The difference is that a powerful group of people is enacting policies that have triggered recession/depression in the past and no good historical precedent/academic support for working. It's seems kind of crazy to me we're ignoring that part.
We're starting trade wars on multiple fronts, exiting or weakening multilateral alliances (and simultaneous giving an advantage to our global adversaries), and weakening the balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.
It is basically guaranteed to do so unless the business cycle has stopped for good (unlikely). The question in my mind is who the scapegoat is going to be, and how much denial there's going to be if the real effects of slowing growth start becoming apparent.
> The question in my mind is who the scapegoat is going to be
Step 1 - do dumb and harmful things to increase your popularity among ignorant supporters
Step 2 - blame the innocent for the inevitable crisis
Step 3 - use the crisis you created to justify more dumb and harmful things
Step 4 - multiple crises cascade into catastrophe
Step 5 - use the catastrophe to justify emergency powers, suspend due process, arrest political opponents, mobilize local militias to "restore law and order"
Recent history shows that the Fed starts raising interest rates and then goes just a bit too far. They're like a driver who won't stop rhythmically pressing and releasing the gas pedal, until the passengers get motion sick.
In my opinion, the tax cut that has been benefiting the economy is the move away from zero percent interest rates. Lending to banks at below inflation is like a tax that goes directly to them. But when we keep on raising short term rates above inflation, that's going to be like a tax too, and I expect we will promptly get whiplash since the Fed doesn't know when to stop.
Maybe I am becoming a crank, because I feel Cassandra-ish, like major macroeconomic problems are so simple but nobody gets it. Feel free to explain why I am totally wrong.
The tax cut is like sugar at a birthday party. It will cause a short term boom, but soon enough that stimulant will be adjusted for, and when the recession comes, the government will have less flexibility to use fiscal stimulus to restart growth.
Furthermore, to finance that tax cut, a lot of money is being borrowed. When government is out there shilling its bonds, this crowds out investment into corporate bonds and equity, depressing growth.
Ultimately they're not raising tariffs on end products, they're raising it on parts, but that will still cause inflation plus unemployment because tariffs on parts will drive production out of the US where it gets taxed on the way back in, so you'll both lose exiting US jobs while driving up the cost of products coming back in as you both make it impossible to produce in the US and also drive up prices.
What reason do you have for expecting current tariffs to not escalate into broader and more destructive tariffs in this ongoing trade war? Are you basing this on rational choice theory? Because I have some disappointing news for you in that case.
If I were in charge of a country subject to new tariffs, I would consider playing it differently. Rather than applying punitive tariffs back, I would consider trying to get US manufacturers that are affected to the tariffs to move to my country and export finished products to the US. After all, the nonsensical structure of Trump’s tariffs may be more harmful to the US than to anyone else.
Currently it's devolving into tariffs on everything. Like Europe's 25% tariff on Harley motorcycles. They're getting hit on both ends too because their inputs are also hit (steel being the big one). Tariff in and tariff out, it's ridiculous.
Actually the tariff is 31%. An increase of 25% over the existing 6% tariff. If Europe is so concerned about tariffs, then why did they have a 6% tariff in the first place? That’s the point of this “trade war” — countries already have tariffs. It’s disingenuous to complain about American tariffs when the EU has built their protectionist model around doing just that.
France has a bunch of “protected” industries and they have the nerve to complain when others retaliate?
For the record, I am opposed to all tariffs and subsidies. But framing this as a Trump-caused issue is intellectually dishonest. He’s just attacking the status quo (wrongly or rightly.)
We're punishing Canada who has some of the most open markets in the world. Like top ten lowest tariff rates. Don't try to pretend there's any rhyme or reason to this, it's intellectually dishonest.
The US charges plenty of high tariffs in return, it's not like the US doesn't protect industries. The EU laid these on in response to Trump protecting the domestic steel and aluminum industry (notionally for national security reasons, which is a joke).
Why was there a 6% tariff on motorcycles to begin with? That tax wasn’t in response to Trump. That tax was to protect EU industry which is exactly the problem. The EU has long engaged in protectionism — when the US does the same, somehow that’s a scandal? Let’s be intellectually consistent here. All tariffs are bad except in the case of dumping.
And the US has 25% import duty on trucks, why do they have that to begin with? You can play that back-and-forth game quite a bit.
I'd be a bit more sympathetic if the US government had asked the EU to remove duties before creating new ones, but that doesn't appear to be the case. And at the same time people complain that it's totally unfair that the Canadians seek to limit imports of some goods from the US...
Commonly known as the "Chicken Tax", this was imposed by LBJ in response to French & German duties on imported chicken meat. Congress lumped light trucks into the bill because LBJ wanted the support of the UAW, who didn't like the importation of the VW Type 2 pickup as well as Japanese utility vehicles.
At the moment, the tax on light trucks is the only remaining part of this bill. And it's pretty toothless as Honda is now building trucks in Alabama, and Ford/GM are building fullsize trucks in Canada & Mexico (which don't get taxed because of NAFTA) yet somehow get classified as domestics.
I'm not sure the exact details but it was all set in Uruguay Round of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1994 and embracing 123 countries. And then I guess people kind of forgot about it. EU's trade weighted average MFN tariff was 2.3% for non-agricultural products (in 2013) and no one seemed particularly bothered about it till now.
Probably for similar reasons the US charges a 2.4% tariff (on a muuuuch higher dollar value of motorcycles since Harley is about the only US motorcycle maker).
The US has long engaged in protectionism as well - do a search for US protectionism if you think the US is somehow unfairly treated in this respect and need a list. For a long time the consensus has been that lower barriers are better for everyone, until Trump unilaterally ripped up several free trade agreements and declared (trade) war on the world.
This is a dangerous escalation from Trump which will lead to a global trade war and recession at the very least.
Can't respond to the person below you, so I'll have to do it here - the EU doesn't actually make many motorcycles, and people who buy them don't want a harley - they want something fast and reliable, not loud and showy.
I would suspect it's a general 6% tarriff on things that haven't been included in a trade deal before, and thanks to WTO rules it'll be the same for Japanese motorbikes as well.
That's what I would've thought too, but in 2017 Harley sold 140k bikes in the US and 40k in Europe. So probably a fraction of the Japanese brands, but definitely a significant portion of Harley's business.
Most of the world has been reducing tariffs and bringing in free trade agreements like NAFTA, the EU single market, the almost passed Trans-Pacific Partnership and so on. Trump is kind of unique in recent times going the other way.
There is no such thing as “reasonable protectionism” unless you are dealing with dumping. Harley could hardly be accused of dumping. So why a 6% tariff in the first place? EU clothing tariffs already average 12% in many other categories it ranges from 4-36%.
So is the EU protecting nearly every industry? Isn’t that the point of this “trade war” — the EU has been applying tariffs to almost everything for a long time. Doesn’t the US have a right to retaliate?
French milk is already better than most American milk, yet France puts a 36% tax on dairy imports in addition to heavily subsidizing dairy. So the effective tariff is much higher. And European consumers end up losing because they have to spend more of their money on dairy — all to protect a fairly small industry when measured as a percentage of GDP. Yet every time reforms are attempted, farmers literally riot.
