
Wall Street Banks Warn Downturn Is Coming - champagnepapi
https://www.bloomberg.com/news/articles/2017-08-22/wall-street-banks-warn-winter-is-coming-as-business-cycle-peaks
======
chatmasta
The pattern of boom/bust cycles over the past century is alarmingly
consistent, especially for a field like economics that is famously
unpredictable. Just look at the graph in Exhibit 7 of this article. It's
almost perfectly periodic. According to investopedia [0], "there have been 11
business cycles from 1945 to 2009, with the average length of a cycle lasting
about 69 months, or a little less than six years." By this logic, we're
definitely "due" for a downturn very soon.

Does anyone who understands finance have any insight on why this pattern seems
so predictable? Is it due to fundamental economic drivers, or is it merely
correlated with major historical events (internet 2000s, globalization 1990s,
deregulation 1980s, post-WW2 society 1950s, etc)?

If technological society does not continue to innovate at the pace of the last
few decades, will boom/busts smooth out at a point of slower growth?

[0]
[http://www.investopedia.com/terms/b/businesscycle.asp](http://www.investopedia.com/terms/b/businesscycle.asp)

~~~
pjc50
Anyone with a control systems background or even just audio experience will
recognise what happens when you have an undamped feedback loop: it oscillates.

Technology can make the problem worse by reducing the time taken to economic
changes, exaggerating the feedback loop. However there has been one big
success of formal macroeconomic control modelling: inflation. Almost all the
Western economies have a good system for controlling interest rates in order
to maintain an inflation target.

I don't think anyone has really invalidated Keynes' work on business cycle
theory, although it is recognised that it doesn't quite cope with a heavily
financialised economy and there is huge political opposition to counter-
cyclical fiscal policy.

~~~
lend000
The thing about Keynesian economics is that it isn't sustainable in the long
term, because there is never a plan to pay off the debt accumulated during
each recovery. In practice, keynesians talk about increasing spending during
recessions but never speak of running equivalent surpluses during 'the good
times.'

~~~
glhaynes
By itself this doesn't prove that it's unsustainable. In fact, there's plenty
of evidence around us that it _is_ sustainable, since it's quite rare for
states to collapse due to debt (that wasn't caused by exceptional catastrophic
circumstances like war/revolution/highly-corrupt mismanagement/etc). State
debt doesn't EVER need to be repayed in full, interest on it just needs to
stay sustainable. (Which isn't to say debt is without its costs, just that the
fact that it doesn't get aggressively paid down during good times doesn't
imply inevitable disaster.)

~~~
alethiophile
This doesn't prove that it's sustainable in principle, only that the time to
inevitable collapse is greater than the ~80 years since it's been widely
implemented.

In practice, ever-increasing debt _absolutely requires_ ever-increasing growth
in order to service it. We've so far been lucky, in that the period during
which we've used this policy has coincided with the enormous productivity
gains that came with the computer revolution. But rearranging our economy so
that it's dependent on continual windfalls from external sources merely to
stay afloat seems reckless at best.

~~~
raiflip
If there was ever a point where our current run of innovation starting with
the Industrial Revolution were to slow down or stop, then you are correct.
However arguing that it's not proven to be sustainable because the fact that
it hasn't collapsed in ~80 years only proves that its sustainable for 80 years
is makes proving it sustainable impossible. Absent a better theory with better
predictions Keynesianism is still the most successful economic theory.
Moreover the scenario where innovation stops or slows down is a fairly
unlikely scenario and if we're going to have a public policy debate I don't
think it's wise to count on it.

~~~
alethiophile
Innovation in specific areas slows or stops all the time. The general run of
technical progress in a specific area shows an S-curve, in which initial
discoveries are made slowly, later progress accelerates as synergies are
exploited and greater investment is made, and finally innovation decreases as
low-hanging fruit is exhausted and the shape of available technology matches
that of the problem domain. For an example of this, see aerospace; it took
around sixty years to go from the field's inception to the moon landing and
the Concorde, and in the fifty years since we've made mostly incremental
progress over the technologies involved in both.

