This month marks the eight-year anniversary of the end of the Great Recession. That's right, June 2009 was the official end date, but of course high unemployment and lackluster growth persisted for years after that date. Eight years later, just as things are starting to get better and the Federal Reserve feels comfortable enough to take its foot off the accelerator, are we close to the next recession? Over the next hour, we are joined by an incredible panel of market pros. Let's introduce you to everyone. Peter Scheer is a fixed income expert and managing director at Breen Capital. He's also heading up the street's new fixed income product, income seeker. Douglas Borthwick is the head of foreign exchange at Chapter Lane. And Stephen Starch-Gilfoyle is a market expert and former NYSE trader. David Jo Williams is a commodities and gold expert and principal at Strategic Gold. And guys, welcome to all of you. It's good to see everyone. I want to start off with the folks who think that a recession is going to come sooner rather than later. Peter, that's you as you wrote in your column on thestreet.com. How bad will the next recession be and when will it come? I don't think it's going to be a deep recession. I think it'll be fairly shallow and fairly short. But I think it's coming sooner rather than later. I think you're starting to see it in some of the economic data. You see the city economic surprise index. That's fallen precipitously lately. And you talk to people, you're out there in the really calm. You're starting to see auto slowdown, business travel slowdown. There was a lot of excitement about the new DC and everything that was going to be delivered. And as that gets delayed, I think you're going to see a pullback. Okay, so you said soon. Can you put a time stamp on that? It was six months, one year, two years. You know, we may well already be in the early stages of that type of recession. If you go back even to 2007 and eight, we were in a recession before anything was called. So I think we're in that slowdown kind of now or very, very shortly. All right. And David, you also in your column were a little bit sounding the alarm. What do you think? I agree with Peter, but I'm more on the fringe. I think that we're not going to have a mild recession. I actually think that we're going to have a very deep recession once it occurs. I think that since 1987, actually, that the Fed and Fed intervention has been going on to lessen the effects of any kind of recession that we've had. And I think that that cumulatively, that is going to catch up to us. And when it does, it's going to be, I think it's going to be extremely serious. And PIMCO actually sees a 70% chance of a recession by 2022. Do you agree with that? Oh, yeah. 2022, we're in Doug Worthick. I think I'm far more in the camp that says it's going to be fairly soon, certainly within, I think, within a year, but I think maybe before year's end, maybe before 2018, we're going to start seeing some very serious signs of pullback and recession. But Doug, you would disagree with David and PIMCO. You see a recession coming a little bit later 2024. Well, I think that think of recessions or growth of GDP as being a concept of volatility. And there's very little volatility right now. There's very little volatility because central banks are very, very involved, not just in economies, but also in markets. Who's the biggest buyer of equities these days? Well, some would argue that central banks are big buyers of equities. At the same time, central banks are big buyer of fixed income. When that's the case, and central banks are really running the market economy, it's very hard for you to see the big swings we saw either in GDP to the upside or to the downside. So I think that for us to really see movement in the economy in terms of large negatives or big positives, you really have to wait until the Federal Reserve's balance sheet has rolled off. And I think that's maybe seven years down the road. Maybe in the meantime, you get very slight recessions. Down 0.1 here or there. But the reality is you're not going to see the huge down 3% or the up 4% for quite some time, at least until volatility picks up, which will only pick up in Fed balance sheet or ECB balance sheet or BOJ balance sheets are significantly diminished. And that's not going to happen for about seven years. And we're going to talk a lot about the balance sheets in a moment. But first, I want to get to Sarge.  