Why should a country accept their goods being taxed without being able to respond in kind?
This is tit-for-tat to be sure, but the tit didn’t start with the Trump tariffs.
Huh? It's disingenuous to look at only one one side of the equation. The US imposes its own share of tariffs and non-tariff trade barriers. Some of which (mainly for certain agricultural products) are high enough to all but eliminate imports of them altogether. Peanuts, raw tobacco, and sugar are examples of American industries that have benefited from aggressive protectionist policies for decades.
Existing trade agreements have recognized this; it's not something that the EU has unilaterally imposed in recent years. The average EU tariff on American goods is under 3 percent.[0] More importantly, the average tariff--for both the EU and the rest of the world--have been steadily declining.[1] That was the trend. The administration's recent trade policy upends that trend for no real purpose.
If the goal is to see tariffs lowered and barriers removed--one that I heartily support--you don't undertake a policy that will spur the opposite. You sit down at the negotiating table like adults and hammer out a trade deal. Which is a lot harder than it sounds, because every tariff of your own that you can use as leverage in the deal has its own domestic supporters. Many of whom are politically well-connected. It's not surprising then, that the administration chose to pursue a simpler (albeit inherently flawed) approach.
The tit didn't start with the Trump tariffs, but Trump also effectively stopped TTIP negotiations, and TTIP would lower trade barriers between US and the EU. This was a prelude to the current trade war with the EU. Which is very unhelpful, he should just concentrate on China.
> We're starting trade wars on multiple fronts, exiting or weakening multilateral alliances (and simultaneous giving an advantage to our global adversaries), and weakening the balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.
I'll add the embrace of nationalism. Many of the leaders through WWI and WWII, including Churchill, put significant blame on nationalism for the wars, which is why they supported internationalism including the EU (or the beginnings of it at the time), UN, World Bank, IMF, etc.
If Europe were once united in the sharing of its common inheritance, there would be no limit to the happiness, to the prosperity and glory which its three or four hundred million people would enjoy. Yet it is from Europe that have sprung that series of frightful nationalistic quarrels, originated by the Teutonic nations, which we have seen even in this twentieth century and in our own lifetime, wreck the peace and mar the prospects of all mankind.
...
What is this sovereign remedy?
It is to re-create the European Family, or as much of it as we can, and provide it with a structure under which it can dwell in peace, in safety and in freedom.
We must build a kind of United States of Europe.
...
And why should there not be a European group which could give a sense of enlarged patriotism and common citizenship to the distracted peoples of this turbulent and mighty continent and why should it not take its rightful place with other great groupings in shaping the destinies of men?
The recession didn't happen until 2-3 years after that, making me question the utility of such predictions. "A recession will happen - eventually" is about as useful as predicting your own eventual demise.
The DOW is a very poor indicator of the economy, it's just 30 "chosen" companies that somehow represent the whole US market. You're talking about precision and you use one of the most derided economic metrics.
You're not wrong about that, but I don't think it disproves my point at all. What value exactly are you going to get from predicting recessions within a two year window?
A lot of people don’t even have 3-4 month expense savings in case they lose their jobs. Knowing a recession is coming at some point in next 4 years would help them.
A pretty significant portion of those people lack savings for reasons other than choice (and I'd wager a significant portion of those who do lack savings because they just can't be bothered probably won't bother if there maybe might be a recession eventually, probably perpetually convincing themselves they can just put money into savings later)
Without knowing anyone's individual situation it's hard to answer, but at the very least you should have 3-6 months expenses in a money market / savings account. You don't want to be in situation where you are forced to liquidate assets at below market prices.
But that's always the case, not only when the executive implements new tariff policy. Predicting a recession in the next decade is like predicting a sunrise tomorrow morning.
Sure it's always the case but not everyone does it. Most personal finance advice is based on the assumption that recessions are inevitable and people should prepare for them, in this case especially if they are likely to occur within 4 years.
I'm not advising timing the market, several illustrative arguments in this thread showing how it can not pay off, especially if selling is a taxable event.
It does kind of poke a whole in your argument because the dow drops companies that aren't growing. So when it actually down there's a tremendous change. Otherwise they drop companies that are hurting, like ge.
I didn't say it was. I'm just searching for any kind of value from predicting a recession with such a coarse grained level of precision. I think it's a ridiculous claim.
The phrase "economic health" looks odder to me the longer I ponder it.
"The economy" isn't a living creature, so the phrase is a metaphor, and different people are likely to have very different ways of interpreting it, according to their own interests and concerns. A hedge fund manager, a real estate magnate, and an unemployed single parent will have very different ideas about what is important for "economic health."
You could probably do worse than to start with actual human health, though. Even if your goal is something narrow, like the opportunity to personally accumulate money through speculation, a high average level of human health is a great foundation for that kind of growth.
Of course, if you accept all that, the news is again very ominous.
Economic health in general? GDP misses some important details, but it's a much better measure than simply looking at the share prices (not even the market caps) of a small selection of companies operating in a specific sliver of the economy that was very important 100 years ago, but represents a declining fraction of overall US productivity.
Median wages, labor participation rates, access to education and health care, etc... are all more interesting measures. If the economy is only working well for the top 20%, then it's not a very good economy no matter what the GDP and stock market says.
One way might be to measure average incomes against cost of living. The economy is healthy if the majority of incomes are going up faster than the costs of living are.
Another might be the percentage of adults who are collecting incomes, based against the average of incomes. (Effectively, a more accurate unemployment figure).
Another way might be to measure the average amount of savings individuals hold. Or, their assets, excluding homes and automobiles.
---
I would propose that the stock market is probably the worst way to measure economic health. Because the vast majority of the population owns no stock themselves but must be customers of these companies, so the vast majority of the population only suffers when stocks price changes for any reason (both when it goes up, and when it goes down).
The NYT article says precisely that recessions happened 6 months to 2 years later in all cases, except in one case where the economy dipped but wasn't officially a recession in the 1960s. This is different than a stopped clock that is eventually right. In the last 50 years we had recessions or at best a very poor economy with almost no growth (only one time avoided a recession by defn) with 6-24 month lead time after negative yield curve.
To be fair, the economy was still fairly strong by that point. It wasn’t until 06-07 that the subprime lending really got out of hand, and even though 07 was technically when the recession started, it didn’t become a full-blown panic until 2008 when Lehman Brothers and Bear Sterns collapsed.
The yield curve is like seeing upturned leaves in the wind: a storm may coming, but it’s not clear when.
What he's referring to is not leaves on the ground, but upturned leaves on the trees. The conventional wisdom says that a storm is coming when you can see the backs of the leaves.
It’s not leaves on the ground, it’s the leaves on the branches to watch. When they’re upturned, it means that the pressure system is changing, which often precludes rain.
Then a year after the lows it was back over 1200, and it's basically been straight up since then. Unless you timed things very accurately you were better off simply holding.
"Over the long run, that is always true. Just hold and grow, until you are within 10 years of retiring."
No, it isn't. It's quite possible to lose money with a buy-and-hold strategy if you get unlucky, particularly if you aren't diversified. It's probably the most reliable way of investing, but you can still lose money. Stocks are not guaranteed to go up over all possible 50-year intervals.
