Most recessions are easy to predict because they’re intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work.
Those are actually somewhat rare. US in the late 70s with Paul Volker and the famous British Pound short by Soros which interrupted the government chocking off the economy with high interest rates, broke the pound and saved the UK from a recession.
Do you have more prominent examples?
It's usually policy error in the other direction - keeping easy money for too long. I.e. you don't handle a catastrophe by fixing the down leg (that's emergency measures with bad side effects), you prevent the up leg. Alan Greenspan will be forever remembered and hated by some after his efforts to create the dotcom and the housing bubble.
They didn't. That is a misconception borne out of reading our methods of economic policy onto a different context. The MoF, not the BoJ, controlled not only monetary policy but pretty much all aspects of the economy (they even directed lending by banks at the level of individual loans). This changed in the late 90s but through to the early 90s, it was all the MoF.
It happened in 1958 (it may have been '56, my memory is poor), and 1920-1. In the case of the Fed, the last central banker to take this approach was Martin in the 1960s ("leaning against the wind")...and his legacy ended up being inflation.
You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this.
Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.
They wanted high rates because ERM was the main policy goal of the prime minister. Super high rates were also choking the economy. It was a choice between ERM and easier recession, and the breakage of the pound forced them to no ERM and easier recession. The bundesbank was the one to put the final nail in the UK Euro coffin.
Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
> They wanted high rates because ERM was the main policy goal of the prime minister.
Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages?
The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s).
Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.
Stocks aren’t necessarily an indicator of economic strength. The S&P 500 is in an earnings recession right now, but continues trading at all-time highs. The market can stay irrational longer than you can stay liquid.
Your chart is earnings per share, it’s also from June. That has increased because of all the stock buybacks following the new tax law. Total earnings are down.
I said most. Occasionally there are bank crises (like in 2008).
This isn’t a big secret, it’s right there in FOMC meeting notes. Google Greenspan and punch bowl. Google Kalecki and politic aspects of full employment.
Conspiracy aside, that doesn't make it easy to predict.
It is like saying that wars are easy to predict because they are (obviously) the result of governments declaring war.
Same thing for companies, even if a layoff is planned, no one knows exactly when it will happen, not even the people who planned it. It may be earlier than expected, or later, or not at all depending on the results, the whims of the market, the legal framework...
While it doesn't make things predictable unless you can predict central banker's whims, this is no conspiracy theory. It's a fairly accurate description of mainstream Keynesian macroeconomics. I might tone it down by saying bad recession happens when central banks accidentally overdo their inflation control but sometimes it doesn't seem so accidental, and more a question of incompetence.
Like when central bankers refused to use negative interest rates even though the natural rate was clearly plunging into the negative. In 2009 their own Taylor rule models put the correct rate at negative 4% (https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-t...). Central banks kept interest rates very high at zero.
>intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work
This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad.
The Fed was founded in 1913. The US had recessions in 1785, 1789, 1796, 1802, 1807, 1812, 1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1857, 1860, 1865, 1869, 1873, 1882, 1887, 1890, 1893, 1902, 1907, 1910.
Do you notice how frequent recessions were, pre-Fed? The average duration was also much longer. Blaming recessions on the Fed (who are trying to manipulate the business cycle) doesn't jibe with the data.
> This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad.
Perhaps it's my perception, but I've noticed this more lately.
I mean, there's always been a perception, for as long as I've been on this site that "things used to be better", so take that with a grain of salt, but objectively, if we don't have the "antibodies" in this community to reject obvious conspiracy theories like this... we're in a bad spot.
Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them.
I think the current finance era may come to be viewed in the same light as the fire-fighting practices of the past century. Always working to prevent the little fires leaves the forest unhealthy and sets up an eventual inferno that no one can control.
>Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them.
Indeed. That's the norm with recessions. It just so happens that the last one, the one we all remember (2008) was...really bad. It will affect people's perceptions for the rest of their lives, much like the Great Depression.
This makes no sense. The initial implementation of the Fed (until power was moved to Washington in 1934) was ineffective. The recession of 1920 (it was called a depression, and the drop in prices was one of the most severe in history) was caused by Fed policy, as was the Great Depression. The Fed has always had a huge role in the economy (and that role has changed substantially over time). What they do effects the cycle. You don't need to make wildly general conclusions.
