
Market Moves Suggest a Recession Is Unavoidable - crunchlibrarian
https://www.bloomberg.com/opinion/articles/2018-12-06/markets-in-turmoil-a-recession-seems-unavoidable
======
aliston
How can something "suggest" a recession is "unavoidable." If its a suggestion,
then by definition it isn't unavoidable.

These articles are silly. You'll find them for every time the market sneezes.

October 2015, World Faces a Recession Next Year:
[https://www.cnbc.com/2015/10/13/citis-buiter-world-faces-
rec...](https://www.cnbc.com/2015/10/13/citis-buiter-world-faces-recession-
next-year.html)

June 2016, The Next Recession is Already Here:
[https://www.cnbc.com/2016/06/21/the-next-recession-is-
alread...](https://www.cnbc.com/2016/06/21/the-next-recession-is-already-here-
and-there-isnt-much-the-fed-can-do-commentary.html)

There might be a recession next year, but the Fed might cut rates, Brexit
might not happen, the EU might resume easing and the stock market might double
in the next 5 years. Nobody knows.

~~~
repsilat
> _How can something "suggest" a recession is "unavoidable." If its a
> suggestion, then by definition it isn't unavoidable._

Nonsense.

Say I have a coin that I suspect has heads on both sides. Instead of just
checking the coin, I flip it ten times in a row and check the result -- ten
heads. "Coin flips suggest 'heads' unavoidable."

The article is saying there is some situation in which a recession is
unavoidable, and signs point to us being in that situation.

~~~
aliston
My point is that we're talking about a prediction regarding something for
which there will always be a degree of uncertainty. The reason the author is
"suggesting" a recession is unavoidable is because there's no such thing as an
unavoidable recession, just as there is no such thing as an unavoidable heads
coin flip.

------
jamestimmins
Things that keep me up at night as a software contractor/freelancer: if
there's a recession, are contractors the first to go? One counter-argument is
that contractors can be a cheaper way for companies to build products (since
it's not full time), which might mean companies favor contractors. On the
other hand, companies who are reluctant to lay off full-time staff may start
by canceling contract relationships.

~~~
rwhitman
I was a freelance dev contractor in the 2008/2009 financial crisis.

To what you said above, both can be true. But it depends on the client's
business.

I got completely crushed last time. But my clients were primarily in travel
and fashion/lifestyle which both got hit hard early. And I was trying to
bootstrap a social media startup at the time, which was also in travel. So I
got destroyed.

Typically agencies and freelancers are the first to feel a recession. Vendors
are more expendable than W-2 employees so contracts get stalled out or
cancelled as soon as the warning signs hit the board room.

However... I've known of some people who actually did quite well last time
around. Generally they were offering lower rates than the competition and
specialized in maintaining software that was essential to recession-proof
businesses (like entertainment, education, government etc). They had long-term
contracts where they were essential to these businesses, and they lowered
their rates to be competitive. This was eventually how I recovered as well.

Basically my advice is - prepare to shift from quality to quantity for a bit,
diversify your client portfolio and put effort into building long term clients
where you're essential.

~~~
jamestimmins
"diversify your client portfolio"

This is a really interesting thought that I hadn't considered. I always hear
to diversify your investment portfolio, but the thought of diversifying your
client list is fascinating. It makes a lot of sense though.

~~~
rwhitman
Honestly "diversify" is not something I had ever considered before the last
recession, and it runs contrary to most popular advice in consulting around
finding a niche, but it becomes very apparent after you've weathered the ups
and downs of the consulting business over a long time period.

If you look at any of the major consulting firms (ex: Accenture) that have
lasted decades, you'll see that they have their fingers in many different
unrelated areas and industries. "Niche" in the short term is a great way to
build up clients, but stick narrowly to a niche over too long a time scale,
and it becomes an anchor.

------
Symmetry
If you could know a recession was inevitable some time soon from publicly
available information then that recession wouldn't happen in the predicted
time frame. Everybody would see it coming, take their money out of the market,
and it would happen instantly.

~~~
harshulpandav
And with this mindset most people will not take any action until the big guys
have taken an action. The timing could be the predicted time frame. But it is
only too late by then and middle and lower class suffer. Top 1% controls
around 40% of America's wealth.

~~~
Symmetry
Small players who try to time the market are going to lose out to the big
players. You seriously should not try unless you feel like donating a portion
of your retirement savings to Goldman and Sachs bonuses. Just invest not
thinking you know the future and let the Jötunn try to outsmart each other.

~~~
nine_k
(Nit-picking: jötnar, since it's plural. But I like the image.)

------
wil421
Would it be wise to wait a year before buying a house? If a recession hits it
might turn my areas buyers market into a fire-sale.

I guess if the fed isn’t raising rates then it’s not an issue. Waiting would
also allow someone to increase their down payment.

~~~
rootusrootus
Lots of factors in play, you'd need to bet correctly that the recession will
actually affect prices that way in your area.

Also, the yield curves _just_ inverted within the last week, and the average
time-to-recession from that point is 12 months. So you may want to wait longer
than a year.

Or... just buy something and be done with it, as long as it fits your budget
and your income is stable, it's just housing and in the long run it'll
probably work out fine anyway. Timing the housing market isn't any easier than
timing the stock market.

