Don’t Panic! This RV Crash Indicator is a False Alarm!
If you want to know when the next recession is coming…
Don’t look to Wall Street.
Instead, set your compass to Elkhart County, Indiana.
This little county may be the best crystal ball for predicting recessions.
Elkhart County is home to just under 200,000 people, or just a miniscule 0.0006% of the American population.
But it’s also the “RV Capital of the World,” which is why I bring it up today.
Over 70% of the recreational vehicles manufactured in the United States are built here.
This matters because demand for RVs has proven to be a very accurate gauge for where the U.S. economy is going.
For a consumer, the purchase of a recreational vehicle is a big one.
Many of these rigs run well into the six-figures.
When someone makes that kind of purchase, they give it a lot of thought. Careful consideration is given to the ability to make those payments over the next number of years.
If any doubt about job security or lack of future income creeps in, the likelihood of purchasing an RV greatly diminishes.
That is why RV production is a great forward indicator.
Falling RV production has successfully predicted each of the last three recessions.
And production is falling again today — down 20% this year to be exact.
This has many people saying that a recession is on its way — and rightfully so!
But before you go out and sell all your investments, let me first explain the context of this falling RV demand, so not to sound like one of those “sky is falling” talking heads on TV.
Specifically, we need to factor in the level from where RV production is falling from.
The last six years has seen the most RVs ever produced in this country.
More specifically, 2017 and 2018 have been the best years ever.
So yes, 2019 RV production has fallen…
But it’s fallen from an unprecedented level to more normalized levels.
Because of that, for now I’d say that this flashing recession sign is just a false alarm that we should keep our eyes on.
And better yet, instead of just watching and waiting for the next recession to arrive, let’s adjust our portfolio in the meantime to weather any upcoming storms.
Let’s Invest Like a Recession is Coming
More important than successfully predicting when the next recession is coming is building a portfolio that can withstand one.
If the companies you own can’t hold up through a rough economic patch, you don’t own the right companies!
To further build a recession-resistant portfolio, a person should own a significant number of rock-solid dividend paying stocks.
That’s because stocks with reliable yields outperform during downturns.
One of those would be America First Multifamily Investors (ATAX) which currently offers a monstrous tax-free 6.6% dividend yield.
ATAX owns a portfolio of federally tax-exempt mortgage revenue bonds. These are bonds that have been issued to provide financing for multi-family residential properties.
The revenue that ATAX owns from these bonds is exempt from federal income taxes. It qualifies for that by having a certain percentage of the tenants in the related apartment building being below a median regional income level.
This tax benefit flows through to owners of ATAX, so distributions received by shareholders are exempt from federal tax.
In reality, ATAX’s 6.6% tax-free dividend yield is equivalent to a 10% yield from a taxable dividend.
To be clear, while the loans ATAX owns are called “bonds” they are really mortgages on individual properties.
ATAX lends money to a borrower, and if the borrower defaults, ATAX has the right to foreclose on the property.
In total, ATAX owns roughly 80 of these instruments across a geographically diversified portfolio.
This portfolio has historically performed very well.
As far as the reliability of these distributions in a recession — this company has passed the ultimate test.
Through the entirety of the collapse of the housing bubble in 2008-2009, when countless real estate linked businesses failed entirely, ATAX didn’t miss a beat and continued to pay its distributions to shareholders.
So for now, let’s not panic over the Elkhart County RV Indicator, and instead slowly start to adjust our portfolio for possibly stormy weather ahead.
ATAX’s 6.6% tax-free yield is a great way to do this.
Here’s to looking through the windshield,
Financial Analyst, The Daily Edge