Monte carlo simulations of S&P500 investments illustrate this:
I really don't understand why you are being downvoted. I've been checking /r/investing for a while now and the general advice is to put all you have into the stock market (diversify) and HODL.
Everyone says there's no way the market can underperform on a longer run and you can't time it so don't bother. When someone brings back 2008 they downvote it to death and reply that it went back up so it will be all fine. When the market goes south just keep buying.
Indeed. But more prosaically, many of these HODL types are discounting how much they'll actually freak out at a market correction. They've never seen a 30% drop, or lived through a five-year correction (let alone an extreme situation, like Japan). Even if you have the stomach to handle the drop, things happen on a five-year horizon that people don't consider: extended unemployment (which tends to happen during recessions), children, houses, etc.
I made that comment thinking it would be a completely uncontroversial statement of fact. It's amazing to me that I'm getting downvoted, as if I've expressed an opinion of some kind.
Obviously, you were like how could these people be so stupid to give this person all this money? Didn't they read the details? ... But one of the reasons it happened, psychologically, was because people thought 8-10% with 0 risk was perfectly normal. That's why nobody asked any questions.
EDIT
And regarding my Reddit rant, also scared me that many people don't pay off their mortgage because they get a better return from the stock market, something I find quite wrong unless you're living in a hyper-inflation economy (which is not the case in the developed world)
But it's not wrong, in expectation given long term past trends. It's just leveraged investment using a vehicle for leverage that has some tax and refinancing advantages that favor the borrower, not to mention the liquidity advantages. There are very rational reasons to do this.
For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
There are other reasons to not pay off you mortgage, especially in the US. The two most prominent being:
1. Usually a certain amount of equity in the house is protected by state law (varies from state to state). So if someone sues you and/or you go bankrupt, no one can touch your principal residence provided your equity in the home is below the state's threshold. That is assuming you stayed current on your repayments and the bank is still good with lending to you.
2. No recourse loans. If you pay off more earlier, you are just opening yourself up to further risk. I'd much rather lose a bit on super low interest rates (and maybe a little in lender's insurance, too), than lose out if the housing market crashes.
@dgacmu Cannot reply to your comment so I will here.
> For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
I agree there always is a point, what I think is that the risk-adjusted return should be much bigger to be worth taking. The spread between the mortgage rate and the stock market return usually is not that big.
There will always be missed investing opportunities but leveraging the house you live in to squeeze an extra 1-2 percentage point at the risk of going bust doesn't look optimal to me.
Right - but what you just said was an expression of your risk/reward preference. :) But also, in the US, there's a pretty large contingent of mortgage holders who have <= 3.75% mortgages [1], which compare very nicely to the (expected / hoped for) 9.7% average return from a diversified total market fund. That's not 1-2%, that's an expected ~5%, depending on how things sit from a tax perspective.
(You don't need to account for inflation in that return calculation, since the mortgage rate is also affected by inflation.)
If you're me -- 42, great job security, relatively small mortgage relative to income, and in a high tax bracket that's unlikely to change soon -- it's a no-brainer: Take the risk and go for higher long-term expected yield. A recession just means I keep doing what I planned to do anyway - working and saving more money for retirement.
If you're 60, planning on retiring in 5 years (and so about to drop into a lower top marginal tax rate), and in an industry with uncertain job prospects ... suddenly paying off the mortgage looks more attractive from a risk minimization perspective. Or at least splitting the difference.
The "or refinanced" is important, because when rates were that low, a lot of people had a strong incentive to refinance, so the actual distribution of outstanding mortgages is biased towards the lower rates. [2]
No, it's not just about "market timing". You can do everything "right", and still lose money. Long-term buy and hold investing is not a guarantee.
An entire generation of young investors has never lived through a serious market decline, and have only been rewarded for HODL. HN skews young. There are a lot of people here who are going to find their worldview painfully challenged when the market does finally turn.
The surest sign of a market bubble in an asset is when I find myself arguing with people that yes, the price of the asset can indeed go down.
Monte carlo simulations don't model reality very well here. Years are not independent of each other.
For buy and hold to fail for something like the S&P500, companies would need to fail to make money or pay dividends for 50 years. If that's going on retirement is the least of your concerns.
Did you even read the link? The year you enter the market is the random variate.
It is a simple, uncontroversial fact that the stock market is not guaranteed to return your money over a randomly chosen N-year period. LTBH merely minimizes the chance that you'll lose money; it doesn't eliminate the chance.
It's a fact, folks. Downvoting doesn't change it, and you don't get to have opinions about it.
If you believe the stock market guarantees you safe returns, you are wrong. No matter what strategy you use, no matter what outlook you choose, you can lose money in the stock market. Don't invest what you can't afford to lose.
You say "don't invest what you can't afford to lose". If you want to eventually retire, what's the alternative?
Editing as clarification for downvoters: This was a sincere question. Since no one can afford to lose their retirement savings, but few people will generate enough income to retire without making long-term investments in the stock market, I was curious what strategy timr was actually advocating. My own approach is to invest in index funds that automatically adjust their investments to be more conservative as my retirement date nears.
If you can't afford to lose it, you should put it in a savings account, a CD or another guaranteed asset until you've accumulated sufficient wealth that you can afford to take risks.
This is investing 101. Any financial planner will tell you the same thing. Most will tell you that you shouldn't have money in the stock market if you're going to need it within the next five years. Ten years is a better number.
If your 20 you have up to 100 years worth of investing horizons to consider. Money put to retirement really is something you can lose while young. Investing in low enough to be zero yield instruments like CD's or savings accounts is terrible advice. As is treating investment savings as actual savings you can spend.
Sure, keeping ~3 years income outside of the market if your actually retired is a good idea idea. But, just because the market tanked does not mean you lost money. You have the same share of the same companies if the market goes up or down.
"If your 20 you have up to 100 years worth of investing horizons to consider. Money put to retirement really is something you can lose while young. Investing in low enough to be zero yield instruments like CD's or savings accounts is terrible advice. As is treating investment savings as actual savings you can spend."
If you need the money in five years, you should not be putting it in the stock market. If the money is truly "put to retirement" then you don't need it in five years, and you're just agreeing with me, pedantically.
The problem is that most of these HODL folks have never lived through a downturn, and will be crapping their pants when they realize that they really were secretly counting on the money being there. I've seen it happen twice now. The forums are filled with people "buying the dips" on 1% drops, but suddenly seeing a 30% short-term correction in their portfolio causes mass hysteria. The smart players have cash
on hand, and are ready to buy -- precisely because they didn't "buy the dips".
Cost dollar averaging already does a fairly good job of timing the market via retirement savings. Trying to beat that is a terrible idea, as being out of the market for a few days can easily cost you a year of growth.
He is also running an insurance company that needs cash on hand. On top of that they don't issue dividends only occasional stock buybacks which means they are going to accumulate cash by default.
> Downvoting doesn't change it, and you don't get to have opinions about it.
You wrote:
> Did you even read the link? [..]
Which is against HN netiquette:
"Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."" [1]
I've been watching every comment on this thread wildly fluctuate for the entire day, and most have no style violations of any sort. People simply don't want to believe facts, and they're expressing their displeasure with the down arrow.
