Markets

The End of Economic Expansion Might Be in Sight

By Charles Sizemore  |  April 24, 2019

I’ve accumulated enough air miles over my life to get access to many of the airport VIP lounges. Flying has become a miserable experience over the past 20 years, but the lounges offer just enough of a touch of class to almost make it bearable. Almost…

But as I stood with the unwashed masses outside, waiting for my turn to enter, I couldn’t help but notice there were more would-be VIPs than there used to be.

It dawned on me that it had a really long time since I’d gotten a free upgrade to business class. I’m far too cheap to ever pay for a business seat. I’m a total cheapskate who takes pride in maxing out his 401(k) each year. You don’t think I’d actually pay for that, do you?

It’s an anecdotal story, and probably a mistake to read too deeply into it. But this is the sorts of thing you see after nearly 10 full years of economic expansion. More people are traveling for business, and the boss is more willing to shell out for luxury amenities.

The Data Tells All

Retail sales are picking up, and jobless claims just fell to the lowest levels since 1969. I’d add that the unemployment rate is also scraping along at generational lows of 3.9%. Unemployment tends to be a lagging indicator. The unemployment rate doesn’t fall until we’re well into a recovery, and it doesn’t rise until a serious slowdown is already underway.

Think about it… Laying off workers is messy. No one wants to hand out pink slips. You only do it as a last resort. And hiring people is expensive. You want to make sure the economy is on firm ground before you commit to writing new paychecks.

Meanwhile, some of the leading indicators don’t look so hot.

Housing starts, for example, are one of the most important leading indicators. Housing is a major source of economic growth. Apart from the jobs created and materials purchased for the construction itself, you have all of the follow-on expenses: furniture, gardening, electronics, even housekeepers. A slowdown in homebuilding means a slowdown in all of these other industries, too.

Well, housing starts decreased 8.7% in February — the last month for which we have data — to the lowest levels in two years. And starts aren’t likely to improve any time soon. Building permits have been down for three straight months and are now at their lowest levels in five months.

I’m not saying a recession is just around the corner. That might still be a year or more away. But I think it’s pretty obvious that we’re a lot closer to the end of this expansion than to the beginning.

I’m not wildly excited about the stock market this late in the game. But I do believe that there’s still plenty of money to be made, particularly in quirky corners of the bond market. As I wrote recently, I’m big fan of closed-end funds (CEFs) when they trade at deep discounts to net asset value (NAV). You can effectively buy a dollar’s worth of quality, income producing bonds for 85 to 90 cents, sometimes even less.

When you time it right, you can enjoy a good 5%-6% in current income — often tax free — while waiting for prices to snap back. And when they do, you can often pick up another 20% or more in capital gains.

These kinds of opportunities don’t pop up every day. But at today’s prices, I believe gains in that ballpark are very doable.

And it’s these are the kinds of opportunities I focus on in Peak Income. For a limited time, I’m offering you the chance to get in at only $39 for the year. It’s an offer that pays for itself, and then much more…

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Charles Sizemore

Income and Retirement Strategist, Charles Sizemore, CFA specializes on dividend-focused portfolios and building alternative allocations by finding value opportunities outside of the mainstream stock market.

Charles is the executive editor and portfolio manager for Dent Research's premium newsletters, Peak Income and Peak Profits.

He is also a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, and has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post. He is a frequent contributor to Forbes, GuruFocus, MarketWatch and InvestorPlace.com.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. MORE FROM AUTHOR