, so they determine whether the country is in a recession after studying statistics from the government.

So far, they have not declared a recession because they have not seen a significant decline in economic activity. You can’t really blame them as this is their current view according to the latest data they have received from the government:

So, according to the NBER, the economy is fine; there’s nothing to see here. They argue that there is a strong labor market and corporate earnings. Besides, recessions are not standard fair, with the US only experiencing a recession 8% of the time over the past 30 years.

But how is the economy really performing across the board? That’s what we seek to examine by studying the cold statistics below.

So, is the US in a Recession?

According to the general definition, a recession occurs when there are two-consecutive recorded negative quarters in the gross domestic product. Using that metric alone, the US was in a downturn earlier in the year.

But the NBER insists that you must take a holistic approach to get a clearer picture of the state of the economy because a recession indicates a significant decline in economic activities spread across the economy.

Therefore, here is an examination of 14 key economic indicators. If most show that the economy is ok, that will prove the NBER right. The opposite would be true.

1. Gross Domestic Product (GDP)

In the most recent quarter, economic growth was 2.6%. After the first half of the year’s GDP contraction, this is good news, but it is not exactly something to celebrate. Given the Federal Reserve’s aggressive stance, the economy’s ability to expand through 2023 is still in question.  Keep in mind that we have been depleting the Strategic Petroleum Reserve aggressively, approximately 180 million barrels in 2022.  We have been simultaneously exporting oil out of the US, generating a significant part of our increase in GDP.

2. Consumer Price Index (CPI)

According to data from the Labor Department’s Consumer Price Index, which tracks changes in prices across various products and services sold within the United States, the annual inflation rate has decreased to 8.2% from 8.3% in August.

During its November 2022 meeting, the Federal Reserve announced its fourth consecutive 75 basis points federal funds rate raise.

The less volatile core inflation rate increased to 6.6% in September from 6.3% in August, rising by 0.6% month-over-month. That annual core rise is the highest of its kind Since August 1982.

3. ISM Manufacturing Index

According to a survey by the Institute of Supply Management (ISM) manufacturing reading for October was 50.2. Manufacturing output increased at its slowest rate in nearly 2.5 years, with total readings at their lowest level since Spring 2020, so manufacturing is not doing well.

4. Industrial Production

Industrial production increased by 0.4% in September, and the index rose by 5.3% compared to the same period a year ago. Industrial production is doing well.

5. Retail Sales

In September, retail sales remained unchanged after increasing by 0.4% in August. Consumers are beginning to limit spending as their savings dwindle and prices rise.

The Fed hopes that higher interest rates will have several impacts, one of which is a consumer demand decrease. With further rate hikes in the pipeline, it’s easy to predict that retail sales are not doing well.

6. Conference Board Leading Indicators

In September, the leading index dropped by 0.4%, adding to its recent decline and suggesting that the economy is declining. This worrying trend is among the best indicators that a recession will hit the economy in the new year.

7. Markets Data

The stock market is perhaps the hardest hit of all the sectors, with the S&P 500 falling 19.1% this year, and the Fed’s decision to hike interest rates by yet another 75 basis points added to investors’ woes. Nasdaq is down 30%, The Dow 10%, and The Russell 2000 down 17.5%.

The treasury yield curve does not provide great news either, with the short-term interest rate yield performing better than the longer-term rates, traditionally a good indicator of an impending recession.

8. Unemployment Rate

The September unemployment rate of 3.5% shows the labor market is probably the only steady aspect of the economy. The Federal Reserve’s dual role is to ensure full employment and stable pricing and can now focus on reducing inflation because of the robust labor market.

9. Initial jobless claims

The Labor Department releases the initial jobless claims data weekly, showing how many people have started applying for unemployment benefits that week. The week of October 27 recorded initial job claims of 217,000, while November 5 saw a reported 225,000 initial claims.

A rise in initial unemployment claims may indicate a wider spread of layoffs, which would be consistent with the Fed’s push to lower inflation.

10. Job Openings and Labor Turnover Survey (JOLTS)

By September 30th, the number of job openings jumped to 10.7 million. Overall separations dropped to 5.7 million, while hires dropped to 6.1 million. This is good for the economy.

11. University of Michigan Consumer Confidence Survey

According to the University of Michigan’s Monthly Survey of Consumers, consumers’ sentiments improved in October. That represents a 2% month-over-month increase.

At 59.8%, consumer sentiment might seem rock solid, but it has dropped by 17% since this time last year. That’s due to increased gas prices in recent weeks, rising inflation, and unaffordable housing.

12. NFIB Small Business Optimism Index

The NFIB’s monthly Small Business Optimism Index increased by 0.3 points in September to 92.1. However, the index has been lower than its 48-year average for the past nine months in a row.

13. Housing Starts

As a result of higher borrowing rates and high prices, home construction declined by 8.1% from August. Developers are understandably cautious about taking on too much work in light of these factors.

14. NAHB Home Builders Index

The October reading fell to 38 on the Home Builders Index, showing that most builders consider the housing market weak. That has led to higher mortgage rates and a drop in the number of new single-family homes under construction.

Final word

Even though the economy isn’t technically in a recession, things aren’t looking great. Most of the key indicators above show a worrying trend in the economy. Still, not all the data points provided above give equal weight in determining if the US is experiencing a recession. Low unemployment and many available but unfilled positions have made the labor market the economic engine of the country. At the same time, consumers are handling rising inflation better now than they were earlier in 2022. The real estate and stock markets are both performing abysmally.


