
Hold That Recession: U.S. Indicators Are Trouncing Forecasts - Reedx
https://www.bloomberg.com/news/articles/2019-09-20/hold-that-recession-u-s-indicators-are-trouncing-forecasts
======
OscarCunningham
I see lots of people here talking about recessions and market crashes as
though they were the same thing. So let me point out that they aren't. A
recession is when GDP goes down and a market crash is when stock prices go
down. Either one can happen without the other.

~~~
ianai
I’d say that while the stock crash of 2008 may have subsided, there are still
fundamental problems being suffered through across the US from that fall.

~~~
rolltiide
Just use an accurate word to describe that instead of confusing the
economically illiterate

------
rdtsc
I even heard it here that that’s it, recession is a sure thing. This or that
indicator flipped and it’s all over. Heard people talk about it around town. I
debated moving my retirement investments around even. But a voice in the back
of my head was telling to not bother, since there is always someone saying the
big crash is going to happen next week. And eventually it will happen, but
probably not next week...

~~~
alexandercrohde
yeah, the thing is NOBODY knows. If anybody ever knew the market was going
down, they'd keep it a secret and short it. And if they KNEW it was going up
they'd keep it secret and buy.

A good thing to keep in mind while the "experts" are bombarding you with their
theories.

~~~
mycall
I invited NOBODY to my house yesterday to discuss this very situation. NOBODY
told me there is secret and I should listen to NOBODY. So here I am.

------
megaremote
Stocks are up because there is so much money around these days, and not a lot
of places to put them. Bonds aren't paying, so don't put them there. Where
else do you put your money?

~~~
wheelerwj
There's also a tremendous amount of stock buy back happening, which means less
money is being distributed to investors and more is being used to prop up the
prices.

There's plenty of other places to put money though.

~~~
ThrustVectoring
Stock buybacks _are_ a way of distributing money to investors. It's
functionally equivalent to a dividend.

------
tdurden
The recession talk was mostly media-driven based on a few cherry-picked data
points. Sure, they may be right...but they may be wrong. For whatever reason,
every media outlet has been running with this lately.

~~~
hn_throwaway_99
I'm going to push back against this "let's blame the evil media for
everything" view. The treasury yield curve inversion is one of the best
indicators we have of an oncoming recession, even if it's not 100% accurate.
To not report on that very important signal would have been negligent.

~~~
blackflame7000
Most recessions are preceded by yield inversion, but a yield inversion may or
may not lead to a recession. That’s where are the misleading information is
coming from.

Edit: Idk why the downvotes. Yield inversions occur much more often than
recessions therefore by necessity some yield inversions are preceded by
another yield inversion instead of a recession.

~~~
remarkEon
"All recessions have been preceded by an inversion of the 2-10 year, but not
all inversions of the 2-10 year have preceded a recession" is the phrasiology
you're looking for.

~~~
blackflame7000
“not all inversions of the 2-10 year have preceded a recession”

Since recessions are cyclical all inversions eventually lead to a recession.
There haven’t been enough cycles to draw any sort of meaningful conclusions
based on temporal proximity of the inversions to the recessions.

~~~
the_narrator
you seem to be contradicting yourself

> a yield inversion may or may not lead to a recession

> all inversions eventually lead to a recession

------
shoo
ClearBridge Recession Risk Dashboard (interactive, you can manually adjust the
input metrics to see what effect it has on the overall risk estimate):
[https://www.leggmason.com/global/campaigns/clearbridge-
aor-r...](https://www.leggmason.com/global/campaigns/clearbridge-aor-
recession-indicator-tool.html)

------
taiwanboy
US has the strongest economy in the world and it’s obvious that it is going to
grow since its main competitors (Europe, China, Japan) have declined. (Think
market share increase and capital increase, in terms of a company)

The main two problems that faced US economy in the last 60 years - energy and
jobs, have been solved by US. For energy, US is now the largest energy
producer in the world. For jobs, US has climbed out of the hole of threats
from globalization, increased internal labor force and automation, by using
tariffs, deportations, border walls, upgraded workforce via increased
education, and splitting threat from its main outsourced competitor China.