It seems that we're currently approaching the top of the S-curve for
computation via integrated circuits; further increases going forward are
likely to be incremental and margin-focused, as opposed to paradigm-
shattering. Maintaining the 1950-2010 rate of productivity improvement will
require new paradigm-shattering advances in some other field (machine
learning? Internet of Things stuff?). It's possible that these are indeed
forthcoming, and we can continue our absurd growth levels for another fifty
years. It's also possible that we're nearing the edge of the problem space and
we won't have any more easy order-of-magnitude productivity boosts. If the
latter is true, then our economy will inevitably collapse with enormous
collateral damage. As an economic system, this seems unstable at best.

~~~
pfisch
This doesn't seem like a reasonable worry really. We will continue to innovate
at a more rapid pace until we have real AI or there is a massive
disaster(runaway global warming of 8-10 degrees or nuclear war are the most
probable), I personally think it will be AI though because I suspect we might
be looking at 20-30 years until that happens.

Once real AI comes I'm not really sure what will happen because it is
unpredictable how the AI will be made, but if the past is any indication it
will be made recklessly in a race between a bunch of companies. Idk how long
our current world order will continue to exist and how much the AI works with
us after that event. Hopefully the zoo it keeps us in will be nicer than the
way we have treated animals, and hopefully that takes 20 years after the birth
of real AI.

I wouldn't worry about innovation slowing down, I would worry about the end of
meaningful human innovation that we are clearly headed towards.

------
jseliger
The nice thing is that if you predict enough downturns you'll eventually be
right.

The cliché goes, "Economists have predicted nine of the last seven
recessions," but I think the numerator is actually higher.

This article: [https://www.theatlantic.com/magazine/archive/2008/12/why-
wal...](https://www.theatlantic.com/magazine/archive/2008/12/why-wall-street-
always-blows-it/307147/) was published in 2008 but is still underrated.

~~~
seanmcdirmid
The antithesis of predicting that the eventual downturn will happen is "it's
different this time" claiming that the cycle has been broken and there is only
upturns to come.

The former are always right and the latter are always wrong.

~~~
seanp2k2
_until now_

~~~
metalliqaz
invest everything in bitcoin

~~~
TACIXAT
"invest"

------
chollida1
What I'm most excited to see in the event of a market downturn is how well
Betterment and Wealthfront hang onto their clients.

I'm guessing that the average client of those firms hasn't really lived with a
significant stock market investment during a bear market. Will these clients
keep their money invested in a larger percentage than the typical ETF
investor?

If so then I think that's a huge bullish signal for these new types of wealth
management firms.

If not, then those companies are going to have to go out and raise money in a
downturn.

If you can hold peoples money during a downturn, then I view that as a very
positive investment signal, there has to be something more than the dollar,
bitcoin, hedge funds, and gold that people can turn to in a downturn.

~~~
criddell
I'm about to open an account on one of those services. I'm 47 and am terrified
that I'm not saving enough for retirement and am hoping that the service can
give me some peace of mind or at least help me with a plan.

~~~
fullshark
I'm a big fan of them. Some people hate on them for the 0.25% fee but I think
for a lot of people it's well worth it (and better than paying more for an in
person advisor that provides zero value).

They will set you up with a solid investment plan and rebalance for you, just
don't get caught up in their tax-loss harvesting hype. Their value is in
giving you the peace of mind that you seek, the tax loss harvesting benefit is
overstated imo.

~~~
sigstoat
> (and better than paying more for an in person advisor that provides zero
> value)

that isn't the only other alternative to betterment, etc.
[https://www.bogleheads.org/wiki/](https://www.bogleheads.org/wiki/)
[https://investor.vanguard.com/mutual-funds/target-
retirement...](https://investor.vanguard.com/mutual-funds/target-retirement/)

~~~
fullshark
Yeah that's a fine option too to just put in a target fund and forget about
it. It's debatable how much more value you get from a roboadvisor wrt
rebalancing + diversification + tax loss harvesting.

~~~
dlubarov
I don't think Wealthfront etc. have any advantage w.r.t. diversification or
rebalancing. Vanguard's target retirement funds seem to have target
allocations (which change gradually as the retirement date approaches), and
rebalance to stay in sync with those. E.g., VTTSX seems to maintain ~90%
stocks and ~10% bonds, with ~60% of the stocks being domestic, and ~70% of the
bonds being domestic.

They do have an advantage in tax loss harvesting, but the maximum annual
savings is basically $3000 * (current marginal bracket for ordinary income -
LTCG rate in retirement), which is about $600 for the typical investor. If you
have more than 250k in Wealthfront, their annualized fee will be greater than
$600.

~~~
fullshark
The roboadvisors invest in market segments not included in the target
retirment funds (like natural resources and REITS). If you were to do that on
your own using various vanguard vehicles you'd then have to worry about
rebalancing.

~~~
dlubarov
Well you still get exposure to companies in those segments, such as Monsanto
and Equity Residential. If you just want "normal" positions in those companies
(i.e. weighted by market cap), then Vanguard funds like VTSMX (a component of
their retirement funds) are perfect.

