
The Most Reliable Recession Indicator of the Past 50 Years Has Started Blaring - ProAm
https://slate.com/business/2019/07/yield-curve-bond-market-recession.html
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bsaul
Economic field is a complete pseudo-science disaster. This is another example
of it : « the most reliable indicator » is something that has happened 7 times
in 50 years, nobody understands why this is an indicator, and the only
explanation they give starts with « the market thinks ».

They should probably go back to reading tea leaves, or ask octopusos to choose
a box like they do in football. They’ll be more honest.

Europe is seeing negative interest rates for months now, which is supposed to
be an anomaly. And there’s still no inflation, which is also abnormal with
those interest rates. New monetary theory explains that debt doesn’t matter,
and an internet company with 2 billion users is launching its official
currency together with visa.

I think now would be a good time for people in the field to start to be honest
with themselves and publicly declare what in their work is science, and what
isn’t.

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mercutio2
I’m as happy as anyone to grant that economics is not a hard science.

But saying our only explanation for this predictor is “the market thinks”
seems pretty off base.

\- Yields are based on demand

\- Yield inversion indicates heightened demand for long term safe stores of
value, reduced demand for short term stores of value

\- This pattern maps well to our understanding of investor psychology

\- Recessions generally happen when investors are gloomy about short to medium
term prospects, leading to a reduction in investment, leading to a reduction
in aggregate demand

~~~
krageon
Your reasoning sounds really seductive, which is on point for economics. The
next step is actually giving solid reasoning (preferably backed by hard
evidence - this means numbers) for why this is the truth and not some other
equally seductive line of reasoning. Without this, you're just reading tea
leaves and explaining them well.

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baybal2
I see way more worrying signs with much more immediate real world effects. All
suggest the coming of the prophesized "long winter" in the tech industry:

1\. PCB makers deferring new equipment installation:
[https://www.digitimes.com/news/a20190702PD205.html](https://www.digitimes.com/news/a20190702PD205.html)

2\. Highlights of the day: Semiconductor inventory piling up:
[https://www.digitimes.com/news/a20190626VL202.html](https://www.digitimes.com/news/a20190626VL202.html)

3\. Chipmakers likely to post disappointing 2H19 results:
[https://www.digitimes.com/news/a20190702PD203.html](https://www.digitimes.com/news/a20190702PD203.html)

This was for long talked about by economists in the "Big Semi," and I tend to
trust those guys. The semiconductor industry employs very serious economists.

~~~
ativzzz
The first article mentions specifically weaker sales for smartphones (as well
as US/China tensions) as the culprit. Makes sense that this industry is
underperforming no? The (high-end) smart phone market has become saturated,
and there is no need to buy smart phones anywhere near as quickly as phone
manufacturers want us to, and especially not at flagship phone prices.

Seems more the case of market saturation than signs of a recession.

> However, network communication- and server-related applications are likely
> to continue seeing growths, Lee added.

Other markets seem to be doing just dandy

~~~
hadsed
So what is the difference between saturation and recession? To me it seems
like you're going to invest and pile on until you hit saturation, in which
case you have to cut back because the demand isn't there. That cut back is
recession (for that market), no?

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Traster
Man, The Indicator is going to go nuts.

Seriously though, this boom has been interesting for me - because I don't feel
like there's been a huge psychology feeling of "Times are really good". It
still feels like we're being squeezed - which doesn't make me think we're at
the peak of a bubble. But then you look at IPOs and the stock market and some
of the more egregious examples of bubble style valuations (WeWork for example)
maybe this recession is more focused on the stock market and less far reaching
than the last one (as far as it can be). It'll be really interesting to see
whether the deficit comes back as a topic in the US.

~~~
jjwhitaker
Not so positive other things to think about.

Auto loan defaults are near record and are bundled similar t mortgages in
2007.

Student loan debt is at record high with stagnant wages over the last 10
years.

Personal loan and mortgage debt is similar to 2007.

Stock buybacks and allocation of capital away from workers is spiking after
the 2017 tax cuts.

Plus, those tax cuts are counter to some schools of thought on raising taxes
in a good economic period to pay back the last or save for the next economic
downturn. All this with increasing spending and record increases in the
deficit. The deficit has become a left wing talking point no as previous
deficit hawks have walked or are no longer the opposition party.

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dmt314159
I believe global economies have fundamentally changed post GFC, so previous
indicators may no longer be relevant. Interest rates have already gone below
historic levels so it's not clear how economies will be turned-around. One of
the few suggestions I've seen is [https://www.smh.com.au/business/markets/the-
world-needs-shoc...](https://www.smh.com.au/business/markets/the-world-needs-
shock-therapy-20190629-p522i6.html)

~~~
JamesBarney
This is one of the strongest arguments for a higher inflation target. Wealth
concentration and an older population have driven interest rates down to the
point where the natural nominal interest rate in goods time is near 0, and
almost certainly sub zero for any type of recession.

A higher inflation target(3-4%) gives centrals banks the much needed wiggle
room to correct a recession. Unfortunately once you're in a recession it's too
late to adjust the inflation rate.

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jbros
Early age CS, math, science enthusiast here that left undergraduate with 3
classes left. I have no respect for what passes as university education.
Obfuscation and book burning is the MO - and it is most prevalent in these
'economics' classes (hint: always read the original works+history for your
math classes) . Econ is not science or math - don't dare conflate the dogmas
of modern science (or the copy errors of your mathematics curriculum) with the
utter nonsense of university economics. It is pure gaslighting dogma of
inconsistent and erroneous dogma. The courses serve nothing more than to
demonstrate how not to build a model and how improper definitions and first
principles lead to nonsense. This is the crown jewl of post modernist
institutions:

1 Comoditize and sell shitty models. 2 rigorous tests to see if you remembered
erroneous definitions and concepts. 3 refuse to acknowledge inconvenient
evidence 4 worship figures that engage in plagerism and open dishonesty. 5
hide the true power in upper level math courses after brainwashing population
to despise math. Bonus points if public university endorses purposefully
confusing high school curriculum. 6 distract from the fact that real science
is a constructive discipline - like CS without the cargo culting. Remove
constructive math from high school and erroneously claim foundational texts
such as Euclid's elements are obsolete. Back up said claims with dishonest
translations. Don't forget to memorize the periodic table without question or
further discussion. Define stupid shit like Electrons are point particles and
make up some cloud bullshit. Always confuse territory and maps.

Edit: claim that the dragon book is obsolete. Never expose students to it's
insights into logic, modeling, and language. \+ Attempt to have a discussion
on economics without understanding banking and government. It's like trying to
have a discussion of CS without discussing binary or other bases.

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BubRoss
"As of this week, the U.S. Treasury yield curve has now been inverted for a
full quarter"

Just in case you don't want to be clickbaited.

~~~
naveen99
I am surprised the inverted yield is not the natural state of affairs. In the
options world, short expiry contracts pay a higher premium than long term
contracts. Long term loans are like wholesale as short term loans are to
retail. Shouldn’t short term interest rates be higher ?

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pcurve
Articles like this will be followed by "This time, it's different" articles.
Here's one.

[https://www.ocregister.com/2019/07/03/inverted-yield-
curve-a...](https://www.ocregister.com/2019/07/03/inverted-yield-curve-a-
reliable-recession-indicator-may-fail-this-time-realtor-economist-says/)

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jbottoms
The news is that consumers are running out of money. That can be called a
market warning if you like, but it is pretty damn obvious without a new
economic analysis.

