
Some of the world's biggest economies are on the brink of recession - hhs
https://www.cnn.com/2020/02/23/investing/stocks-week-ahead/index.html
======
taiwanboy
Interesting that China is just a blurb in the article.

[https://asia.nikkei.com/Business/Industry-in-focus/Virus-
hit...](https://asia.nikkei.com/Business/Industry-in-focus/Virus-hits-China-s-
economic-heart-its-small-businesses)

65% of 1,506 Chinese SMEs surveyed in early February expect to run out of cash
within 1 month, 85% within 3 months.

Chinese small business which account for 99.8% of registered companies in
China and employ 79.4% of workers, according to the latest official
statistics. They contribute more than 60% of gross domestic product and, for
the government, more than 50% of tax revenue.

[https://www.zerohedge.com/economics/jpmorgan-now-expects-
chi...](https://www.zerohedge.com/economics/jpmorgan-now-expects-china-q1-gdp-
drop-1-crash-4-if-coronavirus-not-contained)

JPMorgan Now Expects China Q1 GDP To Drop To 1%, Crash To -4% If Coronavirus
Is Not Contained

~~~
i_am_nomad
Good lord... those numbers cannot be real, that’s terrifying.

------
umvi
If we know a global recession is coming, is there anything we can do to profit
off it it? Does gold, Bitcoin, etc. go up during recessions?

Or is the best strategy to just buy low (during recession) and sell high
(after recession)?

~~~
H8crilA
You can short bubbles via long term put options, that's what I do. Tech (XLK,
QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous
dreams (TSLA, SPCE), US corporate credit (JNK, LQD). Of course because it's
options you always have to consider whether the market perception of IV isn't
already too high. For example SPCE is a ridiculously good short but "the
market knows" and the IV is ridiculous too.

Also no two recessions are 100% alike. Most importantly - will the next one be
deflationary or inflationary? Even that is hard to say. Growth in credit
suggests deflation, but then if we face mass bailouts then gold and oil will
be the places to be. Also, the virus thingy may be quite inflationary
(disruption of supply chains, no more stuff from China!) if it materializes. I
guess what I'm trying to say is that it's not about "crisis/not crisis", but
rather "what is currently severely mispriced, and will correct when the market
volatility rises?". This can be either up or down in price.

Finally, if the world temperature goes to, say, +5*C or the virus is really
super bad then this is risk that's not hedge-able via capital markets, because
it will fuck up capital markets themselves. Think of this as counterparty
risk.

~~~
repsilat
> _Of course because it 's options you always have to consider whether the
> market perception of IV isn't already too high. For example SPCE is a
> ridiculously good short but "the market knows" and the IV is ridiculous
> too._

So just use a spread?

~~~
H8crilA
You still pay a lot in IV even if you do a spread, i.e. the reward/risk is not
that great (2022 puts on SPCE have an IV in excess of 100%... that's too much
for me). And I don't have the stomach to sell options. But that's all my
opinion, go ahead and do it if you think it makes sense.

~~~
repsilat
You pay IV on one side and get it back on the other, don't you? AIUI high IV
just means the spread won't start "paying off" until closer to expiry.

~~~
H8crilA
> You pay IV on one side and get it back on the other, don't you?

No. You get less on the other side. You should look up Black-Scholes to
understand how option pricing works.

A put option's value comes from integrating the underlying lognormal
distribution between 0 and the strike price. A spread's value comes from
integrating the underlying distribution between the two spread strikes. Both
heavily depend on IV (i.e. the sigma of the log-normal distribution).

Also, always think about the guy on the other side of the trade. Why would he
sell you a spread cheaply if it's obvious that the underlying is very shitty
and volatile? Options are bets on the probability distribution of some asset.
High IV means "anything is possible". And if anything is possible then it
stands that there's little money to be made on a move like "give me insurance
against it going up/down". There is some money to be made on "I can underwrite
the risk of it going down/up", i.e. on selling the options, i.e. selling the
IV.

------
aSplash0fDerp
Someone else mentioned news outlets having low integrity ratings and I have to
agree that many have crossed that threshold.

I remember channel-flipping past all of the outrage on daytime talk shows
(Jerry! Jerry!) because they were trash, but that low-quality/short-sighted
outrage somehow made its way into the news cycle over the decades. AI/ML
filters will be a boon for information curation. Bipolar insights have no
value whatsoever.

~~~
Misdicorl
> Bipolar insights have no value whatsoever.

I love the extreme tension this sentence creates. Both within itself and with
the rest of the authors post.