------
daxfohl
Figures. At age 41, I just last week went in debt for the first time in my
life, moving my family from a home we owned in Michigan to the red-hot Seattle
market for a job offer I couldn't turn down, spending well over a million to
do so.

It's just starting to dawn on me now how precarious a situation we're in.
Going in, it's like "awesome job, a million+ house will be worth 1.2M+ next
year, maybe 1.4+ after that." Seemed reasonable.

My cynical side is just waiting for the market to implode now, our loan to be
upside-down, and layoffs to start. Everything was so good six months ago.
House paid off, a rainy-decade reserve. And now reality is sinking in that we
could be homeless jobless and bankrupt in a month. Hopefully not. Hopefully
the economy has a couple more years in it. I'd probably not make the same
decision again.

~~~
imjk
Take a deep breath man. You'll be fine. Moving (especially across country like
that) is always a stressful event. I think once you settle in and find a
routine for your new career you'll realize you're not in as precarious a
situation as you think. Best of luck. Cheers.

~~~
Godel_unicode
Exactly this. Former you sounds like a sound financial planner. Trust that he
knew what he was doing.

------
xzel
This is sensationalism at its best and repeats what people have been preaching
for years, one big example being Ray Dalio
[https://www.youtube.com/watch?v=PHe0bXAIuk0](https://www.youtube.com/watch?v=PHe0bXAIuk0).
The fact the US market is probably in the late cycle says nothing about how
long that could last or about the state anywhere else in the world. Yes the
Fed will be raising rates, yes money won't be as cheap but there are still
companies making products and making a difference in the economy. There are
still good investments to be made in emerging markets, which are less mature
in their cycle, and even can be found in the US's more mature part of the
cycle. I don't know how many fund managers invest strictly according the the
cycle, I'd say 0, but instead use it as a piece of information to help make
their decisions and help rationalize valuations, metrics, etc. Regardless,
diversify your holdings from just US securities (again something that has been
said forever) and if there is a market downturn, it will probably come back up
eventually. It is, after all, a cycle.

~~~
metalliqaz
It's not purely an examination of a cycle. They are talking about indicators,
especially decoupling of economic dependencies.

For example, they cite that valuation is starting to diverge from corporate
earnings, which _could_ indicate a coming correction (and therefore downturn).

~~~
xzel
But that has been happening for years during this cycle, investors willing to
pay a premium for future earnings, Tesla, Amazon, the list could go on. On the
other side companies with good earnings are still underpriced because people
are pricing in other things. I see that as a good thing, people are being
rational and not sticking to numbers. If the banks thought they were
undervalued they'd be taking huge positions in those securities, not exposing
them to the world.

The only really bit in this article was a shitty attempt at explaining the
"economic cycle". Saying the "Downturn Is Coming" because we might be a peak
was less helpful than explaining what the cycle is, what it means to be at
this point and what that might mean to do about it. Saying the "Downturn Is
Coming" to me says, "shit guys, sell all your securities right now". It is
plain sensationalism.

To reiterate, I don't see much substance in this article and I expect a lot
more from someone claiming the "Downturn Is Coming". If anyone can get their
hands on a copy of Gloom Boom Doom [1] by Marc Faber and you see what quality
analysis looks like of the current economic cycle. I believe his August
edition goes into it but I don't have my copies to confirm.

[1] www.gloomboomdoom.com

------
csomar
Okay let's look at the following chart:

[https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYP...](https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYPI/v2/1000x-1.png)

While there have been "cycles", the cycle doesn't have a precise duration. The
expansion period could be a "few years" or over a decade. The "dip" isn't
predictable either.

Someone who was ready to buy the dip in 2010 might had to cut his losses
because the decline was really steep that he might have believed the "sky is
falling" news.

See the 1960-1970 period. We might still have 1-5 years of more "bull running"
before seeing any correction. Given that we have little data too, it is
possible that it turns into a 7-10 year of more "bull running" just for the
fun of stretching the limits a little.

You'll have to be real patient not to buy stocks/assets for the next 5-10
years. That "crash" day will happen once everyone is confident that "things
are the way it is and bull is normal".

------
jasonrhaas
Of course we are due for a pull back in the stock market. Stocks are
historically overvalued by many metrics, the most simple of which is the P/E
ratio. Check out this website --
[http://www.multpl.com/](http://www.multpl.com/)

The question is not if stocks will pull back, its when. Bull markets can run
for a long time even if they are over valued. The boom of the early 2000's and
2007 went way higher than average, and crashed hard.