~~~
xenocyon
Recessions often tend to be global; they are not a zero-sum competition
between countries.

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blunte
Well! Do more of the same! Obviously people are generally experiencing better
lives, right? (No, actually they are not (US-focused).)

If the metrics are wrong or only partially focused, their meaning is less or
non significant. There is ample recent evidence that only a narrow upper class
is improving while the increasing lower class is dropping in terms of cost-of-
living-adjusted income.

~~~
taiwanboy
Please do show your evidence. From what I have read, it’s the opposite.

white-collar workers have seen their wages grow by nearly 7.5%
[https://www.usatoday.com/story/opinion/2019/08/14/blue-
colla...](https://www.usatoday.com/story/opinion/2019/08/14/blue-collar-
workers-wages-rising-inequality-shrinking-economy-column/1955329001/).

Workers at the lower end of the pay scale finally are getting the most benefit
from rising wages [https://www.cnbc.com/2019/03/13/workers-at-lower-end-of-
pay-...](https://www.cnbc.com/2019/03/13/workers-at-lower-end-of-pay-scale-
getting-most-benefit-from-rising-wages.html)

------
1helloworld1
Germany and India are heading towards a recession. China's growth rate is
slowing. If there is a global recession, I don't think U.S. can escape it. A
lot of U.S. companies sell their products globally. Here is share of foreign
revenue of some U.S. companies - Ford - 51%, Bank of America - 20%, Boeing -
41%, Amazon - 45%, McDonald's - 66%. Ford employs 85000 people in U.S. If
Ford's global sales declines by 20%, they will close some U.S. plants and lay
off employees. Even if just 20% of the companies in S&P 500 start laying off
people, that will soon have a cascading effect. People who lost their jobs
will stop spending. Even the people who have jobs will be afraid to spend on
anything major - new houses, new cars, etc.

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ineedasername
Sure, we might not hit a recession, there seems a decent chance we won't, but
for every slightly positive benchmark cited in this article there's at least
one negative, be it trends in car sales (especially new truck sales, which
tend to be predictive) or a jobs report that looked positive only because it
was propped up by thousands upon thousands of low-paid temporary Census
workers. The positive indicators are, well, positive, but "trouncing" just
raises the headline to the level of click bait.

------
hashberry
If you want to get past the paygate to read this article, disable JavaScript
for www.bloomberg.com.

> “the message is growth is slower, yes, but the risk of recession is grossly
> overstated. As long as the Fed continues to do the right thing” by cutting
> rates a couple more times.

Apparently a healthy economy is one the Federal Reserve manipulates by keeping
interest rates as low as possible. How long can they keep this up?

~~~
RickJWagner
A long time, if they want.

They can also print money, the second lever at their disposal.

There's a fascinating video about this, from Ray Dalio. Give it a look, it's
pretty interesting.

[https://www.youtube.com/watch?v=PHe0bXAIuk0](https://www.youtube.com/watch?v=PHe0bXAIuk0)

~~~
OscarCunningham
Printing money and lowering intrest rates are the same lever. When they lower
interest rates more people sell bonds. The Fed buys those bonds with printed
money. When the Fed prints money they then buy something with it. When they
buy bonds it lowers interest rates. They sometimes buy shares but that has the
same effect.

------
domnomnom
Economic news about recessions are garbage. It's just a mean reverting
process.

~~~
thrower123
If I took my money out of the market and braced for a recession every time the
media reported economists were forecasting an imminent recession, I'd have
missed out on tens of thousands of dollars in gains.

Eventually, the other shoe will drop, I'm sure, but hell, the Dow is floating
around 27k. A little couple hundred point dip is just an opportunity to buy in
at a discount.

~~~
mruts
I mean, you can tilt toward value or hedge your portfolio with options or
something. I wouldn’t actually do the latter though, put options are pretty
much always overpriced by at least 50% or more. Tilting toward value until the
next election would be a reasonable move. Or you could try a 60/40 equity/bond
portfolio.

Personally though, I just invest in a 3x leveraged S&P 500 ETF and roll with
the punches. Unless there’s some cataclysmic event, that 3x leverage will
almost always outperform the S&P, even with the volatility drag.

