FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
July 5, 2022

IN THIS ISSUE:

1. Who Decides When Recessions Begin & End?

2. The National Bureau of Economic Research

3. No Hard & Fast Definition Of A Recession

4. Consider “Alternative Investments” More Than Ever

Overview – Who Decides When Recessions Begin & End?

I don’t recall ever writing in any detail about the organization which officially defines recessions and dates their beginning and end. Prominent Wall Street economists like Mark Zandi, high profile executives like J.P. Morgan’s Jamie Dimon and even yours truly make predictions about recessions frequently, but these are just opinions.

For as long as I’ve been in the business (over 40 years), the widely accepted definition of a recession has been two or more consecutive negative quarters of economic growth in gross domestic product. Yet the fact is, there is not an official definition of a recession. No, a rather obscure group of economists in Washington, known as the National Bureau of Economic Research (NBER), decides what defines recessions and when they begin and end.

The NBER is a private, non-profit organization, and most Americans have no idea it exists, how it works or why it is designated as the official arbiter of when recessions begin and end. Who makes up the National Bureau of Economic Research, how they are selected and how it works is not well known. With the fear of recession so prevalent right now, I thought you might find it interesting to know who makes these decisions. That’s what I’ll talk about today.    

The National Bureau of Economic Research

The National Bureau of Economic Research is a private, nonprofit, (supposedly) nonpartisan organization which conducts cutting-edge investigation and analysis of major economic issues. It disseminates its research findings to academics, public and private-sector decision-makers and the public by posting more than 1,200 working papers and convening more than 120 scholarly conferences each year.

The NBER is a network of over 1,700 affiliated economists, most of whom hold primary positions at American colleges and universities. These researchers are typically leaders in their field: Thirty-eight current or former NBER affiliates have been awarded the Nobel Prize in Economic Sciences, and 13 have chaired the President’s Council of Economic Advisers. The NBER is funded by various government agencies.

The NBER’s most notable function is to define what constitutes a recession and determine when recessions begin and end in this country.

The NBER was initially founded in 1920 in New York City. Its board of directors includes representatives of research universities, professional associations related to economics and leaders from the business and labor communities. The president and chief executive officer, MIT economics professor James Poterba, leads a Cambridge, Massachusetts-based staff of 45.

The NBER has no predetermined meeting dates; meetings are held as needed and their deliberations are private. There are no fixed member term dates and the final determination of who gets to serve on the committee is made by one man, the president and CEO, currently Mr. Poterba. In researching this letter, I was not able to determine why the NBER was structured as it is, but it has been this way for many years.

CNN points out that the NBER lacks racial diversity amongst the eight members who run the organization and has never had a board member who has been a racial minority. Each current board member is white, over 60 years old and they are all associated with prestigious universities. The current group does include two women.

No Hard & Fast Definition Of A Recession

While most economists and forecasters have been taught that the definition of a recession is two or more consecutive quarters of negative GDP growth, the NBER has no such definition. Each economic contraction is evaluated not as much on how long it lasted but how severe it was.

For example, the Covid-19 recession in 2020 lasted only three months from February to April of that year, according to the NBER. Yet the organization classified that period as a recession because of how severe it was.

Though the Covid-19 contraction in 2020 featured a staggering 31.4% plunge in GDP in the second quarter of the pandemic-scarred year, it was followed by a massive rebound of 33.4% in the following three months, thanks to historic policy stimulus by the government. So, even though the Covid recession lasted only three months, the NBER identified it as a recession due to the unprecedented damage to the economy in such a short time.

The point is, the NBER can label any economic contraction a recession depending on its severity, regardless of how long it lasted. So, our long-held assumption that a recession must be at least two consecutive quarters of negative growth in GDP is not a hard and fast rule, according to the NBER.

I could go on with this discussion of the NBER, but I think the explanation above is sufficient to give you a working knowledge of how the organization operates and generally how recessions are defined and measured as to when they start and stop.

Is it a perfect system? No. Is it politically biased? Probably. Most of its members were schooled at left-leaning academic institutions. But it is what it is, and I thought my readers would be interested to know how recessions are defined and measured – especially now when there is so much media focus on whether we’re in a recession or not.

Consider “Alternative Investments” More Than Ever

Stocks have been on a roller coaster recently with some big swings up and down. But as we all know, roller coasters eventually go down, and the S&P 500 recently declined by over 20%, placing equities in a bear market. Maybe it’s time for readers who have never invested with us to consider some of the alternative strategies we offer at Halbert Wealth Management (HWM).

This time around, both stocks and bonds have to be considered as high-risk investments. This is why now is an important time to consider the alternative investment strategies we offer at HWM. It is becoming increasingly obvious that sophisticated investors need more than traditional stocks and bonds to diversify their portfolios to get the returns they seek.

I know of no other investment firms which offer the same wide selection of alternative investment strategies we do at HWM, and I would put our stable of professional money managers up against any offered on the planet. Given that, investors can be comfortable with a large chunk of their assets in the strategies we offer. For the record, I have substantially all of my investible assets with the managers we recommend.

We have three professional Investment Advisors on our staff at Halbert Wealth Management, in addition to myself, to help you. FYI, my sales staff is not on commission. We can assess your investment needs, determine your risk profile and construct a well-diversified portfolio of strategies to fit your objectives. We’ve been doing this for over 25 years.

We search the universe of professional money managers to find those who have been successful over time. Actually, they tend to find us more often than us finding them these days, given our reputation and the large amount of client assets we manage. In my opinion, we represent some of the best money managers available anywhere.

If you have not considered investing in the successful strategies we recommend, and many of you who read this letter every week haven’t, you should seriously think about it. Most of the managers we recommend have built-in strategies to mitigate market risk during downturns. For some, this means hedging long positions; for others, it means moving assets to cash (money markets), etc. This can help minimize losses during downward corrections and bear markets.

And finally, we were long overdue for a serious downward correction or a bear market in equities. We did have a sharp downward correction in 2020 when the Covid-19 recession hit but the market quickly rebounded. We haven’t had a real bear market since 2008, and that’s a long time.

Millions of new investors have come into this market since then, and it will be interesting to see how they deal with it. Will they panic and bail out? We’ll have to see but it’s definitely a possibility, which could send stocks even lower just ahead.

Maybe now is a good time to consider some of the “risk-managed” strategies we offer at Halbert Wealth Management. We offer over a dozen professionally managed strategies in equities which can help you deal with market risks.

We also offer what I consider to be one of the best bond strategies I have ever seen. While most bond strategies invest in Treasuries or corporate bonds, this professionally managed program we offer invests in “convertible bonds,” which offer opportunities traditional bond strategies don’t. I have my largest single personal investment in this program.

You should take a serious look at it, as well as our professionally managed equity strategies. With interest rates still near historic lows, most bond strategies are very high risk at this point. Maybe now is the time to consider adding convertible bonds to your portfolio. Call us at 800-348-3601, speak to one of my trusted, non-commissioned Investment Advisors and let us help you enhance your investment portfolio.

At the very least, take a look at our convertible bond strategy as a creative alternative for your bond allocation. I don’t think you’ll find anything like it anywhere else.

Finally, there is never any pressure to invest. As noted above, my guys aren’t on commission – they’re just here to help you. Let us show you how today.

I would love to have you as a client!

Wishing you profits,

Gary D. Halbert

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.