------
module0000
This is nonsense. Downturn is how you describe consecutive periods of lower
prices _after they happen_. It's a trailing analysis! It's impossible to say
with certainty that you are ever "in" a downturn for an instrument - a moment
of consecutive successful buying(price increases) ends the downturn, the time
you thought you were "in" it was actually the moment after it ended.

This type of trading mentality is why the 90/90/90 statistic exists. People
read this, believe it, and become sellers when they would have been buyers or
non-participants. The only thing that matters is _right now_ if you are
trading. Yesterday is irrelevant, your [N]-period MA's, fib lines, gann fans,
and other indicators are equally irrelevant. If you are on a commercial
trading floor, ask the guy next to you "are we having a bull
day/week/month/year or a bear one?". Either you get laughed at, or completely
ignored. The people actually causing these numbers that people see visualized
at charts aren't even looking at them! They likely aren't looking at charts at
all! If that last statement seems too "oh no it can't really be that way, I
see charts on MSNBC so they must be professional tools!" to you, then find a
friend who works for a market-related institution, and ask them. You might be
surprised at the answer.

Now the interesting part, is if you can get enough people to _believe_ they
are in a "downturn", then you influence them into becoming sellers opposed to
buyers. This only turns "down" if enough institutional size believes selling
is more immediately profitable than buying or non-participation. A good way to
incite this belief is to publish it to major news sites. Like
bloomberg(another word that will cause hilarity and snark if uttered on the
trading floor).

Do you know why your financial-news network is a free channel? They want you
to see it. Anything that can encourage you to participate means there is more
amateur liquidity available. Institutions _really like_ amateur liquidity.
After consumption, your exit(at your loss and their gain) is assured, since
your pain threshold is orders of magnitude lower than theirs.

One last bit about "patterns".... your brain is a pattern recognition machine.
It's the reason you think you see "text" right now, instead of a purple
giraffe. It's also the reason you see shapes in complete randomness: your
brain _wants_ to categorize things it sees, and we call that categorization a
pattern. Patterns are death to a day trader: 100% financial death. Repeat that
to yourself each morning before you walk into the pit, or you will walk out
bankrupt.

------
Leader2light
Whats scary is we are still basically in pump mode from the last recession.
The gov will not have much power to "fix" the next one. Not to mention the
major debt many states carry now such as IL.

~~~
Clubber
Nope, especially since we'v been loath to raise the interest rates. Lowering
rates is often used to stir economic growth. We've been near zero for quite a
while now. If it hits soon, the fed won't have much water to put out the fire.

[https://tradingeconomics.com/united-states/interest-
rate](https://tradingeconomics.com/united-states/interest-rate)

Note: Click the Max button on that chart for perspective of where the rate is
now relative to historical rates.

~~~
winslow
That definitely puts some perspective on things. It's a little bit absurd it
was at 0% and it stayed there for so long. Never in the previous history (at
least of the graph history) did it stay at the same rate for so long.

------
noddy1
Keynesian economists triumphantly point to the massive QE that has occurred
and the seemingly minimal resulting inflation and claim victory for
stimulatory monetary policy.

How was the QE performed? Basically printing piles of money and giving it to
banks. What have the banks done? Double or triple the value of every equity
market. Hardly any of the money ended up in the pockets of regular people
buying groceries and petrol. Yet our measures of inflation come from consumer
goods, not equity markets. Is it any wonder that our bullshit measures of
inflation have barely budged.

