Editor's letter

We may be heading for recession – and it will be no ordinary recession

Just as the downturn in 2020 was not a typical recession. the next downturn could be very different too, says Merryn Somerset Webb.

Netflix. Are you still watching it? I can’t remember when we last did. We aren’t alone. Netflix has just reported losing customers for the first time in a decade. It is already 200,000 down and reckons it will see another two million customers cancel this quarter.

You might see this more as symptomatic of the cost of living crisis and the many economic miseries ahead than anything else. That’s not entirely unreasonable. In this week' smagazine, we look at the danger to the global economy from Xi Jinping’s inflexible empire; we also look at what you should worry about in France (the election and the insanely high levels of debt); and we list the reasons to be frightened of stagflation.

However, the Netflix disaster might be telling us something else altogether – that if there is recession ahead (a lot of indicators suggest there might be), it might be no ordinary recession. There’s a clue about what might be different in what has happened to shares in Netflix (they fell 27% on the news of the firm’s falling popularity) and what has happened to those in hotel company Marriott (up 25% in the last six months), says Bloomberg.

The extremity of the moves is partly about expectations – Netflix’s share price reflected very optimistic views about its future growth and much of the previous underperformance of shares in Marriott reflected pandemic misery extrapolation. But both these moves reflect the possibility that just as the recession of 2020 was “atypical” (to put it mildly) and so was the recovery into last year, the next downturn might also be very different.

Stepping out again

With what money there is left in their pockets after paying their energy bills, might consumers stop sofa surfing, stop browsing the internet for homewares and ineffective masks and just go out? GDP may fall, but hotel occupancy may just keep rising. And Netflix’s customers? They aren’t so much cutting their overall expenditure or leaving because – as Elon Musk thinks – Netflix is too “woke”. No, they are simply transferring their spending power to the pub. 

Think Joe Jackson and his 1980s hit Steppin’ Out:

“We are young but getting old before our time

We’ll leave the TV and the radio behind

Don’t you wonder what we will find

Steppin’ out tonight”.

One thing you will find as you step out will be inflation (which is why you will soon cancel your Netflix subscription if you haven’t already). In an inflationary environment everyone puts their prices up (there is no choice), so your investments also need to take account of this. One way to do so (and possibly to take advantage of the reshoring and supply-chain resilience trends as companies move production away from China at the same time) is to look at real estate investment trusts. For even higher yields (albeit maybe temporary ones) remember the miners. Hold BHP, get the full-year dividend analysts expect and you will find you have made 9%. Finally, don’t forget gold – as we note , it is finally showing its mettle as an all-purpose safe haven. 

Recommended

Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022
A fund that should give good returns from investing in good deeds
Share tips

A fund that should give good returns from investing in good deeds

Schroders BSC Social Impact Trust has made a solid start and looks more attractive than it did at launch, says Max King.
26 May 2022
Wall Street’s sell-off has further to go
US stockmarkets

Wall Street’s sell-off has further to go

The current stockmarket sell-off has been led by tech stocks, but the pain is spreading. The bear market has further to go – US stocks are still expen…
25 May 2022
Law Debenture investment trust update: premium over net assets slips
Investment trusts

Law Debenture investment trust update: premium over net assets slips

Saloni Sardana looks at the latest update from the Law Debenture investment trust, one of the six funds in MoneyWeek’s model investment trust portfoli…
25 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Three high-yielding FTSE 250 dividend stocks I’d invest in right now
Share tips

Three high-yielding FTSE 250 dividend stocks I’d invest in right now

The average FTSE 250 dividend yield is around 2.4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income inves…
23 May 2022