I have long preached that an economic recession is different than a financial recession, which is far worse. (Think 2009) A financial recession always triggers an economic recession, but an economic recession does not always trigger a financial recession.
Personally, I believe that I can smell a financial crisis coming on. I look for sudden changes, such as a surprise bank failure or an unexplained spike in junk-bond rates or credit default swap rates or a AAA credit that can’t be syndicated or Fed mistakes or many other things. It is never appropriate to sell all stocks, but it is appropriate to increase cash in the face of a pending financial recession. We are not there. Keep in mind: Our American banks were forced to recapitalize after the last crisis and are the strongest in the world today.
Economic data for pandemic-caused economic recessions is simply non-existent. It is enough for now to accept the possibility that the coronavirus has already caused a recession in the world’s second largest economy and that we are also vulnerable. We do have the advantage of watching the economic recession develop in Asia first and rolling into Europe next, before seeing it here.
We don’t have that same time advantage in watching for a financial crisis. One reason is that the Chinese government could funnel funds into Chinese banks before we could recognize the funds flow, and another reason is the unreliability of the information they release. We are more likely to see financial stress in Europe before we see it in China. That will be the time to make hard decisions, not today.