I think the coming bust (whenever it occurs) will be the last boom/bust cycle
in which this shit flies anymore. We now, finally, have universal, non-
inflationary currency of a type which can compete with the unproven conjecture
of Keynesian economists. People have been complaining that about economic
theories being hard to prove, well here is a battle between the old dogma and
a new challenger.

~~~
dragonwriter
> Keynesian economists triumphantly point to the massive QE that has occurred
> and the seemingly minimal resulting inflation and claim victory for
> stimulatory monetary policy.

Every Keynesian I’ve heard from seems to think QE was, _at best_ , the least
bad option given the complete failure of those empowered to do so to adopt
stimulatory _fiscal_ policy, and that it in many ways demonstrated the
weakness of monetary policy in isolation.

I've seen _none_ cheering QE the way you describe.

------
3pt14159
I called it a couple weeks ago:

[https://twitter.com/zachaysan/status/895197582586261504](https://twitter.com/zachaysan/status/895197582586261504)

Forward P/E, yields, EPS, everything is just too frothy right now in the US.
In my home country (Canada) it's difficult to see how the short term oil
market will turn out, since it's such an inelastic market, but in the medium
term oil is effectively over - especially for resource intensive extractions
like the Alberta oil/tar sands.

The only major company that I'm still in on is Facebook, but that's only until
regulators start coming down harder on them. Even so, Facebook has a huge
amount of growth ahead of them.

I've been able to make around 18% YoY, even after the fact that half my
portfolio is in bonds and low-risk consumer staples. I don't do anything too
fancy. I sell before busts (like in late 2006) I put a little money into put
options on the S&P500 (SPY) well out of the money for an extra boost if I've
timed it right, I move things into actual cash and then I wait until people
are panicking and then I buy back in.

Split exposure to 1/3 USD, 1/3 CAD, 1/3 Other (basically Bitcoin, startups,
bit of precious metals, Asian / Euro stocks) when things are undervalued and
move most things into cash when things are scary.

When choosing investments I generally do:

1\. Tech I understand (in the past Amazon, Tesla, Apple, Google, Shopify)

2\. High dividends stocks (Apple, then a bunch of boring ones with no
appreciable downside, since I don't like buying declining industries).

3\. Short term commodity plays (since in the long run clever humans invent
better mining techniques).

4\. Strategies that anticipate the catchup effect. Last decade it was China
this decade it will be India and Africa.

I'm not perfect (SQM and Etsy were two stocks I was quite confident in that
didn't pay out for a number of reasons) but I'm confident and careful. I
really think I would have been wealthier if I'd gone into finance instead of
machine learning, since I seem to have a knack for it, but we'll see how the
chips finally land in the future I guess.

------
jackmott
for those of us in the bottom 95% of incomes the downturn has been going on 30
years.

~~~
djrogers
Citation? Most IS data shows flat to moderate increases for all quintiles. Top
5% has had greater % increases than any other cohort but that doesn’t mean
that the other 95% are experiencing negative growth in income.

~~~
metalliqaz
You are completely correct of course, but I think he meant that the economy
felt like downturn, rather than that actual wages were down. In that respect
he's right, because as so many wages have stagnated, buying power has dropped
due to inflation.

------
dkrich
People have been making this prediction consistently for a year. Meanwhile the
market just keeps going up.

Bubbles never happen where or for what reason people think they will, and for
good reason- bubbles are formed by market participants, so in order for one to
exist, people by definition can't believe a bubble exists or that the market
is due for a selloff.

------
sputknick
What do you think will happen to crypto currency during a recession? The next
recession will be our first since Bitcoin was created. My prediction is you
see a spike up early, as people get desperate for a profitable trade, then
they all plummet as people flee for safety.

~~~
delazeur
For certain millennials, crypto-currency already seems to hold the role that
gold does for certain baby boomers. I would expect that phenomenon to grow
during a bear market.

~~~
justadeveloper2
Man, I just see massive heartache and disappointment for them at some point in
the future.

~~~
RationPhantoms
Yeah there have been quantifiable "bubble bursts" multiple times.

It's like multiple, concussive "Stock and awe" campaigns where the price has
plummeted by $600 per coin. Everytime that happens, the subreddit for
/r/bitcoin posts the national suicide hotline and the price rallies in 4
months.

------
narrator
Must be time to buy then. These free articles are always herding people in the
opposite direction the market is really going so the traders can unload their
stock or get in cheaply.

------
jonbarker
This article mentions assets decoupling from the price of oil. I've found that
the price of oil is generally useless: either people think it will cost more
to move things and they then reduce their expectations, or they think the oil
companies are driving the economy and will make more profit, and then they
increase their expectations. This all seems to depend on which side of the bed
they get up on.

~~~
samsonradu
Oil price these days is mostly politics, it has little to do with the free-
market, supply/demand and such.

------
nugget
This leads me to think that a real downturn is at least a couple years away.

~~~
exelius
The thing is, you never notice a "real downturn" until right at the point the
bottom falls out. It just looks like market cyclicality at first -- a 10% drop
in equities over 6 months is nothing to worry about until you hit a week where
you lose 10-15%. Suddenly you're down 20-25% over 6 months and people start to
say "oh crap, we're in a recession". But really, at that point you've been in
the recession for six months.

This is why amateur investors do a lot of hand-wringing about market timing --
they think they can "time" the recessions. And of course you can in hindsight,
but recessions are very difficult/impossible to see in real-time, even for
experienced economists.

~~~
codelitt
The downturn cycle is every ten years it seems. Is there a similar recession
cycle? I can only think of 3 instances where the recession was substantial in
both unemployment above 10%, big drop in GDP, and length of time it lasted:

\- The Great Depression (1930)

\- The 1980s recession (1980)

\- The Great Recession (2008)

~~~
exelius
My personal theory is that recessions are dependent on wealth inequality. It
makes sense if you think about it on the personal level -- if there is high
wealth inequality, a greater percentage of the country suffers during an
economic downturn. That suffering puts a pinch on all non-essential spending
for a larger percentage of the population than it would if there were a larger
middle class.