~~~
nemo44x
There was a slight inversion but it wasn't on 2-year and 10-year. The
recession indicator is from when the 2 and 10-year yield inverts and yes, it's
about a year lag.

~~~
rootusrootus
My bad, I thought 2/10 had inverted earlier this week. Maybe it was just for a
short time during the day. Still, they are very close right now.

------
2bitencryption
What scares me is how _everything_ nowadays is available to purchase through
financing.

A toaster form BestBuy.com? Finance it for $4/month. New iPhone for $1000? How
about monthly installments instead? It's not even the exception anymore, it's
the norm.

Even without exorbitant interest rates, the idea that there is supply or
demand for financing all aspects of life does not bode well for people's long-
term wealth...

------
reasonablemann
Recessions are a necessary part of the business cycle. A lot of people would
argue that global central banks have gone too far trying to avoid a recession
and thus the next recession will be particularly brutal.

Like laws designed to encourage forest growth, when the fire eventually comes
it burns far brighter than the fire that burns in a forest left alone.

~~~
tomjakubowski
those laws (actually policies, I think) are meant to keep homes and other
property from burning, not to encourage forest growth. wildfire suppression is
rarely practiced in true wilderness areas in the US

~~~
FooHentai
So it's a pretty good parallel, really :)

------
ryansmccoy
Only a portion of the yield curve inverted, and based on recent history, its
predictive ability for the US economy is not what it used to be.

IMO, The important indicator to keep an eye on is earnings growth, which in
the most recent quarter was (from what I recall) sales growth +8% and EPS
growth +25%.

One headwind to keep lookout for next year will be tough comparison because of
the tax cuts.

Also, like others have mentioned, doomsayers are a dime a dozen. Personally, I
like to see what people with skin in the game have to say/are doing to their
portfolio allocations.

------
40acres
I was in high school during the last recession so I have no idea of what to
expect, but how does one take advantage of a recession? Do you invest in blue
chip stocks that you assume will ride out the recession and bounce back?
(Apple in Google in 2008 would've been solid investments), do you take
advantage of rising interest rates and buy bonds in addition to boosting your
savings account? Do you buy a house? What's the m.o?

~~~
agumonkey
You gather with friends and find solutions together

------
ry4n413
IMO, market is down because of increase discount rate (risk), not a decrease
in earnings (fundamentals)

------
cwperkins
Given the projected IPOs next year (Lyft, Uber, AirBnB) I think this is a
little pre-mature. I think the bull market has another year in it. That being
said I'm shifting some of my assets out of the market.

~~~
ceejayoz
A handful of IPOs won't stave off a recession. (It's entirely possible to
cancel an IPO, too.)

If I were a big pre-IPO company, I'd probably want to go IPO before the
recession, in order to get operating capital to survive it.

~~~
cududa
A few tech IPOs does not make a strong stock market. Seems a bit silly to
judge market health on tech having a few IPOs next year

~~~
cwperkins
I'm not, but its one of the things I track. A mixture of unemployment, yield
curve us2y10y spread, deal activity are all things I look for to signal the
end of a cycle. Tomorrow's job report will be interesting, but given all the
other indicators I still think we're looking at a sideways to up market next
year. Caveat being the risk of a recession elsewhere in the world and the
contagion effect.

------
malvosenior
If this is true, where is the best place to invest 10k-100k USD today?

~~~
Flavius
Why would you invest just before a recession? Keep your cash and invest when
the market is down.

~~~
alttab
You should always be investing because timing the market is a fools errand.
The question is how much?

~~~
rohit2412
Isn't that timing too?

Or it is wise when you allocate 5/95 split to stock/bond but fool's errand
when it is 0/100

~~~
alttab
Consistently invest an amount that you are comfortable with. It's called
dollar cost averaging. I'd personally keep dry powder for when the market is
far beyond the standard deviation of historical records. 2008 and 2018 would
both be years this is true. Shorting though is only for the brave or stupid.

Personally, I put a certain amount in every quarter.

------
kolbe
His main justification: "Just about everyone I talk to in the capital markets,
including erstwhile bulls, acknowledges that things are slowing down." And
"everyone knows it is coming." And "everyone knows that inverted yield curves
are the most reliable recession indicators."

He talks about home builders "getting crushed," which means they're trading at
levels last seen in 2017. The large tech stock haircuts he refers to means
most are at levels they traded at earlier this year.

I'm not saying he's wrong about a recession coming, but if you're looking for
some real substance to justify that stance, you won't find it in this article.
Just a guy copying Trump's tactic of saying "everyone knows" instead of
offering evidence.

~~~
JPKab
Agreed. Typical financial market herd psychology BS.

------
rchaud
> "We have lost sight of the fact that a recession has cleansing properties,
> helping to right the wrong of the billions of dollars allocated to bad
> businesses while getting people refocused on investing in profitable
> enterprises."

If this were true, loss-making companies would never IPO. There is such a
thing as a normal boom and bust cycle. The "bust" portion is the recession,
the hangover after the bull market effects of the US tax cuts have petered
out.