Suppose you were planning to retire in 2018, and you sold in 2008 or 2009 after the economy crashed. Bad things would happen. No one knew if or how fast the stock market would come back. Better to sell a little bit over time and move to safer investments. But there are many studies showing no one can time the market.
Agreed - perhaps I phrased it incorrectly, but I meant to say the you start moving investments out of the market 10 years prior to your retirement date, not that you sell everything in one huge move at the 10 year mark.
I think that's mostly irrelevant. 2-3 years prediction would actually be quite good. If you have large investments, 2-3 years would give you a good heads-up for what to do with them before the recession arrives.
The reason I say that point is irrelevant is because what matters most is the signs that a recession is about to happen. Once you have the signs, you pretty much know the recession is inevitable, given the fact that the signs are bad enough that you think the recession could happen in a few short years.
2-3 years is a great prediction if that's a stable window. But if the range is 0-3+ years, it's not clear how much benefit there is. The average growth cycle has been 4.7 years since WWII, so blindly predicting recession within the next 3 years will pan out ~60% of the time.
I guess a solid 0-3 prediction would still allow aggressive positions outside that window, and caution or shorting as you come up towards 3 years since the prediction. But precisely because that would be so effective for investors, I assume it can't be that consistent a signal.
As another commenter below astutely pointed out, with a mean time between recessions of 4.7 years you could blindly make this prediction every year and be right more often than not (with a 3 year window).
Perhaps, but a 50% accuracy rate is not all that impressive. While the sample size is low, it seems that historically, the yield curve as a predictor of recessions has been significantly more accurate than that.
People often note, like another comment here notes:
> since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago
This is an interesting line of thinking, but I think it's a mistake. We can use this fact itself and circumscribe some meta-thinking around it. Put the same fact another way, this is arguing that the 1960's started a brand new paradigm that was materially different from the 1950's-before.
For all we know, the 2020's+ will repeat the past (in a way) and usher in a paradigm different from the 1960's! No more recessions every 5-10 years.
So:
* Maybe from now on there will be a recession every 20 years
* Or Fed manipulation will get "so good" that we won't have large recessions
* Or capital's other options for returns (real estate, emerging markets, etc) will look bad-ish for the next 10 years and continue to prop up the stock market because its the only good outlet for extra cash for a decade or three
I could see any of these being plausible. I think leaning on the past is a bit of a mistake. Personally, I think the third one is quite possibly the case. Other non-stock-market options simply do not look as attractive as they used to, relatively.
The future will look very different from the past, as Thiel says.
It was even worse than that: the paper had multiple problems, of which the Excel bug was one, but they also chose an outrageously dumb sampling method. Basically, if a country had data for five years, it was weighted five times as heavily as a country that had that data for only one. Which, conveniently, lined up perfectly with overweighting countries whose development matched their hypothesis and underweighting countries that contradicted it. Frankly I will never be convinced that it wasn't outright academic fraud in order to generate the conclusion they wanted, and I'm angry that they still have jobs.
The benefactors desired a conclusion, and the authors delivered it for them. They served their purpose. That "academic integrity" was not a purpose reflects the state of affairs in economics.
Those are two possibilities. Another is that the government is the biggest player in the bond market and has unlimited funds at their disposal that they can categorize as Other.
But of course, that's illegal, so it would never happen would it. But at the same time, you and me will never, ever, hear from the bond vigilantes again.
I coming to this topic from utter ignorance, but if longer term data might be considered more reliable, then might it also be reasonable to preferentially weight the more reliable, longer term data, all else being equal?
This is a very good point. It's worth comparing to history, but it's also worth keeping an eye on when the old paradigm breaks.
The lasting booms starting post WWII surprised economists of the time. Stagflation was so out-of-model that the 1970s caused a major shift in economic theory. The list goes on.
And, of course, we already know that traditionally aligned indicators have been out of sync since ~2007. Productivity and wages broke lockstep in the 70s, wage growth has lagged employment growth to an unprecedented degree since 2009, the current consumer debt bubble is overwhelmingly student loan debt which is largely non-dischargeable and impossible to repossess.
There's an entire genre of thinkpieces arguing that the economy has been doing something unprecedented since 2008, a lot of which line up with your third theory where a strong stock market is basically a reaction to weak fundamentals in other investment categories. It's weird to see that abandoned when people try to do predictions from past indicators.
> Productivity and wages broke lockstep in the 70s, wage growth has lagged employment growth to an unprecedented degree since 2009
I certainly believe this on a national scale, but I've never seen these stats properly adjusted for globalization. A billion people were lifted out of poverty in the time period mentioned. It doesn't seem to me that these traditional indicators are wrong, they've just been corrected for a global marketplace.
> There is a widespread but mistaken belief that wage stagnation has been partially caused by a shift of compensation toward benefits. Benefits have grown far less than most people realize, rising from 18.3 percent of compensation in 1979 to just 19.7 percent of compensation in 2014
Hey, thanks very much for this. I've been seeing "rising non-salary compensation" used to explain the gap for ages, but I've never seen anyone actually use the proper comparison. Not exactly convincing with the productivity chart retained.
Nixon was forced to take the US fully off the gold standard since Charles De Gaulle was exchanging his treasuries for gold, exposing that the US could not keep it's dollar pegged to gold at the current price. This lead to significant inflation as the dollar floated against other currencies.
It is no stretch to say that there has been a new paradigm that started in the late 60s as the Vietnam war extracted a heavy monetary toll.
So some random thoughts on the case for this time its actually different are:
1.) The internet and computing has increased the flow of information. Investments in data mining and data science by the Fed lets it make better decisions and test stuff iteratively and react to changes faster. Companies can also track inventory in a more controlled manner and not build too much too fast. Employees can find prevailing wage information easier to find better, more productive jobs. Home buyers can see how overvalued their houses are relative to other cities.
The internet and computing is enabling a much higher control loop (a.k.a. a steeper gradient descent toward optimal economic output based on the production needs for the current population).
2.) Steady reduction in the reliance on oil and gas. Much of the crazy inflation in past cycles was due to oil and gas shortages.
Would love to get opinions and more cases for why its different.
Your second point is interesting since the US Dollar is the primary currency used for the oil trade. Demand for dollars beyond our borders lets us export our debt through inflation. If there is less reliance on oil, demand for dollars to service that market goes down and so does our ability to pass part of our debt off on to everyone who holds dollars. No idea if this is a large enough effect to matter or if there are other feedback loops that counteract it but decreased oil usage could have its own negative economic effects that aren't immediately apparent.
To add on to #1, the surface area of "tech" is so much larger than in the pre-mobile-phone, pre-web-2.0 (!!!) era. There should be a lot more dollars in tech than there were before 2005. There are more eco-systems to build on than ever and more consumer and business spending that follows.
There is still a large human component that can act irradicatly, ignorantly, or just straight up abuse more information for personal benefit, especially if other people or industries are lagging behind the changes in technology and information.
Any of the options you listed above is a possible scenario. I would add, as Thiel says, that the reason recessions happened so often after 1960s was because people's expectation of growth has been more optimistic than the real economy growth.
This resulted in over-leveraging and over-buying of entire asset classes which eventually caused a bubble.
