BlackRock — the world’s largest asset manager — says central banks are ‘deliberately’ causing recessions, warns of a downturn unlike any other

Jing Pan

December 12, 2022

Many experts have already sounded the alarm on the U.S. economy. But you still want to pay attention to what BlackRock — the world’s largest asset manager — has to say for a very simple reason: it’s predicting a recession unlike any other.

“Recession is foretold as central banks race to try to tame inflation,” BlackRock’s team of strategists write in their 2023 Global Outlook.

In fact, the strategists believe that central banks are “deliberately causing recessions by overtightening policy” in an effort to bring price levels under control.

In the past, when the economy entered a downturn, the Fed typically stepped in to help. But due to the cause of this projected recession, BlackRock says we can’t count on the central bank.

“Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect.”

And that does not bode well for stocks. The S&P 500 has already plunged 18% year to date, but BlackRock believes that equity valuations “don’t yet reflect the damage ahead.”

If this recession does turn out to be different from previous ones, maybe it’s time to look for unconventional ways to hedge against it. Here are three assets to consider.

Real estate

It may seem counterintuitive to have real estate on this list. When the Fed raises its benchmark interest rates, mortgage rates tend to go up as well, so shouldn’t that be bad for the real estate market?

While it’s true that mortgage payments have been on the rise, real estate has actually demonstrated its resilience in times of rising interest rates according to investment management company Invesco.

“Between 1978 and 2021 there were 10 distinct years where the Federal Funds rate increased,” Invesco says. “Within these 10 identified years, US private real estate outperformed equities and bonds seven times and US public real estate outperformed six times.”

It also helps that real estate is a well-known hedge against inflation.

Why? Because as the price of raw materials and labor goes up, new properties are more expensive to build. And that drives up the price of existing real estate.

Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.

But you don’t need to be a landlord to start investing in real estate. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.

Consumer staples

Higher interest rates can cool down the economy when it’s running too hot. But the economy is not running too hot, and BlackRock sees rate hikes pushing the economy into a recession.

That’s why investors may want to check out recession-proof sectors — like consumer staples.

Read more: Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead

Consumer staples are essential products such as food and drinks, household goods, and hygiene products.

We need these things regardless of how the economy is doing or what the federal funds rates are.

When inflation drives up input costs, consumer staples companies — particularly those with entrenched market positions — are able to pass those higher costs onto consumers.

Even if a recession hits the U.S. economy, we’ll probably still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known brands from Procter & Gamble (PG) — will likely remain on shopping lists across the nation.

You can gain access to the group through ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).

Wine

People have been consuming wine for thousands of years. While most collect wine for enjoyment rather than investment, bottles of fine wine become rarer and potentially more valuable as time goes by.

Since 2005, Sotheby’s Fine Wine Index has gone up 316%.

As a real asset, fine wine can also provide the diversification you need to protect your portfolio against the volatile effects of inflation and recession.

You can invest in wine by purchasing individual bottles — but you’ll need a place to store them properly. Residential wine cellars often cost tens of thousands of dollars. If not stored at the right temperature or humidity, the bottle could be compromised.

That’s one of the reasons why investing in fine wine used to be an option only for the ultra-rich. But with new investing platforms, you can invest in investment-grade wine too, just like Bill Koch and LeBron James.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

https://finance.yahoo.com/news/blackrock-world-largest-asset-manager-223000827.html

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