~~~
tdurden
You don't "invest" in a 3x leveraged ETF -- they are day-trading instruments.

~~~
mruts
Says who? I hold them long-term at it works out very well. The only problem is
the volatility tax you have to pay. Formula for volatility tax is:

actual returns = return - var(r) / 2

If the S&P 500 has a Sharpe ratio of one and say, a 10% mean yearly return and
10% vol, we first need to turn it into single day returns and volatility
(since these leveraged products rebalance daily) so we get:

S&P 500 Daily Returns = S&P 500 Daily Vol = 0.1 / sqrt(252) = .006299 or ~6
basis points

Before the volatility tax, thix means that our leveraged product should get 18
basis points of returns and volatility daily. In our annualized we get:

3x S&P 500 Annualized Returns = Annualized Vol = 29.99%

Now we factor in the volatility tax:

actual returns = .2999 - .2999^2 / 2 = 25.49%

Now comparing with actual market data:
[https://www.etf.com/UPRO#overview](https://www.etf.com/UPRO#overview)

PERFORMANCE [as of 09/19/19] 1 MONTH 3 MONTHS YTD 1 YEAR 3 YEARS 5 YEARS 10
YEARS UPRO 12.19% 7.41% 64.68% 1.13% 34.64% 22.78% 31.97%

The annualized return of UPRO is 31.97%.

If we look at: [https://www.investopedia.com/ask/answers/042415/what-
average...](https://www.investopedia.com/ask/answers/042415/what-average-
annual-return-sp-500.asp)

We can see that the S&P 500 3x leveraged is an excellent investment on a non
risk-adjusted basis. On a risk-adjusted basis it's worse, the S&P 500 in the
example having a Sharpe ratio of 1 while the 3x S&P 500 having a Sharpe ratio
of 0.8499. But since you can't eat risk adjusted returns and it's going to be
difficult for retail investors to get significant leverage to actually invest
in good risk-adjusted portfolios, the 3x daily levered S&P 500 is a fantastic
investment.

~~~
tdurden
> Says who?

The prospectus of UPRO [1] : "returns over periods other than one day will
likely differ in amount and possibly direction from the target return for the
same period."

[1]
[https://www.proshares.com/funds/upro.html](https://www.proshares.com/funds/upro.html)

~~~
mruts
Clearly. But that’s not a problem unless you don’t understand it.

------
ta1234567890
A recession is not an economic fact that magically happens when some
predetermined values for some set of indicators are reached.

A recession will happen when there is a mix of two things: 1) a big
financial/economic issue that affects an important sector of the economy
(crisis), 2) widespread panic.

There are already multiple candidates for 1), but what hasn't happened is 2).

Why? That's anybody's guess.

My guess is Trump.

For people to panic, there needs to be sustained media coverage and focus. But
now whatever Trump says is more important than anything else for the media.

If you look at the media since Trump became president, the most important
issues have been all stuff related to his government, and whenever the media
has focused on anything for too long, he's come out with some other thing that
the media shifts their attention to.

So we've had lots of small panics, which by now have mostly desensitized the
public.

If someone like Trump can continuously interrupt the media, they effectively
control it through disruption, and then the media cannot focus for long enough
on anything for people to fully panic and cause a full blown recession.

~~~
onetimeposter1
2008 and the ensuing recession happened because of an actual event (Lehman)
and a credit crisis. I'd say those are 1 in your model. We haven't had
anything of that magnitude yet, so I disagree that in today's economy
condition 1 is satisfied.

That said, panic is a real component of crises and Trump's ability to shift
focus could actually be a real asset, though it will be many years before
historians and economists recognize it.

~~~
ta1234567890
> 2008 and the ensuing recession happened because of an actual event (Lehman)
> and a credit crisis. I'd say those are 1 in your model.

Yes, and also 2. Without panick and a lot of intensive short selling, Lehman
wouldn't have happened.