One relevant part I liked regarding the Madoff scandal:
Obviously, you were like how could these people be so stupid to give this person all this money? Didn't they read the details? ... But one of the reasons it happened, psychologically, was because people thought 8-10% with 0 risk was perfectly normal. That's why nobody asked any questions.
> Or capital's other options for returns (real estate, emerging markets, etc) will look bad-ish for the next 10 years and continue to prop up the stock market because its the only good outlet for extra cash for a decade or three.
And if capital flows into the stock market, not to keep pace with growth or to expropriate the standard rate of profit, but simply because it has nowhere else to go, then the natural outcome of this is overproduction. Which leads to a falling rate of profit. Which eventually means falling stock prices, as earnings and market cap are always linked over the long term (even for Amazon.com, which will have to start showing a profit when it moves from #8 to #2 on the Fortune 500 list).
Let's say bonds are yielding 10%. Here's a stock that has a dividend of $1/year. What should the price be? $10 (assuming the company is not growing), because that's the price you would pay to get the same return in bonds. (Note that the bond market is twice as big as the stock market, so it defines the "normal" rate of return.)
Now bonds drop to 2.5% rate of return. Now the same stock is worth $40.
It's not just that the stock market is the only good outlet for extra cash. It's that the low rate of return in other markets raises the price of stocks until the risk-adjusted yield rates match.
Everything seems to always be speeding up, so I'd bet on a shorter cycle (3-7 years, to pull numbers out of my ass) before I'd bet on longer cycles (20 years).
Although faster cycles might also mean faster adaptation, soooo.
David Kelly from JPMorgan and Bullard, the head of the Fed Reserve of St. Louis, say the yield curve going inverted doesn't mean that much because it's being manipulated by the Fed - that means it's broken as a measuring tool (still should be watched, though)
A Fed chairman is never going to say, "Yup, there's a recession coming": the incentives of their position don't permit it. So they will always come up with reasons why a signal with a previous 100% success rate doesn't mean much now, but in the end, it always amounts to "This time is different", aka, the four most expensive words in history.
Looking at the table, it's odd that only "inversions" are counted as predictions, and there seem to be far more cases where it got "close" to zero, but not quite there.
Without a good explanation on why that exact point is so critical, I am a bit skeptical that this is anything but noise.
If there is a good explanation of why it is critical, then we're not really in worrying territory yet either then, because we're not there yet, and we're in the zone of lots more false positives.
Correct. This is the only rational explanation for the inversion. There is nothing else to imagine about the negative (inversion). Whether the number is "gamed" or just a single statistic makes zero difference to what the market is actually saying about debt instruments: "we care about now than the future".
What is afoot, as you say, is clearly a lack of confidence in longer term markets resulting in a move towards keeping asset in cash. Or those strange commodities like gold.
I personally believe global markets are in for a rough ride very soon. Brexit is not going to help much either. DT is going to have no time for Twitter.
As someone who (I'm guessing like a lot of others who post here) didn't really have any financial responsibilities during the .com bust and the real estate bust, it will be interesting to have a neck in the game this go around!
This, in a nutshell, is why the human condition is so tragic. This won't be "interesting", believe me. Watch what happens when the body of startups funded by global pools of capital (which are the underlying source of capital for VCs) sees the NPV of software startups vanish as lower expected investment returns smack up against higher risk-free rates. The current software economy is incredibly leveraged and intertwined. Most startups are not cashflow positive, and they're explanation for that is that they have low CapEx. However, it's all been transferred to OpEx that is the web of mutuality between them. There is a huge body of low quality startups that are going to stop paying monthly Slack, Git(hub/lab), Trello/Atlassian, Twilio, Mongo, every other monthly-billed service, and put the breaks on AWS/GCE/et al spending. The AWS spending, for example, will result in layoffs in Seattle, which will lead to people forced out of their homes and forced sales for losses (which will ruin them financially), and that will result in a cycle of real estate deflation (which, as you saw in 2006, leats to pools of buyers trapped in their home, killing construction and labor mobility). And thankfully we'll have deregulated or de-fanged federal regulators just in time for all of this! WeWork is the obvious first bankruptcy, since they almost entirely exist because of venture funding froth. I don't know who have funded them offhand, but that might result in forced selling of private shares and lower private valuations, with further deflation risks in that sector. Then it will expand to the broader economy. /rant.
edit: I worked through both the dot-com and mortgage-backed security fraud crises. They were terrible.
> Watch what happens when the body of startups funded by global pools of capital ... sees the NPV of software startups vanish as lower expected investment returns smack up against higher risk-free rates.
I don't know exactly what that means, but if it means what I think it does, I've been there. I was at a startup in 2001 and we were getting interest from VCs, to move out of angel funding. The economy was already slowing but then 9/11 happened and there wasn't a VC that was shopping for at least 6 months, all the investment money dried up literally overnight. We barely survived on salary austerity and a RIF.
Startup idea: knowledge sharing, resume hosting, and real estate/rental listing platform for people chasing their current quality of life at a lower cost of living.
Sorry for a bit of a meta-reply, but this is kind of the reason for my sadness: there is this sense of isolation/aloofness to your question. The best thing to do is to work hard to prevent this outcome, since it's less than zero sum. I am sorry, but even if I knew your financial situation and goals I wouldn't want to offer investing opinions.
It's not aloofness or isolation - and it's perhaps less sad if you consider that people -- by force of things -- are going to explore how to survive best during tragedies (which includes helping their families). The finger-wagging at corrupt or inefficient systems is important at a certain intellectual level; the rest of us have to think about mortgages and other such earthly things.
Just standard advice that is widely available is to have at least 3-6 months of emergency funds (liquid cash to cover all monthly expenses) and err on being conservative.
I’m not sure what I’m supposed to do to prevent a financial collapse across the nation...
I’ve made tons of money from the usual FANG suspects in the past few years, but it’s all unrealized gain. No doubt I’ve thought about selling off every year, but chose instead to continue riding it out, always wondering how much it’s going to take for me to be satisfied.
On days like today when FANG stocks are getting beat up, I wonder how much longer this can really go. Every year that passes I take more seriously any sign that suggests these stocks can no longer defy gravity.
... in the scope of a public forum, I don't want to go off-topic or give advice (which may well be wrong and cost you money). But you should ask yourself what your investments are worth, and why they are worth that. If you can't answer those questions, that is your first problem. Then you should ask if you have better returns elsewhere in various scenarios (repaying debt, moving to more fixed/safer income streams) based on your personal situation and goals. Best of luck, I hope that is useful. Don't underestimate your personal agency to change the world around you.
It would be interesting to see an investment model that assumes a basket of historical companies to approximate someone's unrealized compensation over a random period of historical data.
Over 40+ years, consider not just a few current strong companies like Apple and MS, but also many others that have gone through many business cycles or perhaps have ended. IBM, Oracle, Sun, DEC, SGI, Cray, HP, Intel, AMD, ATI, NVIDIA, Maxtor, Seagate, Dell, Gateway... Or, consider other baskets to suit your employer basket: IBM, EDS, CA (tech consulting)... PWC, Arthur Andersen (audit/services)... Sears, Montgomery Wards, JC Penney (mail-order/logistics/merchants)...