Well, let's start at the beginning. Peter mentioned the city economic surprise. That's 100% right. Since May 1st, we've seen about 30 economic data points, including important ones like inflation, retail, sales, employment, payrolls, participation, all disappoint, either come in negative or actually disappoint. So there's no doubt the economy is slowing somewhat. As we move forward past this June rate hike that we expect, the Fed is going to be put in a position where some of them might not be so loyal to the trajectory they've been putting forth. They might actually, you might see Fed meetings where some people are hawkish and some people are dovish, not the United Stand that we've seen for so long. When you get that, we'll get your volatility. That's when things will get a little dicey here in the U.S. That's when markets will start fluctuating. And that's when we'll see just how secure we are up or down three or four percent. But this point that central banks were driving the markets, I mean, Sarge, when you look at stocks like Nvidia, Walmart, Apple, Take-Two Interactive, I mean, would you attribute those gains to central banks? No, it's really these companies that are driving the markets. No, earnings have been sharp now for, they've been improving for three quarters. The last quarter was very good. The second quarter is estimated up another 10 percent year over year. So, yes, earnings drive stock price. So we do have stronger stock prices. Although valuations are higher than they probably should be, there is some fundamental basis for it. It's not like these firms aren't making money. It's not like healthcare firms and the discretionaries and the state peoples aren't doing better. These firms, to a large degree, let's leave the retail guys out of it, but they are doing better. So there is a fundamental basis, but there is no doubt that as long as the Fed is reinvesting in the balance sheet, well, then they really can't go too far. So for now, although a recession is not a far-fetched dream, we can wander into recession within a year. It wouldn't blow my mind, but how much of a hit would equities take if that happened? They might not take that as severe a hit as you would think. And Peter, do you think the markets are kind of distorted? We have all these asset classes moving in the same direction, upright bonds, stocks, gold, Bitcoin. What should you take here? I kind of view the market right now as being supported by a three-legged stool. You've got Fang or more broadly tech being very, very supportive. And you saw just yesterday when the Fang stocks sold off near the end of the day, there was a Twitter blew up. There was a lot of concern about that. So I think that's one way to support. The other leg of support has been the fact that bonds and equities have been behaving very nicely. So on days, equities are up, bonds are off a little bit. On the days, equities goes down, bonds are rallying strongly. So a lot of people are able to manage their portfolio, and you've seen VIX very sedated, where we've been under 10 a lot. That to me has been the other leg in this perception of liquidity. So there's this perception that you can sell what you want when you need. Maybe it's partly driven by the ETFs. Maybe it's because it is liquidity. I think any one of those legs could be tested, where you start seeing, I think the worst case scenario for U.S. markets right now is yields start pushing higher, dragging stocks lower, pushing VIX higher, and then you can get into a bit of a vicious cycle where those lead to a reasonably quick and painful sell-off. But what do you guys make of the 10-year, which is now what, 2-1, which is actually lower than where it was in November 2008? I mean, isn't that worrisome in itself? To me, this has really been a part. I think there's a risk parity strategy, Bridgewater's famous for it developed in late 80s. And people are saying, I think buying VIX has not worked. Hedging with options has not worked. The one thing that has worked is you own equities, you own long-dated bonds, and that's worked very well since Brexit. It was extremely, that caught a lot of attention post-Brexit. It caught more attention post-Trump. You saw Putnam launch some funds, you've seen some inflows into other funds. People are gathering towards this risk parity, which in simplest form is buy equities, buy bonds. So I think that's why both have been going up in tandem, and I think that's why that risk to that cycle breaking could be very ugly. Okay, but can this cycle completely be disrupted by the balance sheet? You guys were talking about the Fed's balance sheet before. David, what do you think? Absolutely. Again, I think it goes to the question of, Doug and I were talking about earlier, it goes to the question of the trust in the Fed and trust in the system itself. So since, at least since Allen Greenspan, the Fed has been on a pedestal. Now it's starting to come off its pedestal a little bit in the last, let's say, six to eight months. But the Fed has been on a pedestal where everyone basically watches the Fed and whatever the Fed does, you follow because that's where you're going to make money. So that goes to Peter's point that says, okay, equities have been going up, bonds have been going up. That's because basically the Fed is putting that is not just our Fed, but the ECB, the Bank of Japan, they are flooding the system with money and those monies are going into risk assets and those assets are evaluating in price. So are going up in price. If that's the case, at some point in time, that cycle can be broken. I am of the belief that when it happens, it doesn't happen until it happens. So to try to predict when it's going to happen or something is kind of a fool's game. But that doesn't mean you shouldn't start to prepare because obviously eight months into an expansion is a very long time historically. And then if you go back eight years, if you go back even further than that and go into what actually happened in