We just lived through the shortest recession in history!

Wednesday: The Independent Investor FROM THE DESK OF MILES EVERSON: We’ve all witnessed how the COVID-19 pandemic shook the whole world. Different sectors in the society―business, education, tourism, sports, restaurants, etc.―all had to learn to quickly adapt to disruptive changes in order to thrive amidst the health crisis. However, you should still give yourself a pat on the back. Why? Because we survived the shortest recession in U.S. history! Continue reading to know more about the impacts of the COVID-19 pandemic in the economy and how you, as an independent investor, can benefit from these insights. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

We just lived through the shortest recession in history! The pandemic-induced recession was the shortest ever… The private nonprofit organization National Bureau of Economic Research (NBER) officially defines a recession as a “significant decline in economic activity spreading across the economy, lasting more than a few months.” When the NBER's Business Cycle Dating Committee drafted this definition in 2009, it could never have foreseen the economic "black swan" event that brought the world to a standstill in 2020. As you probably remember, during the first week of February 2020, the economy was roaring along. The unemployment rate was low. The credit picture looked good, and companies were posting record earnings. Toward the end of the month, the coronavirus pandemic sent everything to a grinding halt. According to the NBER, by the end of April 2020, the recession was over. By June 2020, the U.S. GDP was already back to its pre-pandemic peak, and the stock market was blasting into space. As we think about where the economy is headed, we need to understand where it's coming from and the structural factors that allowed it to weather the storm quickly. Like we always say, the answer lies with debt... Recessions typically occur as the economy becomes more unstable, thanks to corporations taking on more debt. A one-time shock creates a credit crunch, making it difficult for firms to refinance, leading to market panic. In turn, that same lack of credit often draws out the recovery as businesses are strapped for cash and cannot grow. Corporate America's debt buffer was instrumental in getting us to where we are now, coming off an impressively healthy economic recovery. While cash flows have barely matched obligations, from 2019 through 2023, cash on hand across the economy means the risk of widespread defaults remains low. The learning curve for distanced productivity, and even the start-and-stop pandemic issues, are of little consequence for the stock market recovery, as equity prices are valued long-term. Let's understand what shape we're in right now to prepare for the next few years... Has the recovery shrouded us in looming clouds of credit bound to put corporate America in an awkward spot, or is the debt picture still healthy? As you can see, the debt picture looks better than ever. Although total corporate obligations among companies with debt outstanding have increased from about USD 1.9 trillion to about USD 2.8 trillion, the buffer between cash on hand and obligations has doubled from about USD 1 trillion to USD 2 trillion. Uniform gross earnings are expected to cover not only operating obligations and debts but also buybacks. The corporate debt stack seems nearly bulletproof as it stands. That means we're still well-positioned for this staggeringly strong recovery to sustain going forward. All this is to say that default risk and future recession risk is very low... While recovery has continued, the economy still has to contend with other issues. Corporations are now working on picking up the pieces of a fractured supply chain. Governments are working to reconcile the "K shaped" nature of the recovery. While it's lucrative for those with invested wealth, it can be highly damaging to those with fewer financial resources. These issues will likely have little impact on the equity markets going forward. So, why are we talking about all these? It’s because monitoring default and recession risks closely will give you an accurate understanding of the economy. As an independent investor, you need to have insights to be able to pull together market facts and know how you should be adjusting your investment strategy. When you use the power of Uniform Accounting, which removes distortions in as-reported financial metrics, you’ll see stocks based on their real financials. Once you’ve cleaned up the GAAP numbers, you’ll then be able to see whether or not a company is thriving. Hope you’ve found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Wednesday’s The Independent Investor! As the coronavirus pandemic ebbed and flowed, we observed something interesting about our workforce. Learn more about how one software company is well-positioned to earn big profits in the work from home setup on next week’s The Independent Investor!