A wealthy and prosperous middle class is thus essential to a stable economy.
Without it, you get these boom-bust cycles and you condition people to "spend
it while you got it" (aka the poverty mindset). This creates a feedback loop
that the US had to work really hard to break out of in the early 20th century
(the time between the Civil War and the first World War was extremely
tumultuous economically because we were learning a lot of hard lessons about
monetary policy).

We had some pretty bad economic downturns in the 50s, 60s and 70s as well. But
they didn't reach recession level because the wealth gap wasn't as vast. My
grandfather was a factory owner in the rust belt during that period and the
richest man in his small town. He was wealthier than his employees, but not by
a lot. But eventually he had to sell out to a large multinational because he
simply couldn't match their prices in the market.

~~~
codelitt
I see your point. Though, I'm not terribly convinced about wealth inequality
being a major driver in this. I know it is a hot political topic, however, I
don't think it is nearly as extreme (except for the very edges of the
spectrum) nor as problematic as it is being portrayed. I read this paper
recently that I thought was an interesting perspective:
[https://cei.org/sites/default/files/Ryan%20Young%20and%20Iai...](https://cei.org/sites/default/files/Ryan%20Young%20and%20Iain%20Murray%20-%20People%20Not%20Ratios.pdf)

~~~
exelius
On a global level, you may be right -- but recessions and market forces strike
nationally, and it's hard to tell an out-of-work coal miner that "Sorry, there
are no factory jobs to fall back on because we gave them to some _really_ poor
people in Honduras and now they're doing great!"

A middle class that is _relatively_ less wealthy than the upper class has less
ability to soak up down markets. And down markets will always happen (I mean,
it's cyclical) -- but the middle class in the US is leveraged up to its
eyeballs just from trying to get to a middle-class lifestyle (college loans,
medical bills, etc.) That means the slightest perturbation in the status quo
sets off a chain reaction of default and money supply pinch.

I expect the next recession will trigger the student loan avalanche. There are
students graduating with over $100k in debt -- and many like me who are well
into lucrative careers without a ton in savings because so much of their
income goes to servicing their student loans.

------
logicallee
I just want to point out that it's _really_ nice of HSBC, Citigroup, Morgan
Stanley not to take any market positions before doing this, and just share
their analysis in full as a public service.

What I mean, is that they could have very easily first taken short positions,
then made this announcement. Or kept the analysis for themselves. But they
didn't. They just did the analysis and shared it for free as a public service,
which is a class act all the way.

I wish more Wall Street Banks looked out for investors this way. Sometimes big
investment banks forget that there are people behind these pieces of paper.

~~~
alexandercrohde
I hope this is a tongue-in-cheek criticism.

------
norea-armozel
I'm not sure we can get a bust when all the major reserve banks (especially
the US Federal Reserve) keep propping up the economy. The real question is how
much longer can investors take advantage of this? We've basically been in QE
since 2009 (almost a decade?). The real test, as said in other comments here,
will be when the US Federal Reserve pulls back. If the markets can take the
burden then it'll survive but maybe at a lower rate of growth. If they can't
bare any burden I think we'll see it immediately.

------
cm2187
Valuations I think are massively pushed by the amount of quantitative easing,
which the Fed said it is only going to start withdrawing in Sept:

[https://www.federalreserve.gov/monetarypolicy/bst_recenttren...](https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm)

I think this could have some nasty impact on stocks, particularly if combined
with an interest rise.

~~~
Finnucane
Currently, the Fed is maintaining the balance sheet at a high level by
reinvesting funds from maturing bonds they hold. At some point they're going
to stop reinvesting the funds, and let the balance drop. Which means the
initial impact will be in long-term rates, esp. mortgage rates. It probably
won't effect stocks too much directly in the near term, but eventually will.
It will be interesting to see what effect this has on certain overheated
coastal real estate markets.

~~~
cm2187
There might be a month or two of lags but when you look at a 10y chart of the
S&P vs the size of the Fed B/S, the correlation is striking.

~~~
icebraining
Doesn't seem to be that correlated: [https://www.pragcap.com/wp-
content/uploads/2013/12/stupid_ch...](https://www.pragcap.com/wp-
content/uploads/2013/12/stupid_chart1.png)

~~~
cm2187
Correlated from the introduction of QE of course. I made that chart a year
ago:

[http://imgur.com/kOXtm8N](http://imgur.com/kOXtm8N)

The correlation only started to break a couple few months ago, with the S&P
skyrocketing. But many suggest this is bubble territory.