I think many people make the mistake of "this time it's different" or "I'm different". My cohort saw many people go through the dot-com bubble and it sure seemed random as to which ones won a lottery and which ones got only a t-shirt in the end.
In my view, the only rational strategy would be to continually convert your employer compensation and reinvest into the diversified portfolio you would otherwise consider prudent if you weren't in that particular job. Anything less than that, and you are making an implicit gamble to time the market while perhaps telling yourself it is a tax optimization.
Same, I remember how much the last one stressed out my Dad. I was in high school and didn't fully appreciate the significance of what was going on. I'm a bit anxious anticipating the next one, but it's part of the game!
It's not a game. Suicide rates will go up. People in their late 40s are going to get laid off and have a hard time finding equivalent work ever again. There are a lot of people straining themselves to buy a home at this exact moment. Kids graduating with record student debt, thinking they did everything they were supposed to do, will find themselves in an even softer economy. And all of this will happen during a 4 year assault on our social safety nets.
I am most concerned about your last point. I do not believe that student loan debt will be the cause of the next recession but it will definitely be a massive compounding factor after it begins. A bunch of people in there 20s defaulting on loans is going to create one hell of a mess.
As someone had a horse in the race during the previous recession, it's not some sort of "game" and I find this flippant attitude incredibly off-putting to say the least. These are people's livelihoods we're talking about here. The last recession took a huge emotional toll on me, more than can be explained using words.
Sorry my comment came off a little more tongue-in-cheek than I intended. I didn't mean to downplay the seriousness of the topic, it was a bit of nervous laughter if you will.
My naivety is apparent and I will treat future discussions like these with more care. Apologies if I struck a nerve.
I've been through a few of these, and I disagree with everyone else. It's a game. At least, it's a lot healthier to think of it as a game.
Life is full of ups and downs, some of them economic. Yes, this is just another one. Don't despair, things get better. Value your family and friends, and everything will be okay.
It may be that the game paradigm leads to more prosperity than the "woe is me no lighthearted talk allowed" paradigm.
It occurs to me that we still haven't done a damn thing about 2B2F... those banks with the public backstop seem far more dangerous than some temporary tariffs.
Investors will mistake the loud pop caused by the bursting crypto bubble for gunshots. They'll jump for cover, becoming scared of tech, but as they do they'll then mistake another loud sound, this time a kaboom, of the AI hype cycle exploding. With it will go chatbots, self-driving cars and voice-powered assistants.
Then there's a rupture and a glow then a mushroom cloud appears on the horizon. People are unsure of what happened. Was that Facebook? Amazon?
Either way, this will tear a hole through the spacetime fabric of tech itself thus causing a black hole of fear; Google and Apple will hold on for dear life as everything around them gets sucked in.
At first a few Bird scooters fly past into the black hole of fear, Uber/Lyft sail by and explode in mid-air as they're sucked in, Zenefits instantly is ripped apart and evaporates creating a sort of Aurora Borealis surrounding the massive hole.
Somehow the blackhole of fear eventually closes and everything in midair tumbles back to sanity. Google/Apple regain their footing and observe the destruction around them.
The only thing left will be a few broken Lime scooters, a robotic arm that makes burgers and shitload of defense contracts.
I've been looking for lateral career moves in my industry for a while now, and I'll be damned if every "exciting new company" in information security isn't a blockchain company. And not a single one of them can tell you what they're doing with the blockchain to help with security, they can only tell you how much money they're making.
Of course they bury the most important part in the last sentence of the article.
> So if long-term rates were pushed lower by central bank bond buying, and now short-term rates are being pushed higher as the Fed tightens its monetary policy, the yield curve has nowhere to go but flatter.
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.
I think it's nearly unarguable that the current market is irrational. The problem is the old adage that the market can remain irrational longer than you can remain solvent, and thus simply shorting it can result in short-term bankruptcy.
Worse, there's a corollary that even trying to move your funds into lower-risk vehicles now can still lead to long-term losses vice keeping them in higher-risk investments now and moving them later (e.g. in a month, or a year, or two years).
I honestly don't know what to do with my money. Right now I'm basically keeping everything where it is: not selling stocks, bonds or real estate, but not buying much either. But leaving my cash as cash has its own cost.
In same boat. I've just been splitting my new investments between stock and cash and treat my cash as part of my diversification strategy (or a hedge against possible market peak). If a recession occurs, I'll hope it drops a lot, put my cash back in, and hope it comes back up. All those things have always happened (recession, recovery - not necessarily me timing a market bottom) so I feel ok about my cash. Whatever it loses in value to inflation should come back if I buy cheaper stocks during a market lull. Or so I tell myself.
"Sure, it seems like a strange time to be worried about recession. Unemployment is at an 18-year low, corporate investment is picking up steam, and consumer spending shows signs of rebounding."
Isn't that always the best time to be worried about recession?
While it's not a very accurate predictor, since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago.
Yep. "We're due" is my perspective on bear markets. We've had a bull for a long time now, and there's adequate macro factors that a tipoff into a bear is a fairly reasonable expectation.
In other words, it's quite time to make sure your holdings are prepared for a recession.
> make sure your holdings are prepared for a recession
Make sure your bond / stock / cash / etc holdings are properly balanced. Don't overweight in one area. If you've not paid attention to your risk exposure over the past while, it's a good time to do so!
Yeah trying to "time the market" is generally higher risk. I am not offering any sort of advice, but personally I am just making sure my emergency fund is healthy (>=6 months of expenses) and looking at lower risk investment options like CDs.
"Stocks have been in a sideways struggle since the Standard & Poor’s 500 last peaked on Jan. 26."
Is this really true? Almost every single stock I've been tracking has just been going up this year, especially the tech ones. Even ones with decreasing revenues like GoPro.
Yeah, FAANG+M and the banks make up the vast majority of the rise in the stock market. Mostly because of tax cuts, stock buybacks, and interest rates going up.
It's interesting if you look at the winners and losers in the S&P500, most of the winners are new tech, most of the losers are old tech or non-tech.
So the question is, are the new-tech companies the only thing propping up the S&P500, or are they truly the "new economy" and will continue to thrive while all others fail?
This sounds pretty familiar to the broader economy and labor force. New economy companies on the coats are killing it, enough to make overall GDP look spectacular, but if you look behind that impressive headline number and the corresponding don't worry be happy cheerleading, things don't look so pretty.
I sometimes wonder if this inconsistency between perspective of view of the same reality might also have an effect on individual opinions.
GE long term is dead as an industrial conglomerate powerhouse, destined to be parted out. Jack Welch turned them into a bank, and then they divested the bank (now Synchrony). Very disappointing.
So at least to GE's credit, the end of Welch's tenure and during Immelt's GE solidified its position at the pinnacle of aeropropulsion and related research (namely, GE Global R&D). Until recently, GE had maintained this excellent reputation and while Schenectady is not desirable for everyone, for those in the physical engineering realms, a GE Global R&D position was coveted and brought it with it significant cachet. Apparently not any more. They've laid off quite a few staff involved in bringing serious technology to fruition (e.g., Ceramic Matrix Composites in gas turbine hot sections). This recent activist shareholder garbage once again brings us back to the persistent theme of destroying the seed corn in favor of short-term returns. It's a real travesty.
