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. 

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