By Gurpreet Singh Padda, MD, MB

Real Estate

Why You Should Be Thinking About Alternative Investments

All you see in the news nowadays are rising gas prices, inflation, and high interest rates. The stock market isn’t faring any better: Nasdaq 100 has shed more than 33% so far, while the much-vaunted cryptocurrency, Bitcoin, has dropped more than 60% of its value.

In uncertain times, financial advisors often encourage investors to turn to low-risk, fixed-income investment options, such as CDs, money market funds, and high-yield savings accounts. They reason that these safe investments will preserve your assets as they provide positive returns. But do they?

Investing in the stock market and receiving a 60% loss is a no-no, so the financial advisors would rather you invest on a 10-year treasury yield, making 3.7%. While it may seem the investment is making you money, you have to consider that the annual inflation rate rose to 8.2% in September 2022. That means you are losing money (-4.5% annually).

While all investment options seem pointless at the moment, one criminally underutilized segment is viable during market downturns. Did you know you can make as much as 12% returns using alternative investing?

According to Prequin’s 2022 Global Alternatives Report, the alternatives AUM concluded at $13 trillion in 2021 and is projected to expand to 11.7% ($23 trillion) by 2026. This is a look at what alternative investing is all about.

What Are Alternative Investments?

Alternative investments have no basis on traditional financial products like stocks, bonds, or cash. Most alternative investments don’t receive as much regulation from the SEC and could be more illiquid.

Types of Alternative Investments

As more and more alternatives become available to retail or individual investors, it pays for investors to have a solid understanding of these options. The following are some examples of alternative investments:

1. Private Equity

Private equity is a term that describes investments in businesses not traded on a public market like the New York Stock Exchange or NASDAQ.

The goal of private equity firms is to generate returns for their investors by making strategic investments in private companies with the assumption that the value of those investments will increase by a certain time. You can further break private equity down into these categories:

  • Venture capital
  • Buyouts
  • Growth equity

These asset classes typically require long-term investments of substantial capital, so only institutions and wealthy individuals can participate.

2. Hedge Funds

A hedge fund is a type of pooled investment partnership that trades liquid assets using various investment strategies to generate a high rate of return for its investors. Entrepreneurs can invest in a wider variety of securities, as hedge funds are not subject to the same regulations as mutual funds.

Compared to other alternative investments, hedge funds are notable for their high liquidity ratio. Because they have a higher concentration of liquid securities, you can liquidate the funds in minutes. Due to the high costs and risks involved, only wealthy individuals and institutional investors, like pension funds, typically invest in hedge funds.

3. Structured Products

Structured products are a type of investment that involves pairing a debt instrument (such as a bond or CDs) with one or more derivative instruments tied to an underlying asset class or a collection of assets such as stocks, market indices, currencies, or interest rates.

Despite their complexity and potential for loss, structured products allow investors to create a uniquely tailored portfolio to their needs. Typically, investment banks produce them and offer them to institutional, corporate, and individual clients.

4. Private Debt

Private debt consists of loans from sources other than traditional banks. Businesses often use private debt for expansion, working capital increases, or real estate construction and development. 

Given the historically low returns on government bonds, direct lending to businesses can provide a sizable premium over the cash flows accessible from liquid fixed-income products. Private debt funds, the firms that provide the funding, make money through two main channels: interest payments and the eventual repayment of the loan.

A private debt fund may also focus on senior, junior, or mezzanine debt, among other strategies, such as direct lending, venture debt, and exceptional situations.

5. Real Estate

Many Americans already have a stake in this asset class because they are homeowners, making real estate the most viable alternative investment. Real estate investments can take the form of direct property ownership or indirect investments.

Properties like apartment buildings and shopping centers provide regular rental income to their owners, and they hope for price increases over time.

Investors who want a more hands-off approach might buy shares of private real estate investment trusts (REITs) through a broker. REITs that trade publicly do so through the stock market.

In addition to its diversification benefits, real estate offers investors a hedge against inflation and favorable tax advantages.

6. Commodities

Commodities are tradable items that have both direct and indirect economic uses. Examples of commonly traded commodities include gold, farm animals, precious metals, wool, oil, gas, wood, and uranium.

Given their relative immunity to fluctuations in the public equity market, investors often use commodities as a hedge against inflation. Commodity prices fluctuate based on supply and demand market forces; increased demand will lead to higher prices and greater returns for investors. You can invest in commodities in several ways, including:

  • Futures Contract
  • Stock
  • Physical commodities

7. Collectibles

When you invest in collectibles, you aim to generate a return on your money through long-term appreciation of the items you own. Some of the common types of collectibles include:

  • Books
  • Rare wine
  • Stamps
  • Antiques
  • Trading coins
  • Art
  • Coins
  • Baseball cards
  • Toys

To succeed in this alternative investment strategy, you need an extensive understanding of the sector and the patience to hold on to your investment for a long time. It is not easy to predict how much a work of art, or a collection will increase in value because both can decline in worth or get destroyed. 

Some collectors treat their collections as investments on par with their homes or cars, and their collections make up a significant portion of their net worth. Adding collectibles to a portfolio is a great way to diversify your investment base and spread your risk.

Final Word

Many investors are increasingly looking to alternative investments to diversify their portfolios, maximize their returns, and accomplish other financial objectives. That is why it is so important for investors to have a firm grasp of the options they have to adopt alternative investments into their portfolios successfully.


By Gurpreet Singh Padda, MD, MB