GE Capital’s deposits platform went to Goldman, the lending went to Synchrony. I don’t have the background on why it wasn’t acquired as a whole, but I’m sure the information exists online.
Was never very impressed with Synchrony. They used to address all my mail to Null Null, a bit disconcerting for an organization who ostensibly has to program systems to keep track of how much money they need to give me back.
"We will make a list of our clients, and how much money each of them has given us to invest. We will keep this list in a safe place. If we have time, we will make a copy of the list, in case something happens to the first list."
When stocks rise, people win. When milk gets more expensive, it may be that the milk producers are extracting more profits from the consumer, or it may be because their costs have risen and they need more revenue to even keep up. When the latter is true, no one wins.
Except for major recessions, you can always find a basket of stocks that are going up in price. You have to look at broad market indexes like SP500 or RUT to get a better feeling of the market.
One explanation of the inflation of the public and private markets in the US is that the Chinese are in the middle of a massive debt bubble, anyone with cash there has nothing good to do with it, so they've been willing to invest in the US at almost any price.
That isn't a good explanation. China has extremely tight capital export controls in place, you can't easily get your money out of China to invest it into the US.
Beyond the annual $50,000 currency conversion limit they've put into place domestically, they've also made it an obnoxious and suspicious process to go through even if you attempt to convert the allowed $50k.
The US is far wealthier than China is anyway, and that's with 1/4 as many people. There is no need for Chinese capital to spur asset inflation in the US, the US has more than enough capital to do that on its own.
When you see a persistent yield curve inversion, buy the longest maturity treasuries you can find. For example, 30 years.
This is counterintuitive because shorter maturities (2, 5 years) will yield more when you make your purchase. However, your capital gains will likely compensate for missed yield after the recession has run its course and return a tidy profit.
Alternatively, the economic landscape after the recession may be much worse afterwords. Persistently low interest rates (even deflation) will be in your favor if you decide to keep your treasuries because you'll find nothing to buy with a better risk/return ratio.
Of course, it goes without saying that selling your long treasuries to pay expenses will truncate your returns.
> When you see a persistent yield curve inversion, buy the longest maturity treasuries you can find. For example, 30 years.
> This is counterintuitive because shorter maturities (2, 5 years) will yield more when you make your purchase. However, your capital gains will likely compensate for missed yield after the recession has run its course and return a tidy profit.
Sorry, could you flesh out the details here? You buy treasuries with a long maturity. What is expected to happen with them after that, and after how long?
> The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street.
> The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.
> Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones. The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise — which suggests traders are concerned about long-term growth — even as the economy shows plenty of vitality.
Historical correlations from before 2008 cannot be taken as predictive for the current environment.
Long term rates are low because the market expects that any economic weakness will be met with quantitative easing and that long term global interest rates will be negative.
The market is not predicting recession. It is predicting more interventionist economic policy to prevent recessions, which is a good prediction.
The Fed is reducing its budget sheet which will have a significant effect on the yield curve. Inviting comparisons between the yield curve now versus any other point in history is foolish. These are probably the same people who predicted a recession when Trump was elected, after Brexit, and at least once a month for the last decade
Can you elaborate more? I'm out of my area here, but it seems like it's only foolish to say that the yield curve isn't an indicator of a possible recession if we can identify a specific mechanism that typically causes both inversions and recessions, and can also determine that that mechanism is not at play here.
Otherwise, it may be that the Fed reducing its budget sheet is irrelevant, or is a factor that is only exacerbating factors that were already at play, or even, perhaps, that short term yields exceeding long term yields actually causes recessions.
The yield curve is the most reliable predictor there is in finance. [ See a variety of links below - the first one is an overview, but the others are more research-oriented. ]
In capital markets, in order to justify taking risk, there has to be an accompanying return, otherwise people will not invest.
Inversion of the yield curve signals exactly that - returns are not enough to justify the risk, and that capital expenditures will go down, leading to lower returns, lower employment, and also a recession.
There is one key thing that very few people are talking about, however - the Fed basically controls the debt issuance, and has some (possibly even significant) ability to nudge the market in the direction it wants by buying/selling towards one end of the curve or the other.
This alone can effect the economy, but the Fed does not have a strong history here. But it's definitely possible, and I think we may experience that with the current Fed President, Jerome Powell.
What does that mean "reducing budget sheet?" Also, what is meant by long and short term interest? I thought the fed only set one universal interest target.
Short and long term interest rates in this case are for US Treasury Bonds that mature at different lengths of time. Short term bonds tend to have lower interest rates since you're taking less risk that your money will be tied up when the economy grows at a faster pace. If you invest in long term bonds and the economy hits a growth spurt, your money is stuck for a much longer period of time earning less interest than if you had invested in something other than that bond.
Edit: Missed the first question in your post. The Federal Reserve is essentially buying fewer Treasury Bonds when the bonds it currently holds matures. Instead of reinvesting the payoff + interest that it received for those bonds, it is now just taking that money and essentially keeping it out of circulation.
Mainly to prevent inflation from getting too bad. We've got very low unemployment (among those actively looking for work) and still have excess amounts of capital sloshing around combined with the tax breaks. They're trying to keep the economy growing at a steady pace instead of taking off like a rocket only to crash land later.
This confuses me a little. Many things seem to be pointing towards inflation - worsening global trade climate, high employment, knowledge that economic difficulty will be met with printing etc. But if the market expects inflation then shouldn't long term rates be higher to offset the expected inflation?
GP meant "reducing balance sheet". When the fed buys long term bonds it issues short term debt thus increasing its balance sheet and incidentally reducing long term rates. During the great financial crisis, the fed bought a lot of long term debt increasing its balance sheet to levels not seen since World War 2. It is currently in the process of reducing its balance sheet which should have the effect of increasing long term rates, but they aren't responding as much as predicted. This is why some people fear a recession.
There are many other factors, but it should be noted that this is the longest time of a financial expansion (time since the last recession) in modern history. In the 70s and early 80s there were 4 recessions in a 12 year period.
Options are fairly priced. Meaning that they are priced according to the risk. Unless you have some very good reason to use them, they can lead to ruin. This is just another way to say that it is like playing in the casino.
On the other hand, if you have a lot of gains in the stock market, using options may be a small price to keep your piece of mind. Just understand that they give you no clear edge.
If used correctly, options are like buying an insurance policy. You pay a small amount up front to hedge against large future losses. Hence where the term "hedge fund" comes from.
Pretty much every finance site - marketwatch, wsj, cnbc, bloomberg, zerohedge, etc along with the peter schiffs/etc clickbait it.
For some reason, nytimes paywalled clickbait is constantly spammed here.
The inverted yield curve. There are thousands of articles about the inverted yield curve. The death cross. The black swan event. All just voodoo clickbait nonsense.
Also, I love how the nytimes say "wall st is concerned" as if they knew what wall st was thinking and most importantly, they think that wall st is one entity. A lot of players make up wall st.
If any of these people at these news companies knew what wall st was thinking, they wouldn't be working at news companies making pathetic union salaries. They'd worked in finance and retire before they were 25.