It is also very odd to call all of the periods you mention recessions...they weren't. Some of them were specific banking panics that had no effect on the real economy. The purpose of the Fed, which was effective eventually, was to alleviate the disruption caused by the agricultural cycle (which caused gold to flow in/out changing the monetary base. But there was no real mandate for economic stability, that isn't why the Fed was created, and that idea would have made no sense to central bankers until very recently (probably the 1980s, although for different reasons over time).
That's what i would expect from someone trying to kill the economy - prop it up for longer than normal, making the recessions greater than normal.
I'd compare it to forest fires. They should be frequent and small. Make them less frequent (via suppression), and they get a lot worse and much more dangerous.
It’s amazing the amount of effort people are willing to convince themselves and others that the US Economy is failing when it’s the strongest in the world. When it affects themselves and their fellow Americans. Just because they hate the sitting president. So much that they are willing to delude themselves about the economy, fake impeachment, Evilness of china, Democrats with their 3 year prosecution that amounts to nothing, etc
"Impeachment" Is A Diversion And Delay: President Donald J. Trump raped and killed 15 boys in Buffalo, New York on 10Jan2019. Complete and uncut audio of it all, along with Obama, Pelosi, & Schumer's direct involvement. 298+ boys die here during Jan 2019 from wealthy and high profile child rapists
\\Full audio from 10th January 2019. Download the .mp3 file, put on headphones, and turn the volume all the way up..
\\Previously reported: This is audio of the President, Donald J. Trump, demanding a four billion dollar bribe from child rapists to “take a blind eye” on January 3rd, 2019. Trump becomes one on January 14th, 2019. Also, this is the big reason the major networks do not report any of it. (Media moguls are in on it also)
//Download the video, turn the volume all the way up and put head phones on. Note: there is not much to see in the video, the audio is picked up from another [illegal surveillance] system. Trump is on a call from with Henry Porter and Gigi Hadid. See page 63. Bribe demand at 10:18am:
//On January 18th, 2019 at 8:31am (see page 8) Trump acknowledges the FOUR billion dollar bribe and says: "Let's get it done and get to fucking some kids." Video link below:
//The major reason this has not been reported by the major news networks is right here. Lester Holt of NBC Nightly News, apparently a member of the Illuminati since the 80's, along with ABC Nightly News lead anchor David Muir, stop over to the Porter studio in Buffalo, NY on January 14th, 2019 at 5:00 am. They both rape and kill about two dozen boys by 6:00 am. David Muir starts around 5:12 am, then Holt about 5:36 am. Multi-billionaire Rupert Murdoch, owner of News Corp & Fox Corporation, takes his turn after Holt. Video links below:
\\Adding to the (media protection) reason this is not picked up by the media, CBS and Viacom owner Sumner Redstone and Leslie Moonves rape and kill several boys followin...
The 1929 crash and the 2008 crash that started the great recession were both caused by uncovering the bezzle. The "bezzle" is what Galbraith called fake monetary supply: money that doesn't exist because it has already been embezzled (but still shows up on accounting statements). Trump signaled that there would be very lax regulation, meaning "your bezzle is safe from us." The next crash will appear when major corporations believe that it is in their interest to lay off CEO's and take their big baths. That will be sometime when they are convinced that the next Executive Branch administration will be checking accounting statements.
If your hypothesis is correct, we have the signal:
“A total of 1,160 CEOs in the US have left their jobs in the first nine months of 2019, according to data from recruitment firm Challenger, Gray, & Christmas. That’s up 13% from the same period in 2018, and the highest turnover at this point in the year since the company first began tracking CEO departures, in 2002.”
Cool! I bet it needs to be fine-tuned: % of Fortune-50 companies with CEO departures and losses taken on financial statements > 5%. Or something like that.
There's so much effort put into timing the next recession. It's not just that they can't even do that with meaningful certainty-- it's that they also can't tell you how significant the recession will be. I mean, with full employment right now, of course a recession is on the horizon (who knows when). But, going from full employment to 1% less doesn't mean the economy or its people is even worse off than they were 2 years ago. Same thing with virtually any thing else that plugs into GDP.
