Many experts have already sounded the alarm on the US economy. But you still want to pay attention to BlackRock – the world’s largest asset manager – for a very simple reason: it predicts recessions like no other.
“The recession is predicted as central banks race to tame inflation,” BlackRock’s panel of experts wrote in its Global Outlook 2023.
In fact, strategists believe that central banks “deliberately cause economic downturns through excessive policy” in an effort to bring prices under control.
In the past, when the economy went into recession, the Fed would often step in to help. But because of the recession, BlackRock says we can’t trust the central bank.
“Central bankers will not step in to help when growth slows under the new administration, contrary to what investors expected.”
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And that doesn’t bode well for stocks. The S&P 500 is down 18% year to date, but BlackRock believes equity prices “have yet to show any signs of early damage.”
If this recession has been any different than previous ones, maybe it’s time to look at unconventional hedging techniques. Here are three things to consider.
Real estate
It may seem counterintuitive to own real estate on this list. When the Fed raises its benchmark interest rate, mortgage rates tend to rise as well, so shouldn’t that be bad for the housing market?
While it is true that real estate payments have increased, the residential sector has shown its resilience in times of rising interest rates according to investment management company Invesco.
“Between 1978 and 2021 there were 10 separate years in which the Federal Funds rate went up,” Invesco said. “Over the 10 years identified, US private housing has outperformed stocks and bonds by seven times and US public housing has outperformed six times.”
It also helps that real estate is a popular hedge against inflation.
Why? Because as the cost of raw materials and labor increases, new properties are more expensive to build. And that drives up real estate prices.
Well-chosen properties can offer more than just value. Investors also get a steady stream of rental income.
But you don’t have to be a landlord to start investing in real estate. There are many real estate investment trusts (REITs) and crowdfunding platforms where you can get started as a real estate mogul.
Customer bases
High interest rates can cool the economy when it’s too hot. But the economy isn’t doing much, and BlackRock sees inflation pushing the economy into recession.
That’s why investors may want to look at recession-proof sectors – such as consumer staples.
Read more: Rich little Americans have lost faith in the stock market – and are betting on these 3 stocks instead
Consumer staples are essential products such as food and beverages, household goods, and hygiene products.
We need these things regardless of how the economy is doing or what the federal funds rate is.
When inflation increases the cost of revenue, consumer buying companies – especially those with stable market positions – are able to pass those higher costs on to consumers.
Even as a recession hits the US economy, we’ll see Quaker Oats and Tropicana orange juice — made by PepsiCo ( PEP ) — on family breakfast tables. Meanwhile, Tide and Bounty – well-known brands from Procter & Gamble (PG) – will remain on shopping lists across the country.
You can gain access to the group through ETFs such as the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).
Wine
People have been drinking wine for thousands of years. While many collect wine for enjoyment rather than investment, bottles of fine wine become rarer and more valuable as time goes on.
Since 2005, Sotheby’s Fine Wine Index has increased by 316%.
As a real asset, fine wine can provide the variety you need to protect your portfolio from the volatile effects of inflation and recession.
You can invest in wine by buying individual bottles – but you’ll need a place to store it properly. Wine estates often cost tens of thousands of dollars. If it is not stored at the right temperature or humidity, the bottle can be damaged.
That’s one of the reasons why investing in fine wine has always been an option only for the wealthy. But with new investment platforms, you can invest in investment-grade wines, like Bill Koch and LeBron James.
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This article provides information only and should not be considered advice. Offered without warranty of any kind.