Simply put, when the big players want there to be a recession, there will be a recession. Markets are human created and controlled by humans. It isn't a natural entity following the laws of nature.
The invisible hand of the market doesn't mean that the hand controlling the market doesn't exist. It just means that us mere peasants aren't allowed to see it.
> I’m impressed by your post’s combination of cynicism
I'm impressed by your naivety. Where's the cynicism? I've worked on wall street/finance and I've read finance publications for decades. It's not cynicism, it's experience.
> conspiracy-theory-type reasoning
What's the conspiracy?
> compounded by the agency fallacy.
I'd advise you to give Logic 101 another try. Also look up ad hominem while at it.
Your Pavlovially conditioned denigration of quite believable assumption that some entities have huge amount of influence on the economy is even more impressive. Never tired of employing good old "it's a conspiracy theory" conversation stopper, do you?
You have to cut the young ones some slack on this. They're just modeling what they see from "those in the know", and the conventional wisdom narrative has been really heavy on conspiracy-shaming over the last few years. When they're older they'll see that there are other ways to discuss current events.
I’m curious about a related question for people who have been around a bit (or are just generally knowledgeable). How should your average retirement investor react when reading about the market like this? I’ve been well-educated on staying the course, markets will dip etc. But I entered the market with some force at the depths of the last recession so it’s been very easy to take this advice. Now it feels like sitting on a railroad track waiting to get smooshed by an oncoming train because it’s “the right thing to do”.
Global markets have at least .5 correlation with each other. Doesn't matter which country or money you buy investments in. If you want to avoid market risk then just stick to short term bonds(arguably the safest investment).
It's almost always smarter to have a geographically diverse portfolio, and to invest for the long term.
I use a low-fee robo-investor, WealthSimple[0], that has me invested in a variety of ETFs (Canadian, American, international) and bonds, and will rebalance my portfolio when any specific market falls or grows more than the others.
I prefer this kind of investing because it's stupid, cheap, and works.
There's not much question that a recession is coming. But when? And what form will it take?
The last recession was driven by a price collapse in housing. That was unusual. The next one is more likely to be driven by trade problems, which is more common historically. Also, the last few years have seen a lot of investment into stuff that's not paying off, and after a few years, that comes back to bite you.
Perhaps the next thing will be large scale consumerism exhaustion. Consumers not getting the same thrill out of a new car or the latest iDevice that they used to stop buying so much new stuff. Not for ecological or ideological reasons but just out of boredom or exhaustion of the consumer cycle. Even fashion trends seem to be slowing down with less and less reason to buy a new wardrobe as often.
There is something sketchy in the underlying report [0]. In figure 2, they draw what I understand to be a curve of the probability (according to their model) of a recession happening within 12 months. The strange part is that they identify a "critical threshold" (at probability 0.24), and seem to imply that when the prediction goes above that value, a recession happens. That's not how probabilities work. Are they meaning something else, or are they just lost here?
The probability of a recession rises immediately prior to a recession. When the recession occurs, the probability drops immediately back down below the threshold; as the probability of a back-to-back recession is very low and the conditions that caused the recession immediately change.
So the critical threshold is saying "at any point beyond this line, as conditions remain the same, bad things may happen at a very accelerated rate"
I think that's why the lines jump from .24 or .6 to 1.0(recession) and then back below .24.
So as far as I can tell, they're not saying a recession is guaranteed if the probability increases beyond the critical threshold, but are instead saying the probability of a recession increases more quickly up into the point of an actual recession than our ability to reliably predict and update the probabilities that would predict said recession.
It's my current understanding that recessions are caused not by economic news, but by the people's reaction to it's apparent demise.
I feel like they are priming the pump with stuff like this...I guess it's time to hit the flush button on the Dow and suck all that "buy-n-hold" money outta the market, and start the cycle all over again.
Can anybody ELI5? It seems to me that having the long-term bonds at a similar ratio would mean good predictions? Wouldn't the rates have to be higher if trouble is coming, in order to make the increased risk of a longer term bond worth it?
This is one thing I did to attempt to make a small difference in the current climate, picked a few media outlets I thought were doing a good job and paid for subscriptions. Living in very solidly blue places, nothing else I have done has likely mattered at all.
You can do a lot in blue states/towns, but it involves pushing the Democratic party further left (Medicare for All, Abolish ICE, Affordable housing, and more) if that's your cup of tea.
It isn't my cup of tea. Pushing democrats further from center makes them lose more than they already do. I also don't think many of those things achieve their goals or are correct for a free society depending on context.
I'm a very blue moderate with some ideas that are sometimes rather far from the traditional one dimensional spectrum.
Sites like The Guardian, New Yorker, Atlantic, etc seem to do a better job. Newspaper funnels are entertaining - I spent some years in the newspaper world when this experimenting with paywalls started.
As a technologist, I see value after consistently accessing more than a few articles a month.. closer to 10 is where I see enough value to pay. I'm sure I'm only one persona though in their funnel.
I did that for a while until I became completely disillusioned with them. They're in the pocket of corporations and the White House (they actually suppress news if the WH doesn't like it). Find a more progressive outlet than them if you want to pay for media. They can certainly use the cash.
I am pretty disillusioned with them too, and they do push an agenda in many areas (pro-military, anti-tech, etc). I loathe their opinion pages, they're a weird mix of bland and constantly pseudo-outraged. But I still like lots of stuff they create and a subscription isn't super expensive, so paying seems like the right thing to me personally. I'm just reading a newspaper, not looking for someone to marry. (I wouldn't want to marry someone who always agrees with me either, come to think of it.)
Yea I knock on them for the same reasons, but when the topic isn't of national interest, they have some excellent story tellers and reporters. Their digital remixes are great too (e.g. Snowfall and its intellectual children).
Nonetheless, as my perspective evolved, I realized I can't countenance supporting them when they endorsed actual evil like the Iraq War and perpetuate so many things wrong in society. They'll always let you down when it counts, so I don't see a reason to be there for them when it doesn't.
I am an undereducated stranger who hasn't grown a nest egg into millions. I think I've heard the advice of people who have, albiet not reproducibly. +<I only practice once a year, unlike Warren Buffett who has employees who think on this full time all year.> Consider treating what I say, on this NP-Hard problem, as naive misinformation.
It ultimately depends on your time scale and tolerance for paper money variation. I've heard buy low, sell high is good; and, I have twenty or more years to move things around. So, when I notice a recession, I increase my proportion of stocks, on the assumption that they are undervalued. If I were to notice a bubble (unlikely) I would increase my proportion of government backed bonds, to wait until the next recession.
If I were retirement age, and needed to reify that paper into real money, I'd probably divest stocks in favor of government bonds that hold value during the downturn. "Government", on the assumption that they are less likely to default than corporate backed bonds.
It depends if Trump tariffs raise enough tax revenue to offset deficit spending and curb inflation. Like to see the tariff revenue numbers at the end of the next quarter.
The potential upside is that tariffs are stress testing industries with supply chain issues, shaking out mal-investment.
We're starting trade wars on multiple fronts, exiting or weakening multilateral alliances (and simultaneous giving an advantage to our global adversaries), and weakening the balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.