Because there is nothing else to do? Whatever happens to the market it keeps going up. There is little reason to search for an upturn (and you don't want to jinx it), so they are searching for a downturn.
I'm not gonna put out my own model, but this one seems strangely, suspiciously well fitted to the historical data.
How can you have a model that gives a 100% chance of something happening in the future? Yet that's what it says during the last recession. And it falls off a cliff when the actual recession ended in June 2009.
I was alive and trading during that time, and I reckon the business cycle would be quite easy to predict -as in, the model would be in a textbook- if you could be that confident of recession one day and the opposite the next.
I think the 100% is when the data shows the recession is occurring i.e. if a recession is occurring now, then the chances of one occurring in the next 3 months are clearly 1 (I get your point however...it is odd). There are other factors in the model aside from the ones with charts.
The model isn't in a textbook because predicting the economy is nothing to do with economics as it is taught at universities. Economists use complex structural models because they are fun to teach and create barriers to entry. This is why DSGE models are so popular in universities, govt, and central banks but barely used anywhere else.
If you want to forecast the business cycle, you just need linear regression. You can't ever be 100% (unless a recession is already occurring) because the economy is always changing but basic models are pretty accurate (the BIS has done quite a bit on this recently - https://www.bis.org/publ/work818.htm - funnily enough, the term spread isn't the be all...but economists have a big problem with including things like credit.
During the height of the bitcoin bubble I had my gym coach leave job and become "crypto investor" ... Katy Perry changed her nails to each look like one of the popular coins. And yes I did have an uber driver talk to me about crypto. The mainstream media were shilling Ripple at its highest price ever.
Today, all the same people talk about coming recession.
I was lucky to have my first job in finance during the credit crunch crisis. Until it was over media we're adamant it's just a correction. We did not believe it either ... we all thought it's a good time to buy cheap before the next bull run. Only about 3 people actually predicted it (even though AFTER the recession media came up with a dozen people who claimed so - none of them ever made any bets on it)
It's hard to imagine recession come when everyone expects it.
The RBA has announced QE. China is shutting down banks.
I don't think any sane person doubts that China is going to have a debt crisis btw (it started a while ago), the question is whether they can do what they did in 1997.
It's hard to imagine a stock market crash coming when everyone already expects it, but it's quite easy to imagine a recession coming when everyone expects it.
If people expect stocks to crash, then the expected "crash" is probably already priced in. If people expect a recession, then the reduction in economic activity is something of a self-fulfilling prophecy.
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
Yes, we might finally be seeing all that QE cash trickle down to the street. First it reinflated stocks and real estate after the deflationary 2008 crash, and now its flowing into other prices.
>It's hard to imagine recession come when everyone expects it.
Especially when those in power are doing everything they can to prevent it. The Federal reserve has a trading floor and participates as a proxy for the government in the markets. There is also the rumored Plunge Protection Team. We actually have markets pricing in the likelihood of further quantitative easing 11 years after it was first done to address a prior crash. And for it all, we have only really accomplished concentrating wealth and increasing income inequality.
None of the above really appears sound. I expect things to change, mainly because I think the above cannot continue indefinitely.
The usual argument regarding the stock market crash is that even if it's coming, it's hard to predict when, and it's great investment long term even if it crashes temporarily.
At this point I think it just depends on what the central banks want, as they took control over stock market prices with the low interest rates.
> it's great investment long term even if it crashes temporarily.
That's not really true outside the US. And in fact it's not even true for the smaller cap stocks in the US. The Japanese stock market being the most cited foreign example of the opposite. Pretty much everywhere outside the US the stock market is very vulnerable. Odds are this will come to the US sooner or later.
They can QE forever to feed the demand, however it's on the whim of a few powerful people when and how some shortage will occur. Stocks grew 20% YoY with flat earnings in the last few years. Price discovery and market signals are dying, but they are dying for both directions up or down.
Many analysts expect asset prices and income inequality to be a major topic of debate this election and we don't know yet if Fed policy will be at the crosshairs. Either way social justice impulse will be stronger against the tech giants either thru cancel culture or outright riots.
