We are all waiting, it seems, for the next recession. Some indicators suggest that it might be sooner rather than later. Many economists speculate that growth will slow or a recession will occur, because three powerful forces are assaulting economic expansion.

First, housing. Its correction deepens.
Second, oil prices. They’re approaching $100 a barrel.
Third, credit problems. As lenders and investors have suffered losses on subprime mortgages — loans to weaker borrowers — they’ve tightened lending standards for all borrowers.

Countering these powerful downward economic pressures are strong export growth (up at a 16 percent annual rate in the third quarter) and increased federal government spending (up 7 percent). The economy’s fate hangs heavily on the outcome of this tug of war. Of course, no one likes the usual side effects of a recession: higher unemployment, weaker profits, more stress. Still, popular rhetoric exaggerates the damage.

Recessions typically have often-overlooked benefits.

• Purge the excesses of the ‘housing boom’
• Reverse the dollar’s free fall and revive our global credibility
• Expose and punish reckless financial speculation and poor corporate investments. Bad bets don’t pay off. Jeremy Grantham of GMO spoke of these bad bets in his midyear report and predicts: “In 5 years I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private-equity firms in existence today will simply cease to exist.”
• Force fiscal restraint back into government
• Put pressure on individuals living beyond their means to reduce spending and increase savings
• Slow the FED from cutting interest rates to bail out speculators
• Punish short-term traders playing the market. Downturns bruise egos and encourage rational long-term strategies.

By and large, recessions are problems, not tragedies. Since World War II, there have been 10 of them, or one about every six years. On average, they’ve lasted 10 months… Disregarding two severe recessions — those of 1973-75 and 1981-82 — peak monthly unemployment has averaged 7.1 percent. The real “moral hazard” problem today is not starting down that path again.

For many investors, it seems that daily newspaper headlines announce more economic struggles that could impact the ways money is invested or managed. And with each new forecast comes questions:

Are all of my investments working as hard for me as they should given the direction of the economy and markets?
Am I comfortable with the risk/reward allocation of my portfolio under current economic conditions and forecasts?

If you feel as if your portfolio or investment strategy is not in line with your goals, please allow us to give you a complimentary review of your current situation. Recessions are cycles and not all bad, your investment strategy should be sound and something you have confidence in long term. Leave your investment strategy to us.

Odyssey Equity returns are calculated on a Total Return Basis and are presented net of all fees. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance changes over time and currently may be lower or higher than the performance data quoted above.

Mark Collard authored the above article.

Mark Collard is a Partner in the investment management firm, Odyssey Advisors, LLC. Collard received a BS in Business Finance and Accounting, Cum Laude from Saint Vincent College and an Executive MBA from the State University of New York at Buffalo.