the last couple of recessions and how they were stopped through Fed intervention, it's incredible how the system hasn't, in the system we live in under the capitalist system, it hasn't been able to reinvigorate itself, rejuvenate itself. It's just the bottom points have been stabilized by the Fed and then we've moved forward from there. At some point in time, if the Fed loses control or if central banks lose control, that's over within. You don't know where those levels are anymore. And as being in equities for years and years, I just think it's the overbought, overvalued syndrome is incredible right now and the risk is so overlooked. Since the 2008 recession, 93% of risk assets equities have been fueled by Fed monies coming in. So if that's the case, it goes to Doug's point, this is okay, how do you take that off the belt? How does that come off? How does that debt come off in general? It's not just Fed debt, but it's debt in general. And if it's just slowly downgraded over seven or eight years, that could be a, I think that's a Goldilocks scenario. I think that's fantastic. But I don't necessarily ascribe to the view that that's what's gonna happen. Well, let me ask this though, because the Fed's balance sheet is at $4.5 trillion. So let's say we go down to $3 trillion. Is that an accurate? $4.5 trillion is, think about that. That's incomprehensible. How much is $4.5 trillion? So if we go to $3 trillion, we're still gonna have 10, 11, 12 trillion dollars on global central banks balance sheet across the world. Isn't that supportive for equity sergeants? And you're gonna tighten monetary policy away from that too.  All right. Any shrinking of the balance sheet by 30% is equivalent to raising rates by a certain amount as well. So, one sort of moves with the other. If you look at the stock market versus the balance, the Fed's balance sheet, we've all looked at that jargon board and you say, well, I wonder where the money's coming from. Well, that's it. So if you take some of that money out, well, then what you'll see is you'll probably see volatility go up by 30% because now the balance sheet's been decreased by 30%. I think that, but you have to, as we reduce the balance sheet, volatility is gonna move up and down. We'll see, maybe higher highs or maybe lower lows, but certainly you'll get the volatility back in the market that right now doesn't exist because you may feel like you're in a free market because you see much better earnings in this stock or that stock, but I think that the reality is when central banks own 30% of all outstanding government-fixed income, it's not really a free market anymore, is it? Well, but Doug, for the dollar, though, I mean, there's worry, though, that raising interest rates and shrinking the balance sheet is kind of a one-two punch for the dollar in terms of upward pressure. In terms of strength for the dollar, sure. Yeah, in terms of upward pressure. But I think what you're seeing is that the Fed certainly has gone out, or not the Fed, but the U.S. government right now and Trump for sure has gone out and said, look, we want a weaker dollar. The way we make the U.S. more competitive is having a weaker dollar. Now, that's a different mantra from what you're hearing elsewhere where most folks come out and say, oh, the dollar's weakening because nobody likes Trump. I think that that's completely incorrect. From day one, he's talked by making the U.S. more competitive. We've sat here and said, look, when the U.S. wants to have a more competitive, they have to weaken the dollar. Sure enough, the dollar's gone from 104 against the euro up to 11270 as we're sitting here. The dollar is moving in the direction that Trump wants. So he doesn't look at this and think, oh, goodness me, the dollar's weakening. This is terrible. He's thinking this is great because it's great for America. It's great for competitiveness. ECB is giving them a hand, too, here. I mean, they're talking about tightening monetary policy at the same time. So that's a gift. Why wouldn't you take it? Why wouldn't you take a cheaper dollar? Yeah, what are you expecting from the ECB's meeting on Thursday? I don't think they're going to do anything just yet. I think you give them a few months if their economy stays on the path where it can walk on both legs. Well, they're probably going to knock down QE a little bit. They maybe take it down from $60 billion down to $40 billion, maybe $10 billion a month, something like we did here in the U.S. They do need to start to get the ball rolling in this area. I mean, they've been far more aggressive than has the Fed, at least of late. I'm sure they attribute the recent success in their economy to that. But like we saw here, the success is much smaller than the push into extraordinary measure. So I'm going to the question of why wouldn't you let one a weaker dollar? I'm not necessarily disputing that they want a weaker dollar, but why wouldn't you want a weaker dollar? Because then our dollars don't buy as much. As a citizen, when I pull 10 bucks out of my pocket, I don't want to buy $9 worth of goods and services. I want to buy $10 worth of goods and services. So when you go down that path to start weakening it, that is a slippery