You’re right, I’m in the gold / silver / Bitcoin believer minority, I don’t see any other safe place for my money long term, as I believe that those are the only things that can’t be manipulated easily long term.
As cash is too easy to print, I would still prefer to look at gold/SNP500 ratio, gold/house price or other gold/stock ratios (even though you're right about the correlation between gold price and inverse bond yields).
Of course as technology is getting faster and creating more value, and people are moving to cities, it's hard to get a correct valuation, but still gold seems undervalued compared to these other asset classes.
Jack Bogle goes as far as saying you don't need to own international stocks. If I recall he says that the US has a innovative and growth mindset, and is stable... So we would always be growing in the long term.
https://www.investmentnews.com/article/20170429/FREE/1704299...
Around the last recession, I had this distinct feeling: that this exuberance is a little too irrational. The press was constantly talking about how great the economy was, and people I knew around me were splurging on things they could in no way afford.
I used to trade domain names at that time, mostly to fund my college. Everyone in my industry was talking about how the value of certain domains will 10x in the next 5 years and other irrational projections.
Maybe its that experience, but I've since maintained a personal theory that a serious recession hits when people least expect it. When there is too much easy credit in the system and business optimism isn't grounded in any fundamentals, that's when you should fear a recession.
Not when everyone is telling you that a recession is just around the corner. Because then you're already more careful in your decision making
Not sure how much of this is founded on economics of course
The issue I have with historic based models is that today's "global economy" is not enough like the past. If the USA goes into a recession, chances are that's - more and more - the reflection of some other economy(s). And of course, vice versa.
The biggest impact on the econony - via the spending minds of the masses - is how the mainstream media plays the strenght of the economy in the context of the USA's 2020 election. The middle to the left will be pulling out the stops to look for bad Trump-sourced economic news. That could become self-fulfilling.
Most modern recessions are caused by investor fear and panic. In March 2020, if Elizabeth Warren gets the democratic nomination, you can expect a medium to deep recession caused by her high tax plan and business-hostile policies. You can gauge this by the high number of put option contracts with March expiration being purchased, compared to all other months.
There's not enough discussion about the eventual recovery in all these recession articles. I was looking at the last 2008 recession and found some interesting gems. For example, if you bought AIG, one of the main causes of the financial crisis, you would've made out like a bandit during the recovery period. Definitely too big to fail.
Given how poorly most people are able to predict these things, I'm going to go out on a limb and say the next recession will happen when everyone is overly bullish on the economy. The amount of scepticism today combined with the actual economic data lead me to believe things will be OK for a while yet.
These metrics are totally meaningless. If some metric claims that there is a 50% chance of recession in the next 12 months, I'd expect it to be right roughly half the time it makes that confident a claim. Similarly, I'd expect a recession one third of the time that the metric says 33%.
The year leading into the Great Recession was mostly around 36%. One year before the 2001 recession it was 24%. And then we have spikes around > 40% in 1999, 2002, 2003, 2006, 2016, and 2018, none of which "paid off".
So how are we supposed to interpret these numbers? That a 40% chance of a recession has a 15% chance of actually predicting a recession?
> If some metric claims that there is a 50% chance of recession in the next 12 months, I'd expect it to be right roughly half the time it makes that confident a claim. Similarly, I'd expect a recession one third of the time that the metric says 33%.
What if the forecast is Bayesian rather than frequentist?
It's fine if the underlying model is Bayensian, but if you're going to present a time series graph then those past numbers don't mean a whole lot. Why not adjust the past data to be frequentist at that point?
I don't think it is as near or going to be as bad as some people think, but with caveats.
Listening to the guy who the big short was based on now, my main takeaway is that the banks deleveraged significantly since 07/08, down to ~11 vs ~30 then. Of course, part of the problem is they were using financial tricks to cover up bad assets... so I think they might be more leveraged than they are letting on.
Second, the legislation afterwards only really did one thing: make the "fix", aka fed bailout, automatic. This means there should be less time between drop and recovery. At the same time, it creates incentive for bankers to be more reckless.
Politically, midterms are always about the economy at heart. If Trump is serving Wall Street well enough they will try to keep him propped up for 2020, and would probably try to delay the big dip till either right after or till 2023/24.
