Every recession of the last 50 years, with the exception of the 2020 episode caused by the COVID lockdown imposed by the government, has been preceded by two conditions.

An inverted yield curve: Where long-term interest rates are less than short-term interest rates. This is indicated by the red line going below 0% on the graph to the right. This is currently not the case and the yield curve is positive, with the red line above 0%.

Very high real interest rates: Again, with the exception of March 2020, when the economy was shut down, an increasing level of real interest rates (blue line) has preceded recessions, as indicated by the grey vertical bands. We currently have negative real interest rates (interest rates minus inflation), where we are essentially getting paid to borrow money.

These recession indicators are not flashing red, for now. However, we do not have a crystal ball and the government could change policy at any time, so always keep cash on hand for your near-term spending and keep debt levels manageable.

Finally, to keep our current financial and economic environment in context, please read our year end report from 10 years ago; as you will see, a long-term investing approach with sound principles coupled with the management of behaviour (don’t capitulate to fear or greed!) is always key.

We wish you all a wonderful holiday season and for those that observe it, Merry Christmas! Take a moment to reflect on “your gratitude list” as those are the best presents under the tree!

Randy, Ian, and the team at R&R Investment Partners