slope. You can lose control very, very quickly. And I think the Fed has been in tremendous, they've had tremendous control. And that last month, we talked about hubris. I think they have gained a hubris that is incredible. And I just, I'm of the opinion that it's about. Let me take that. Yeah, respond to that. Yeah. Let's look at Middle America. Okay. Middle America would love to have that $10 in his pocket and get the nine. But to get Middle America working again, he needs to understand that on the world, he's not 30% more expensive as an employee from multilateral corporations, multinational corporations. So in order to make him available and cheap enough for him to be able to be employed so he can then start paying taxes into the US and also then have his $10 to go on vacation somewhere, he needs to have a job. And to get that job, we have to make America cheaper as a place for people to set up plants and then produce things. And you can have that as the dollar strengthens every year by 10% because he becomes more expensive by 10%. You have to have it weakened. There's no surprise that every country in the world goes out there to try to weaken their currency, except for the US. So we set up a trade thing with Mexico like NAFTA. You know, maybe Dollar Mex is trading at $3 to the dollar and now it's at $12. But Doug, don't you think that the Euro is, or the Euro is losing, is gaining steam against the dollar because the gap in policy between the Fed and the ECB is shrinking? Well, the gap is obviously shrinking, the yield differential is shrinking. But on top of that, no one's talking about Greece anymore. And even though nothing will all agree, nothing's really changed in Europe, it's not in the radar anymore on CNBC or on the street every single day where people are talking about Greece, Greece, Greece, what's going on in Italy, people aren't thinking about that. Now they're thinking about Trump. So they're thinking about Trump and Europe's getting a free pass here. And so you see this sort of move up again. No one's buying the Euro right now thinking, oh my goodness, what about Greece? Greece is only 2.3% of the overall GDP of all of Europe. I don't understand why people ever worried about it. You know, dollars aren't really weak either. I mean, we're talking about 96, 97, DXY. We were talking about an 80 DXY a few years ago. Right, so the dollar hasn't weakened that much. Sure, we've had a little bit of a move, 5% to 8%, pretty much across the board against most currencies. But I'd expect to see another 10%, 15% of weakness before we really start affecting the US, but also a manufacturer won't set up a plant in the US unless he understands that this isn't a short-term phenomenon, but it's something that maybe the dollar weakens by 25% from its highs, and then it sits there for a while. Because when you open up a manufacturing plant, when you hire workers, you expect to hire them for the next 5, 10, 15, 20 years. You can't sort of hire them, then suddenly become too expensive for you to do it. Well, you expect, though, to hire them because they're building something or making something people want to buy, and I think that's the concern right now is there's a slowdown in purchasing. There's a big growth, I think, in terms of experiential, so you're seeing, again, whether it's the hotel industry, corporate sales are going down, retailers using hotels more, they're getting more traveling, you're getting China traveling. I think the purchase of things continues to decline. I think there's less interest in that. So even if we create the cheaper dollar, I'm not sure that it leads to this great economy where we're building and manufacturing stuff. Even on a greater economy. In a world that wants less. But there is somewhere to go. I mean, you can go to small caps in a situation like that. You get along your Russell 2000 names or your Russell 2000 ETFs. That's been doing very poorly, which is one of my points that concerns me right here. That's been doing very poorly, but if there is a belief that we will have a more domestic economy, those stocks won't do poorly. All right, I want to talk about the Euro more in our next segment when we talk about how to recession-proof your portfolio, but one more question on this point about the recession. The unemployment rate is at 4.3%. It was also at this point in 1965, January 1999, and October 2006. After all these times, something bad happens. You know where I'm going with this. The Wall Street Journal had a great article on this. Is there any historical context that is relevant when I talk about those three days? Absolutely not. Different times. Not just that, but here you have a very low participation rate, not because women are out of the workforce, but because less people are working. In those other days, except for 2006, almost half of our population wasn't looking for a job. They were home either mothering or wifeing or doing something like that, so they weren't part of the statistics. Now the statistics are totally different. The unemployment rate of 4.3% is obviously low. It's not realistic. Gallup has it at 5.5%. The underemployment rate of 8.4% is obviously low. Gallup has it at 13.9%. So you might have been dealing with