Every crisis since 1929 has been manufactured. Just look at what the central bank(s) are doing and you get reliable results.
The current monetary system creates money in form of debt with interest which can only be paid by issuing even more debt.
As soon as the central banks pull the plug on liquidity (either by raising rates or fixing the balance sheet) you will have a cascade effect of bankruptcies which "clears out" all debt that could never be repaid in the first place.
Right now the central banks are increasing liquidity around the globe again hence the low probability of a recession.
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[ 2.7 ms ] story [ 128 ms ] threadDo you have more prominent examples?
It's usually policy error in the other direction - keeping easy money for too long. I.e. you don't handle a catastrophe by fixing the down leg (that's emergency measures with bad side effects), you prevent the up leg. Alan Greenspan will be forever remembered and hated by some after his efforts to create the dotcom and the housing bubble.
You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this.
Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.
Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages?
The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s).
Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.
https://www.multpl.com/s-p-500-earnings
MarketWatch - https://www.marketwatch.com/story/the-sp-500-is-in-its-first...
CNBC - https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/24/ana...
Also, I fail to see how this theory applies to the recession of '08.
This isn’t a big secret, it’s right there in FOMC meeting notes. Google Greenspan and punch bowl. Google Kalecki and politic aspects of full employment.
It is like saying that wars are easy to predict because they are (obviously) the result of governments declaring war.
Same thing for companies, even if a layoff is planned, no one knows exactly when it will happen, not even the people who planned it. It may be earlier than expected, or later, or not at all depending on the results, the whims of the market, the legal framework...
Like when central bankers refused to use negative interest rates even though the natural rate was clearly plunging into the negative. In 2009 their own Taylor rule models put the correct rate at negative 4% (https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-t...). Central banks kept interest rates very high at zero.
This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad.
The Fed was founded in 1913. The US had recessions in 1785, 1789, 1796, 1802, 1807, 1812, 1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1857, 1860, 1865, 1869, 1873, 1882, 1887, 1890, 1893, 1902, 1907, 1910.
Do you notice how frequent recessions were, pre-Fed? The average duration was also much longer. Blaming recessions on the Fed (who are trying to manipulate the business cycle) doesn't jibe with the data.
Perhaps it's my perception, but I've noticed this more lately.
I mean, there's always been a perception, for as long as I've been on this site that "things used to be better", so take that with a grain of salt, but objectively, if we don't have the "antibodies" in this community to reject obvious conspiracy theories like this... we're in a bad spot.
I think the current finance era may come to be viewed in the same light as the fire-fighting practices of the past century. Always working to prevent the little fires leaves the forest unhealthy and sets up an eventual inferno that no one can control.
Indeed. That's the norm with recessions. It just so happens that the last one, the one we all remember (2008) was...really bad. It will affect people's perceptions for the rest of their lives, much like the Great Depression.
It is also very odd to call all of the periods you mention recessions...they weren't. Some of them were specific banking panics that had no effect on the real economy. The purpose of the Fed, which was effective eventually, was to alleviate the disruption caused by the agricultural cycle (which caused gold to flow in/out changing the monetary base. But there was no real mandate for economic stability, that isn't why the Fed was created, and that idea would have made no sense to central bankers until very recently (probably the 1980s, although for different reasons over time).
I'd compare it to forest fires. They should be frequent and small. Make them less frequent (via suppression), and they get a lot worse and much more dangerous.
\\Full audio from 10th January 2019. Download the .mp3 file, put on headphones, and turn the volume all the way up..