~~~
icebraining
Even during the same period, the two graphs of the Fed sheet don't seem to
match up, do you know why? I'm not clear what CERBTTAL means.

~~~
cm2187
It is just the bloomberg ticker for the weekly size of the Fed assets. What
difference do you see? They both end up at about $4.5 trillons, they should be
exactly the same.

------
nabla9
Downturns usually happen sometime after GDP reaches the potential GDP. Timing
the downturn is almost impossible. It relies too much on 'animal spirits'.
Downturn within 1-5 years is very likely.

Illustrative picture:

[https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9](https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9)

------
readhn
I'd say we are overdue for a decent size pull back/sell off BUT getting the
timing WHEN exactly this will happen is the hardest part.

Typically before decent market corrections/crashes you do not hear on the
"news" that it is coming. The point of the down move is to catch most market
players off guard.

The fact that these "smart" guys are yelling "sell off" is coming tells me
stay the course ... for now (where were they back in 2000 or 2008 warning
general public??). But longer term i agree we will correct probably sooner
than later. Market loves round numbers. 2000, 2500 ... 3000? who knows where
and when it will stop this massive bull run.

------
justadeveloper2
This is crap--someone is always warning about a downturn coming. The game is
as the game has always been--scare the rubes into doing something stupid with
their money so the people who know the play can keep making big bucks off the
uninitiated.

------
jackcosgrove
Don't try to time the market with gross predictions like this. Just keep
investing as long as you are working, and keep investing in stocks as long as
you are young. Invest regularly so that you spread out risk over time.

------
eighthnate
The FED has already raised interest rates and has said they will continue to
do so in the coming qtrs/years. The 2007 recession started about 2-3 years
after greenspan started raising rates in the latter part of 2004.

Also, we generally get a recession every 7 to 10 years.

Do we really need wall street banks to tell me what is going to happen.

I still think we have 2 or 3 years of economic growth but sooner or later the
hammer is gonna drop on us.

The growth of asset prices, the expansion of debt and the growth of FED
balance sheet is quite interesting. And this isn't just the US - China,
Europe, Japan, SK, etc are also interesting.

------
jrs95
A downturn is coming! You should sell! (To us)

------
shorsher
As someone who is graduating college in December and currently looking at
starting a Roth IRA with money I saved from internships. Should I wait to
invest until this downturn actually happens? Or does that not matter and the
sooner I start investing the better?

Not well versed in this subject, appreciate all advice:)

~~~
acscott
No.

:) You are asking about timing the market. No one can do it, it is said. (I
think it can be done, but it would be through illegal means, i.e. insider
trading, which I believe happens all of the time since it's too easy to do and
too hard to catch). Also, you don't have to invest in stocks. You can buy and
hold on to bonds (AGG or ACWI).

You might see your holdings value go way down. People sell then. It's normal
psychology. It is so tough to see the dollar value of assets go down and sit
on it. But if it's the best investment, you don't sell. Hold. The best
investment has a holding period of forever. It will go back up--eventually. If
it is a good investment and it does not go back up, money will not be very
useful anyway (i.e. asteroid hits, etc.) This is why common advice is to only
put money into stocks that you will not need for at least five years or more.

Some people have said that some of the biggest gains in the stock market are
just before it drops. You do not want to miss out on these, since that is
often where the 9.5% return on stocks comes from.

This is free advice and I am not licensed to advise. Oh, and good on you to
start saving now. That's _your_ money that you worked for. Keep it yours. Get
out a spreadsheet and run the numbers assuming different % returns and
_consistent_ savings over time. You might see you can become a millionaire.

~~~
jogjayr
> Some people have said that some of the biggest gains in the stock market are
> just before it drops. You do not want to miss out on these, since that is
> often where the 9.5% return on stocks comes from.

This may sound like a stupid question but if you don't sell at that time (hold
good investments forever etc), and you don't know that it's the peak at the
time, how do you lock in those gains?

~~~
acscott
It is a good question. Locking in gains means selling. But you do not know the
right time to do that unless you know something no one else does. Sell if you
want less volatile returns to get a monthly income during retirement for
example. Otherwise you are trying to time the market.

There may be some kind of magic options strategy to lock in those gains, but
it also would include taking on other risks (interest rate changes, market
risk, commodities etc.) and you have to have a big bank roll to play in that
game to make it worth while--and now you have another job which could be full
time to manage it all...

