
Predicting Next Recession - simonpure
https://www.bloomberg.com/graphics/us-economic-recession-tracker/
======
michalu
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.

~~~
DennisP
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.

~~~
fauigerzigerk
I think many who expect a recession have been expecting one for years. They
have been watching from the sidelines as the market passed them by.

That's why the fear of losing out dominates everything else right now and
every mini correction gets bought - until something unexpected happens.

~~~
RickJWagner
“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

------
puranjay
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

~~~
cellular
Yeah I think that too. Everyone else too! No way a recession is coming!!!

... ... Opps : recession. ;-) it's a paradox

------
rayshan
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.

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...](https://shan.io/writing/learnings-from-the-2008-great-recession/)

------
huffmsa
What's in the author's portfolio will really tell you what they think about
the next proximity of the next recession.

~~~
AznHisoka
“Don’t tell me what you think. tell me what’s in your portfolio”

------
lordnacho
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.

~~~
hogFeast
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](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.

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zeeone
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.

~~~
ced
Link?

~~~
formercoder
[https://www.wsj.com/articles/bridgewater-bets-big-on-
market-...](https://www.wsj.com/articles/bridgewater-bets-big-on-market-
drop-11574418601)

------
sprash
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.

------
perspective1
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.

~~~
buboard
> There's so much effort

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.

------
Mikeb85
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.

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scyclow
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?

~~~
throwawaymath
_> 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?

~~~
scyclow
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?

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thatiscool
It’s during these times when the monetary liquidity and economic growth tide
go out that we find, again, who has been swimming naked.

The bubble will burst soon...

------
chiefalchemist
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.

------
arminiusreturns
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.

[https://econbrowser.com/archives/2019/06/recession-
anxieties...](https://econbrowser.com/archives/2019/06/recession-anxieties-
june-2019)

[https://www.investmentwatchblog.com/rosenberg-on-lagged-
effe...](https://www.investmentwatchblog.com/rosenberg-on-lagged-effects-of-
fed-tightening-corporate-deleveraging/)

------
bollol
There are so many tries to guess the exact date that somebody will hit the
right day :D

------
masonic
Bloomberg has successfully predicted 17 of the last 3 recessions.

------
NPMaxwell
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.

~~~
take_a_breath
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.”

[https://qz.com/work/1727662/why-ceo-turnover-in-2019-is-
at-a...](https://qz.com/work/1727662/why-ceo-turnover-in-2019-is-at-a-record-
high/)

~~~
NPMaxwell
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.

------
viburnum
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.

~~~
aguyfromnb
> _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.

~~~
burlesona
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.

~~~
aguyfromnb
> _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.