https://drive.google.com/file/d/18lTt_YKFEtsV6YDNzXFVQYLkStY...\\Previously reported: This is audio of the President, Donald J. Trump, demanding a four billion dollar bribe from child rapists to “take a blind eye” on January 3rd, 2019. Trump becomes one on January 14th, 2019. Also, this is the big reason the major networks do not report any of it. (Media moguls are in on it also)
//Download the video, turn the volume all the way up and put head phones on. Note: there is not much to see in the video, the audio is picked up from another [illegal surveillance] system. Trump is on a call from with Henry Porter and Gigi Hadid. See page 63. Bribe demand at 10:18am:
https://drive.google.com/file/d/1Grdr8xF2psKNsuYlEnl9dIRV-77...//President of the United States, Donald Trump, rapes and kills his first boy at 6:32am. Video link below:
https://drive.google.com/file/d/154QvA5hwyHGYIVXtod1ZbsOHFUJ... https://drive.google.com/file/d/19UkqmnMwZiWy7xxWngltqwoKLTJ...//On January 18th, 2019 at 8:31am (see page 8) Trump acknowledges the FOUR billion dollar bribe and says: "Let's get it done and get to fucking some kids." Video link below:
https://drive.google.com/file/d/1bVTcGq5Z9oOSAiOQcKYrmuK4Two...//The major reason this has not been reported by the major news networks is right here. Lester Holt of NBC Nightly News, apparently a member of the Illuminati since the 80's, along with ABC Nightly News lead anchor David Muir, stop over to the Porter studio in Buffalo, NY on January 14th, 2019 at 5:00 am. They both rape and kill about two dozen boys by 6:00 am. David Muir starts around 5:12 am, then Holt about 5:36 am. Multi-billionaire Rupert Murdoch, owner of News Corp & Fox Corporation, takes his turn after Holt. Video links below:
https://drive.google.com/file/d/1i7NKepeyG_FfdQRrM7KsnFOZOOX... https://drive.google.com/file/d/1NZzgN5ilI7ToroU5cfqMaL4o2u1...\\Adding to the (media protection) reason this is not picked up by the media, CBS and Viacom owner Sumner Redstone and Leslie Moonves rape and kill several boys followin...
https://en.wikipedia.org/wiki/Big_bath
“A total of 1,160 CEOs in the US have left their jobs in the first nine months of 2019, according to data from recruitment firm Challenger, Gray, & Christmas. That’s up 13% from the same period in 2018, and the highest turnover at this point in the year since the company first began tracking CEO departures, in 2002.”
https://qz.com/work/1727662/why-ceo-turnover-in-2019-is-at-a...
Because there is nothing else to do? Whatever happens to the market it keeps going up. There is little reason to search for an upturn (and you don't want to jinx it), so they are searching for a downturn.
How can you have a model that gives a 100% chance of something happening in the future? Yet that's what it says during the last recession. And it falls off a cliff when the actual recession ended in June 2009.
I was alive and trading during that time, and I reckon the business cycle would be quite easy to predict -as in, the model would be in a textbook- if you could be that confident of recession one day and the opposite the next.
The model isn't in a textbook because predicting the economy is nothing to do with economics as it is taught at universities. Economists use complex structural models because they are fun to teach and create barriers to entry. This is why DSGE models are so popular in universities, govt, and central banks but barely used anywhere else.
If you want to forecast the business cycle, you just need linear regression. You can't ever be 100% (unless a recession is already occurring) because the economy is always changing but basic models are pretty accurate (the BIS has done quite a bit on this recently - https://www.bis.org/publ/work818.htm - funnily enough, the term spread isn't the be all...but economists have a big problem with including things like credit.
Today, all the same people talk about coming recession.
I was lucky to have my first job in finance during the credit crunch crisis. Until it was over media we're adamant it's just a correction. We did not believe it either ... we all thought it's a good time to buy cheap before the next bull run. Only about 3 people actually predicted it (even though AFTER the recession media came up with a dozen people who claimed so - none of them ever made any bets on it)
It's hard to imagine recession come when everyone expects it.
However, You can still have downward spiral even in case "everyone is talking/preparing for coming crisis". Imagine this:
- China going finally bust
- honkong peg to dolar broken (financial companies there going bust)
- australia mining slowdown and property market bust
- australia banking woes
Even though there are money on the sidelines, you can have crisis and even more money on the sidelines during few fearful quarters.
I don't think any sane person doubts that China is going to have a debt crisis btw (it started a while ago), the question is whether they can do what they did in 1997.
But yeah: already started.
If people expect stocks to crash, then the expected "crash" is probably already priced in. If people expect a recession, then the reduction in economic activity is something of a self-fulfilling prophecy.
That's why the fear of losing out dominates everything else right now and every mini correction gets bought - until something unexpected happens.