truer statistics in 1965 than you are now, which paint a rosier picture than we actually have. So I don't think there's much of a... Well, that's a good point. I mean, David, you agree that the unemployment rate is 4.3%. I usually don't agree with Sarge, but in this point I 100% agree with him. That I don't think the employment rate or the unemployment rate has much bearing as far as whether we're going to go into a recession sooner or later. I think it has far more to do with debt, Fed policies, the actual economy itself. And I do agree with Sarge. Those statistics are so skewed now that they have been for several years. Well, let's remember that was Rachel Low on the backs of people who were working for $9 an hour for 29 hours a week, not for guys or gals making $70,000 a year in an office. So it's a different time and the jobs are not as desirable as they once were. Absolutely. All right. I want to move on to our next segment. We talked about the two most pressing questions on this topic. When is the next recession and how bad will it be? But now let's talk about what you can do to prepare for the eventual recession because whether it happens in one year, five years, or 10 years, you want to be prepared. So Sarge, I'll go to you on this. What should you do? How do your recession prove to your portfolio? Well, there's no way to completely prove to your portfolio, but you know what, defense wins championships. So if you get the feeling that we might be going into a recession, and I think it could happen as soon as early next year, maybe as far as 2022, like PIMCO said, I think that's pretty safe that we'll have one by then. But that's when you want to be in your dividend yielding names. That's when you want to be in your utility sector. That's when you want to be in staples. That's when you want to buy Dave's gold. And you want to be one of the long treasuries at that point. Well, in the PIMCO report I mentioned earlier, they are building up their cash position so that they have some dry powder during the next recession to get stocks and bonds at a discount. Peter, from a fixed income point of view, how do you recession prove to your portfolio? I think for now you can continue to own some treasuries or global sovereign debt. I think they're in pretty good shape. I think yields are low, but there's still support. You've got the central banks buying them. If we get any sort of hiccups, the central banks will very quickly shift from being hawkish to very dovish, as Doug said. And I think you can do some of that.  At the same time, I think you can look for areas that will do well if you become very domestic focused. So, you know, pipelines I continue to think are an interesting asset here. You get some yield play. You've got, you know, strong support from DC. And we're going to try and be a little bit more insular, I think, so that works. I would eye the banks. I'd want to take a look at the banks, but I think the banks probably have another good leg down before they become interesting. Sarge, you agree with that? Well, I was shaking my head when you mentioned the banks. As long as the yield curve stays the way it is, you don't want to be in a bank. I sold almost all my bank holdings already this year. I'm just flowing key banks. I think it's a good stock on valuation. And I'm still flowing some city, but a very small amount. The spread between the two years and 10 years, now down to what, 0.84 or something like that. I don't want to buy another bank stock until it's even approaching 1%. So until there's some margin in banking, I don't play it. So the two things I need to look for, right? And I think equity guys tend to focus on this, you know, yield curve play. The reality is you've got to focus on transaction volume. So that's why JP and all those guys announced weaknesses. Look at high yield calendar. The high yield calendar slows down. The big banks in particular are heavily levered to their FIC businesses. So their fixed income rates and currencies business are what drives it. So when Doug and I are saying, hey, volumes are slow in those areas, that's when the big banks take a hiccup. You also have this lack of volatility impacting mortgage. So there's less refi. The banks still make, certainly the big banks make most of their money on transactions, not from net interest margin. The 2s, 20s, you know, I've worked at banks. Banks hedge a lot of their interest rate risk. Banks blew up in the SNL crisis and everyone kind of remembers that and says, oh, 2s, 10s. Stocks correlate with that fairly often because so many people look at it. That tends to be when you want the opportunity. So I wanted out of banks, you know, a month and a half ago. I still want to be out. But I will watch for a turnaround where you start getting credit spreads wider again where you can pick up or you get some volatility back in the market, which will typically happen during recession. That's when I want to buy the bank. But Peter, what do you make, though, the fact that financial stocks in the S&P 500 have given up almost all their gains so far this year? I think they were way overdone because we weren't getting the transaction volumes. People also got way too excited about deregulation. I