I guess to answer your question in another way, you lock in those gains by not
trying to time the market, by paying the lowest commissions and fees possible.
:)

------
graphitezepp
Slow growth is the new normal. Even the weak modern post-recession market, is
growing unsustainably fast.

------
EternalData
It's going to be interesting to see how cryptocurrencies react to a protracted
financial crisis. Time to see if the money in crypto is a hedge or if it's a
risk-on asset.

~~~
chocolatebunny
bitcoin is the new gold. Which is unfortunate, because the more it's treated
like a commodity the less likely it will be used as an actual currency.

~~~
Jordy_Man
That's a good thing! Bitcoin is currently no scalable enough to be a world
currency. It is a great digtal asset. Other alt coins might be better at being
a digital currency like Lite Coin, Dash, etc...

------
greyfox
Starting in the United States from 1800, it seems there's one great financial
'panic' in 1857, and not another until 1910, shortly before the FED Reserve
took control and started the fiatization and debasement of the currency. So
about 50 years between crises.

It seems that the business or boom bust cycles is a relatively new phenomenon
and it might just be related to the way the federal reserve handles the money.

Anyone feel free to correct or add info here as im not an authority on
historical economics in the united states, but i have always found that the
instillation of the federal reserve to be an 'epoch' of sorts for the US
economically.

~~~
frgtpsswrdlame
>Anyone feel free to correct or add info here as im not an authority on
historical economics in the united states, but i have always found that the
instillation of the federal reserve to be an 'epoch' of sorts for the US
economically.

Sure, it's just totally untrue, this wikipedia article will help:

[https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...](https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States)

------
exabrial
I know there's a longer cycle, but IIRC, there's also an economic lapse going
into the fall as well, especially on years with high Atlantic hurricane levels

------
TazeTSchnitzel
Oh great. I'm sure that won't make politics even worse than they are.

~~~
moomin
It will, if nothing else, demonstrate the utter idiocy of thinking a real
estate developer understood the economy better than a professional politician.
Except that the evidence will be explained away by anyone who believed that in
the first place.

Downturns do favour anti-establishment candidates, so I'd pay attention to the
Bernie wing in the next few years.

~~~
seanmcdirmid
Whether the economy tanks will have little to do with Trump, even if he is
incompetent. Bernie is probably too old to be a serious contender next time.

~~~
moomin
I never replied to this, but I think the big challenge for the Bernie wing is
showing they're bigger than one man. Hate the Trump wing all you want, but
when he goes, there will be a replacement waiting in the wings.

------
justforFranz
Oh good. Just in time to keep labor from having any pricing power. Excellent.

------
andy_ppp
I wonder if the price of Bitcoin will go up should there be a recession?

------
xj9
downturn? compared to what? was there an upturn?

------
ElijahLynn
Wonder how #45 will try to spin this when it hits. "Obama ...".

------
Jordy_Man
Crypto Assets like Bitcoin and Ethereum will play a roll in this. I believe we
will continue to see big gains in the crypto world and this will only make
large institutions jump over when their typical markets start to make a down
turn. The next 5 years will be VERY interesting as we turn into a more
decentralized and digital asset world.

~~~
659087
Is the goal of these posts showing up literally everywhere money happens to be
discussed on the entire internet something along the lines of "if we spam it
enough, maybe it will come true"?

Sometimes the best thing to do with a heavy bag, is set it down. Trying to
convince everyone around you that the contents of said bag are more valuable
than they are, just ends up annoying people.

~~~
rglover
Not at all, it is very topical to discuss cryptocurrency in step with a market
downturn. Reason being is that cryptocurrencies are less vulnerable to the
market fluctuations we see with government backed currency (read: I'm not
saying their impervious to corrections, just those related to the U.S. stock
market).

Directly related to the article? No. But it has merit because cryptocurrency
didn't truly exist during the last major downturn and it will be interesting
to see how people value it during such a scenario.

~~~
TACIXAT
They're less vulnerable to market fluctuations because they're backed by
nothing besides speculative demand and the online drug trade.

~~~
rglover
You could say the say the same thing about the U.S. Dollar but just add a
military to the list.

~~~
TACIXAT
Actually, taxation plays a large role in giving a currency value. The US
government only accepts payment in US dollars. They require everyone to pay
taxes in US dollars, which means we all seek US dollars. Add onto that the
fact that the government has and uses tools to control inflation and deflation
means we have a relatively stable currency. We know that the US government's
long term intention is its continuity. (We do not know the intention of the
Chinese mining pools that control large portions of Bitcoin, though, we can
assume profit and not stability.) Tie all that into one of the strongest
economies in the world and you have yourself a reserve currency.