And before anyone says "fed reserve 2 percent", the federal reserve is known to lie.
Especially when those in power are doing everything they can to prevent it. The Federal reserve has a trading floor and participates as a proxy for the government in the markets. There is also the rumored Plunge Protection Team. We actually have markets pricing in the likelihood of further quantitative easing 11 years after it was first done to address a prior crash. And for it all, we have only really accomplished concentrating wealth and increasing income inequality.
None of the above really appears sound. I expect things to change, mainly because I think the above cannot continue indefinitely.
At this point I think it just depends on what the central banks want, as they took control over stock market prices with the low interest rates.
That's not really true outside the US. And in fact it's not even true for the smaller cap stocks in the US. The Japanese stock market being the most cited foreign example of the opposite. Pretty much everywhere outside the US the stock market is very vulnerable. Odds are this will come to the US sooner or later.
They can QE forever to feed the demand, however it's on the whim of a few powerful people when and how some shortage will occur. Stocks grew 20% YoY with flat earnings in the last few years. Price discovery and market signals are dying, but they are dying for both directions up or down.
Many analysts expect asset prices and income inequality to be a major topic of debate this election and we don't know yet if Fed policy will be at the crosshairs. Either way social justice impulse will be stronger against the tech giants either thru cancel culture or outright riots.
It is "manipulated" to the same extent as anything else.
Of course as technology is getting faster and creating more value, and people are moving to cities, it's hard to get a correct valuation, but still gold seems undervalued compared to these other asset classes.
Be clear: you are betting if you take Bogle's advice. You are going all-in. If you know what you are doing, great...but that is probably not the case.
I used to trade domain names at that time, mostly to fund my college. Everyone in my industry was talking about how the value of certain domains will 10x in the next 5 years and other irrational projections.
Maybe its that experience, but I've since maintained a personal theory that a serious recession hits when people least expect it. When there is too much easy credit in the system and business optimism isn't grounded in any fundamentals, that's when you should fear a recession.
Not when everyone is telling you that a recession is just around the corner. Because then you're already more careful in your decision making
Not sure how much of this is founded on economics of course
... ... Opps : recession. ;-) it's a paradox
I also believe that a moderate recession every decade is healthy, cleaning up the economical landscape of unproductive investments.
The biggest impact on the econony - via the spending minds of the masses - is how the mainstream media plays the strenght of the economy in the context of the USA's 2020 election. The middle to the left will be pulling out the stops to look for bad Trump-sourced economic news. That could become self-fulfilling.
Here's all the data on how stocks performed during and after the last recession: https://shan.io/writing/learnings-from-the-2008-great-recess...
The year leading into the Great Recession was mostly around 36%. One year before the 2001 recession it was 24%. And then we have spikes around > 40% in 1999, 2002, 2003, 2006, 2016, and 2018, none of which "paid off".
So how are we supposed to interpret these numbers? That a 40% chance of a recession has a 15% chance of actually predicting a recession?
What if the forecast is Bayesian rather than frequentist?
Listening to the guy who the big short was based on now, my main takeaway is that the banks deleveraged significantly since 07/08, down to ~11 vs ~30 then. Of course, part of the problem is they were using financial tricks to cover up bad assets... so I think they might be more leveraged than they are letting on.
Second, the legislation afterwards only really did one thing: make the "fix", aka fed bailout, automatic. This means there should be less time between drop and recovery. At the same time, it creates incentive for bankers to be more reckless.
Politically, midterms are always about the economy at heart. If Trump is serving Wall Street well enough they will try to keep him propped up for 2020, and would probably try to delay the big dip till either right after or till 2023/24.
https://econbrowser.com/archives/2019/06/recession-anxieties...
https://www.investmentwatchblog.com/rosenberg-on-lagged-effe...
The current monetary system creates money in form of debt with interest which can only be paid by issuing even more debt.
As soon as the central banks pull the plug on liquidity (either by raising rates or fixing the balance sheet) you will have a cascade effect of bankruptcies which "clears out" all debt that could never be repaid in the first place.
Right now the central banks are increasing liquidity around the globe again hence the low probability of a recession.
The bubble will burst soon...