3 Ways to Prepare for the Coming Recession

Source: Thinkstock

Source: Thinkstock

Investors essentially shrugged off yesterday’s news that first quarter GDP came in at negative 2.9 percent. But that doesn’t mean you should too. The economy is weak, and with the Federal Reserve tapering and with geopolitical tensions heating up, you need to think about eliminating risk from your portfolio.

In particular you need to consider selling, or even going short those companies that are highly correlated to the U. S. economy. This doesn’t simply mean that you should sell your U. S. stocks and buy inverse ETFs on U. S. stock indexes. The reason for this is two-fold. First many of these companies get a lot of their revenues overseas. For example McDonalds (NYSE:MCD) is a U. S. listed company, but it gets most of its sales overseas in Europe, Asia, and South America. Many of these economies are still growing, and McDonalds will likely not be heavily impacted by a decline in U. S. GDP. Second, many sectors of the economy will not be hit by a recession, and they may even benefit. For instance low-end retailers should do very well.

With this in mind, if you are looking to sell some of your holdings or to go short, you need to isolate those companies that are economically sensitive and that operate primarily in the United States. Here are a few ideas to consider after the jump.