~~~
aSplash0fDerp
The bipolar statement is probably more apparent on televised news, but
alternating between murder, crime, (fear).. Then rotating to a few feelgood
stories is not a healthy cycle (now with new and improved outrage).

You could go your whole life without information like that and not be missing
a thing.

------
ghouse
US: Record Trade deficit + record fiscal deficit + record govt debt + record
corp debt (all during a period when economy is supposedly doing well) = time
bomb

~~~
lazyjones
Why are you looking only at alleged (nominal -> inflation...) negative
records?

Record low unemployment, highest stock indices, highest household incomes, low
hispanic and african american poverty rates etc. etc.

Also, some of your negative indicators are the result of lower taxes = more
wealth for tax payers.

~~~
seanmcdirmid
> Record low unemployment, highest stock indices, highest household incomes,
> low hispanic and african american poverty rates etc. etc

All of those points are true before any bust. Juicing an already hot economy
with tax cuts and low interest rates is just stupid, leading to excessive
inflation, bubbles, and ultimately a bust. If adults were running things, they
would use taxation and interest rate as a lever, cut when the economy is bad,
but raised when the economy is good: this would provide relief during bad
times and prevent good times from overheating.

~~~
Itsdijital
I never really thought about that, or put 2 and 2 together on taxes.

Why don't we have annual dynamic taxes? I'm sure there is a lot of nuance that
would have to be worked out, but it seems like an excellent method for
smoothing volatility.

~~~
seanmcdirmid
Property taxes sort of are dynamic (they can go up or down depending on
property values), interest rates are definitely supposed to be dynamic. It
would probably be a good thing to apply to income taxes, but they are already
progressive and if you lose your job, well...you don’t have to pay them.
Obama’s temporary payroll tax cut was a bit clever in this regard, as lower
income people pay mostly payroll taxes anyways (directly or indirectly).

~~~
rdtwo
Incorrect, property taxes don’t go down because government spending always
goes up. If property values go down the city government finds a way to not
adjust down or increase rates. You could sue and get them to readjust down but
next year they will just reset you back and you have to do it again guaranteed
that it will cost you more to fight than to pay.

~~~
seanmcdirmid
Property taxes have actually gone down before, but in order for the government
to remain solvent, they often raise the rate for the next year if they can do
it automatically. Or they can play shenanigans with appraisal values, but then
fairness comes into play (e.g. if my $100k house is taxed as much as the $200k
house nearby, but the $200k house is taxed exactly as it should be).

For property taxes to play their secondary role of forcing people to put their
property to productive use (as opposed to using them for speculative
investing), the tax is perfectly able to go up and down depending on the
assessed value of the property. Of course, local governments also depend on
the revenue, which becomes their primary purpose these days. However,
societies that lack a property tax (e.g. China) suffer from a lot more
speculative bubbles, making the tax useful in itself even if its revenue
wasn’t significant.

------
chiefalchemist
Are there any other sources that align with this. Sans TMZ-esque material CNN
is too low on the credibility scale for such high-minded subject matter.

------
DyslexicAtheist
ingredients for a perfect storm:

\- crumbling of tightly integrated supply chains

\- global recession

\- financial systems (especially in EU) which have never been reformed after
2008

\- droughts, floods, locusts, and wildfires

\- immigration crisis

\- never-ending war in ME

\- rise of nationalism and xenophobia

\- rampant spreading of mis-/disinformation

~~~
lazyjones
> financial systems (especially in EU) which have never been reformed after
> 2008

[https://ec.europa.eu/info/business-economy-euro/banking-
and-...](https://ec.europa.eu/info/business-economy-euro/banking-and-
finance/financial-reforms-and-their-progress/progress-financial-reforms_en)

~~~
DyslexicAtheist
Last year The Economist had a good article on that[1]. The EU looks very
different depending on whether you look South or North. None of the Northern
counties are in good shape right now (Germany, France) and its suppliers of
labor from the South who are on the brink since years aren't going to weather
this IMO. German and French voters sure won't be happy to bail them out when
things become hard.

