
Vanguard Warns of Worsening Odds for the Economy and Markets - jdblair
https://www.nytimes.com/2018/08/10/business/vanguard-recession-economy.html
======
hendzen
Here's a good article that goes in detail on this, written in January _before_
the top.

[http://www.philosophicaleconomics.com/2018/01/future-u-s-
equ...](http://www.philosophicaleconomics.com/2018/01/future-u-s-equity-
returns-a-best-case-upper-limit/)

------
imron
> The chances of a recession by the end of 2020 are mounting. And the
> prospects for the American stock market in the next decade have worsened
> appreciably.

The day after Trump's election win, NY Times published an article [0] by
nobel-prize winning economist Paul Krugman saying:

"It really does now look like President Donald J. Trump, and markets are
plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The
disaster for America and the world has so many aspects that the economic
ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will
recover, a first-pass answer is never."

That prediction didn't work out so well.

And maybe these new prognostications are built on more solid foundations, but
still they are prognostications, and if the past decade has taught us
anything, it seems most pundits and economists have no clue what they are
talking about.

0:
[https://www.nytimes.com/interactive/projects/cp/opinion/elec...](https://www.nytimes.com/interactive/projects/cp/opinion/election-
night-2016/paul-krugman-the-economic-fallout)

~~~
themagician
The prediction didn’t work out so well—so far. Hindsight compresses time.
Things said in 2004 and 2005 definitely bubbled up to the top after Lehman’s
collapsed in ‘08 as “correct predictions of the coming financial crisis.”

If things implode tomorrow or six months or even a year from now everyone will
look back at that Krugman quote and say, “The man’s a damn genius, he totally
called it.” It’s easy to forget about the time period when a financial
prediction was wrong before it was right, particularly when the magnitude of
disruption is significant. Sometimes the time even emboldens the former
position because “they knew all along.”

The one thing we do know is that markets are cyclical. There is always another
crisis lurking around the corner. If you went to a cash position the day after
Trump was elected you seem like a fool today. You can wake up a financial
genius tomorrow. Maybe you didn’t sell at the top, but people who got out of
real estate in 2005 probably don’t look back with too much regret saying,
“should have hung in there another two years.”

~~~
imron
> Things said in 2004 and 2005 definitely bubbled up to the top after Lehman’s
> collapsed in ‘08 as “correct predictions of the coming financial crisis.”

Also known as a broken clock is right at least twice a day. Vanguard is doing
the same thing here by saying sometime in the next 2 years the economy will
start doing worse. They'll be right eventually.

> If you went to a cash position the day after Trump was elected you seem like
> a fool today. You can wake up a financial genius tomorrow.

Many people were expecting another market downturn at around the time Trump
was elected - not because of Trump but because it was 8 years since the last
one. The market rallied instead and now Trump has a buffer.

The market today could fall by as much as it did in 2008, and it would still
be at about the same level as it was when Trump was elected.

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brisance
The VIX has been steady while CBOE SKEW is at all time high of 159.03. While
this by itself means nothing since SKEW has been trending upwards, it is
interesting that the yield curve is also flattening.

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nickthemagicman
This is a recurring trend. Republican policies seem to harm the economy while
Liberal policies seem to benefit it.

A Princeton paper was written on the subject.

[https://www.princeton.edu/~mwatson/papers/DemRep_BlinderWats...](https://www.princeton.edu/~mwatson/papers/DemRep_BlinderWatson_July2015.pdf)

For the past almost 100 years the economy has done better on every major
indicator with a Liberal in office.

I suspect it's because the trickle down effect doesn't work.

~~~
philwelch
> I suspect it's because the trickle down effect doesn't work.

Well, maybe.

Or maybe Republican policies are beneficial in the long term, which means they
don't start working until after they've left office and don't stop working
until the Democrat who replaces them has dismantled them.

Or maybe voters tend to vote Republican when they are uncertain about the
future, i.e. in periods of instability.

Or maybe the President doesn't make a huge difference either way in most
cases, and the business cycle got into a rhythm where corrections started
happening in a quasi-regular rhythm that seems to coincide with elections with
Republican incumbents. (The only point where it seemed to get _out_ of this
rhythm, after WWII, was the double-dip recession of the early 80's, which
coincided with a Democrat -> Republican party switch that didn't switch back
until there was another recession).

Or maybe there's been only 15 US Presidents to serve at least a full term in
the past 100 years and it's not a meaningful sample size. I'm going to bet
that's the one.