think the whole concept... Which hasn't really happened beyond executive orders. And it's probably not going to happen. I think Volcker rule was a silly rule. It was hard to enforce it, decreased liquidity. People don't really understand it. A lot of the other rules are there. They make some sense. Maybe they were over the top a little bit. And you've now had four years of banks trying to implement those rules and adapt to them. I don't think there's going to be a big regulation change or deregulation for banks. So people have got carried away. Small banks, again, I think there's potential. I think small banks will be left a little bit more off the radar screen. But the big money center banks, they aren't going to get this huge regulatory reform. And I don't even know if they did, if it benefits them that much today or tomorrow. And David, when we talk about recession-proofing your portfolio, obviously gold has to be part of it. I, it's our wheelhouse. The truth of it is what we've been talking about here with Doug and everything is like, okay, if the dollar is going to get weaker versus the euro, versus the Chinese R&B, versus the yen, if all of these things are in play and we're on some sort of a weakening process to try to stay out of recession in different countries, they're all trying to weaken their currencies versus each other. The one thing, the one currency they don't manipulate is gold at this point. And so if you look at gold as a currency and not as a commodity and say, okay, gold is a currency and it's traded like a currency vis-a-vis others, if you look at volumes of stuff, then you say, okay, wait a minute, where do I want to be? I want to be in something that's not controlled by one specific government, by one specific entity, it's global, it's worldwide. And so, and it's also there's, you don't have counterparty risk. Your gold is your gold. Your counterparty risk might be in valuation, but you don't have counterparty risk. You're not going to have the Fed printing gold. They can't do it. You're not, or the ECB taking away, it's a very, very different animal. And that's why it's a safe haven, because in these kind of...


Cheesy hot quesadillas make a great snack. They make a great lunch and you can turn them into a really nice, light springtime supper by the addition of some springtime veggies, along with all that gooey, melty cheese. So I'm gonna show you how I've been making it the last week or so because of the vegetables I'm finding in the grocery store. Lots of green. I've got sugar snap peas and I've trimmed them and I sliced them diagonally into thin slices. Asparagus, of course, is popping up all over the place and same thing, I snapped the ends off, washed them and sliced the pieces diagonally and the reason I like to do it diagonally is because if you do it just like little round circles they roll all over the place and then when you sprinkle on the quesadilla they can roll around. Green onion, something else that's green, sliced on the diagonal again and I'm going to dump these prepared pieces into a bowl and mix them together with a little bit of ground cumin. I like to give it a little bit of flavor. So there's the asparagus, the green onion, the sugar snap peas, a little bit of garlic, just minced garlic, it's raw. And I'll probably put in, oh, maybe about a teaspoon of ground cumin for some great depth of flavor and just maybe about a quarter teaspoon of salt. And I'm going to just mix that up with my clean hands. So I'm putting one tortilla in my pan. I'm going to sprinkle some of the cheese over the tortilla and then I'll put my veggies right on top of it because when I do that, as the cheese melts, it's going to hold the veggies in there. And then on the top, more cheese. Sprinkle a nice generous helping of cheese over the top and then I'm going to put the other tortilla right over the top. And now I'm going to put this pan over medium heat on the stove. I don't like to get it too high because I want the cheese to have a chance to melt and the outside just get a nice golden brown while that cheese is melting. So I'm going to put it on the stove, let it sit a few minutes and then I'll flip it. One thing I do want to say is while the tortilla is warming and the cheese is melting, I like to take my spatula and just kind of mush it down so it all gets stuck together from that melted cheese.  And there you go, you've got such a nice meal. Look at how that cheese is just melted. Those nice spring vegetables are caught between the melty cheese. Springtime veggie quesadillas, delicious. I hope you'll give them a try. I'm Sue Dodon sharing Good Food for Good Life 365.


Can we agree that intimacy or sleeping with someone is a very intimate act? And it seems to me that if we wanna take this a step further, kissing someone is a very intimate act. And yet probably in the last 20 or 30 years, kissing on a first date is a very common thing. I want you to think about that for a second.  Do we really know if we can trust this person? Do we really know this person has our best interest at hand? Coming back to kissing is very intimate act. And yet we kind of say, okay, that's kind of expected on a first or second date because it's a sign of affection.