[1] [https://www.economist.com/briefing/2019/01/05/the-euro-
enter...](https://www.economist.com/briefing/2019/01/05/the-euro-enters-its-
third-decade-in-need-of-reform)

 _> Southern discomfort

At the same time, southerners feel they are bearing all the pain of recovery.
The politics of monetary union is more febrile as a result. After eight years
of eye-watering austerity, Greek GDP per person is still far below its level
in 2007 in real terms (see chart 3). In 2015 Syriza, a left-wing party, came
to power promising to end austerity, before spectacularly reversing course
when it became clear that Greece needed a third bail-out._

~~~
v4dok
Why is he getting downvoted? That's a very real dichotomy that imo will be the
reason of EU split if there is going to be one

------
smkellat
Living in a crossroads area for shipping readily shows me this is coming.
Supply chains are freezing up. If I don't see as many tractor-trailer rigs on
the road and not as many ships in the harbor then supply chains will freeze.
"Just In Time" will break rather catastrophically for some companies.

Oddly enough, the trade war with China instigated by President Trump
unintentionally has had a good outcome in light of the current coronavirus
worries. Companies that went all in on offshoring to China started
diversifying again where their plants happened to be located. That start to
deleveraging might keep a few manufacturers afloat as some or all operations
per company relocate.

------
appleiigs
The author forgot to mention Brexit.

~~~
eddhead
I voted Remain, but the forecast for a post-Brexit Britain is economically
positive, at least for the short term.

That's why it's not mentioned.

~~~
threeseed
No it's not.

The news this week is that the UK is looking to not honour the terms of the
withdrawal agreement in order to avoid a Northern Ireland-UK border. This sort
of behaviour is eroding trust not just with EU but Japan. Lack of a transition
FTA for either would send the UK into recession.

Also look at UK's recent immigration policy announcement where they announced
a move to a points based system. There is no low skilled visa for people who
work in agriculture. That industry has already said they will see a
significant decline over the long term.

------
papito
Well, my bond mutual fund is up 21%, so there is that.

~~~
ur-whale
Time to sell.

~~~
papito
Really, bad advice. The outlook for bonds in 2020 is changing as the impact of
Corona virus puts previous projections into question.

------
brenden2
It's all doom and gloom in the news. Best thing you can do for yourself is to
stay off the news.

~~~
symplee
Check out Wikipedia's "Current events" section [0]. I feel it does the best
job of providing the relevant factual updates about the world without all of
the drama, clickbait and gossip.

[0]
[https://en.wikipedia.org/wiki/Portal:Current_events](https://en.wikipedia.org/wiki/Portal:Current_events)

~~~
bradgessler
I made a more readable version of this at
[https://legiblenews.com/](https://legiblenews.com/) (works on mobile,
supports dark mode, formatting is more readable, loads in under 200ms w/ 1
request and absolutely no JS) which scrapes Current Events once per day at 8p
Pacific Time.

I jokingly say “it’s a news website where if you click on a link, you might
accidentally learn something”

~~~
sygma
This is great. Thank you for making it! Maybe you could run that cron job more
often for people on the other side of the pond? Right now, I'm only seeing
news for Saturday.

~~~
bradgessler
I’ve thought about that, but I intentionally want only one update per day to
limit the “I gotta check the news” addiction and I’ve lined up the publishing
to approximately when Wikipedia starts a new day.

------
cryptica
The entire economy is a pyramid scheme just begging to collapse. Google worth
over $1 trillion, Microsoft worth over $1.36 trillion, Apple over $1.37
trillion, Amazon over $1 trillion. Bitcoin $200 billion. A lot of terrible
unscalable and insecure cryptocurrencies worth over $1 billion each. Even IOTA
cryptocurrency which experienced a massive hack followed by total failure of
the network is still almost worth over $700 million. The thing failed
completely and the market still thinks it's worth $700 million... These are
more or less the same kind of people who participate in other mainstream stock
markets. US national debt is at 23 trillion. Close to 0% interest rate for an
entire decade.

We are way past the point where we should be worried; that point was probably
10 years ago. Everything everyone knows about the economy and value creation
is wrong. It's a giant, fiat-fueled pyramid scheme and as soon as just a
couple of semi-intelligent billionaires start to sell their stocks, it's going
to collapse.

Unlike the 2008 crisis, this time, we don't even need to find a single
specific cause. The next economic depression will have so many causes that it
will be easier to explain what is NOT the cause.

~~~
allovernow
If you look at market history the last ≈5 recessions have all occured with a
regular intervals of about 7 years.

I think recessions are just a normal, emergent vent in an oscillatory system.
It seems like putting one off artificially will lead to a more severe
depression.

~~~
cryptica
I agree. I think filter bubbles will be to blame for delaying the next
recession.

Maybe the corona virus had an impact in terms of showing investors that big
news can transcend filter bubbles and we are not immune from global panic.