~~~
thatjsguy
Pretty sure being able to afford food, a home, and healthcare is much more
beneficial to society as a whole than having a poor underclass of laborers.
But hey, maybe it’s the stuff you said too.

~~~
philwelch
I get that we’re deep in a non-sequitur subthread here, but I don’t see how
what you said is a meaningful explanation of the theory of recessions
coinciding with Republican presidential administrations.

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spectrum1234
A good reminder to invest in world stock indexes not just US ones.

Personally instead of investing purely on weighed average, I tilt quite a bit
towards international indexes. I'm American.

~~~
Someone1234
It is worth considering that international indexes are often more expensive
than domestic, and also have had more volatility historically. They're also
often pinned to the USD.

~~~
wrong_variable
True, but there are markets that are completely outside the reach of
international capital markets - and are highly non-correlated to the US stock
indexes.

\- Congo, Somalia are the extreme case but you can make really good gains in
real estate, telecommunication in these places. (I know that people might balk
at the idea of investing in Somalia but I consider it a no brainer to invest
in renewable energy in a place like Somalia - I also get to enjoy the risk
premium for it)

~~~
arashout33
How do I get invest in renewable energy in Somalia?

~~~
downrightmike
It is worth noting that Egypt had the largest solar power plant a century ago,
but that was broken down for steel when WWI broke out[1]. Nothing is isolated
from other markets. 1. [https://www.thenational.ae/business/technology/the-
promise-o...](https://www.thenational.ae/business/technology/the-promise-of-
solar-power-made-a-century-ago-1.389398)

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theshadowknows
But won’t a report like this from vanguard cause investors to panic and pull
their money, causing a recession?

~~~
Someone1234
And put it where?

~~~
robjan
Traditionally bonds

~~~
rsachoc
And gold (or gold funds, e.g. gold ETF) - it's where investors diversify
towards in volatile markets (bonds and gold)

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DrFell
Enjoy not accruing interest, people with market investments! Ha ha... sigh.

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rdtsc
When I see a $5T asset management firm making predictions of market downturn,
I wonder if it is only trying to predict the future or influence it. That is,
did they place bets then went on to warn everyone of impending disaster so
they can then profit from it.

~~~
darkerside
If anything, this is an angle at manipulating the Fed into keeping rates low

> If the facts change — with, say, the Federal Reserve delaying anticipated
> interest-rate hikes in response to a weaker economy — the recession forecast
> will change, too, Mr. Davis said.

~~~
spectrum1234
And this should highlight the absurdity of interest rates even being "set" in
the first place.

~~~
amanaplanacanal
That's just the way the Federal Reserve works. As long as they are around,
they will loan money at interest rates that they set. Potentially they could
get out of the money business and we could go back to using precious metals
for money, but I don't know how you get there from here.

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h4b4n3r0
>> Vanguard tracks data to predict the likelihood of a recession at certain
points in the future.

Having read nearly the entire literary output of one Nassim Taleb, I'd like to
see the results of past predictions on this one. I'm pretty sure it will show
that this "tracking" carries no actual predictive power.

~~~
Apocryphon
Aren't we near the end of a 7-10 year cycle regardless?

~~~
nur0n
Based on historical data, how accurate would it be to say that a recession
happens every 7-10 years? What percent of recessions(for some definition of
recession) follow this pattern? Are there different patterns for different
kinds of economic/political environments? Does anyone know of a good analysis
that a layman could understand?

~~~
dragonwriter
> Based on historical data, how accurate would it be to say that a recession
> happens every 7-10 years?

Starting with the Great Recession and working backwards to and including the
Great Depression, the gap from the previous US recession for each recession
has been:

    
    
      6y, 1 m
      10y
      7y, 8m
      1y
      4y, 10m
      3y
      8y, 10m
      2y
      3y, 3m
      3y, 9m
      3y, 1m
      6y, 8m
      4y, 2m
      1y, 9m
    

Only 3 of 14 of those gaps were in the 7-10 year range, and all of the rest
are shorter.

