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Market Moves Suggest a Recession Is Unavoidable (bloomberg.com)
95 points by crunchlibrarian 9 days ago | hide | past | web | favorite | 112 comments





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...

June 2016, The Next Recession is Already Here: https://www.cnbc.com/2016/06/21/the-next-recession-is-alread...

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.


> 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.


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.

"60 percent of the time it works every time"

I agree that the attempts at prediction are fairly silly, but this specific phrase is perfectly reasonable. “Suggest” talks about the state of our knowledge. “Unavoidable” talks about where we actually are.

"Evidence suggests that the heat death of the universe is unavoidable."

Exactly. Every market correct feels like it's going to be the big one as its happening, and most of them pass.. By the time people start to feel like maybe it's over, market levels are usually well off the bottom and so everybody who wanted to "wait on the sidelines" miss their chance..

suggest - cause one to think that (something) exists or is the case.

That suggestion could be wrong, yes. But they're saying that there are indicators that even if everything was done right we still go into a recession.

And regardless, to your other point, if you always predict the opposite of the status quo, you'll eventually be right. That guy holding the sign saying "The End is Near", one day, he'll be right too.

So, yes, these articles are silly.


While the last couple of days have been particularly painful for me in the market, CNBC, Bloomberg, and financial news networks are the biggest pusher of fear out there. Fear sells, and they peddle fear better than anybody.

It's hard to buy, or even not sell during the last couple of weeks, but I'll reiterate a quote by Warren Buffet:

"Be fearful when others are greedy. Be greedy when others are fearful."


Buffet himself is currently sitting on $111 bn [1].

[1]: https://www.businessinsider.de/warren-buffett-berkshire-hath...


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.

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.


"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.


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.


Ultimately yes, as a contractor your continued employment in financially difficult times is going to be a hard sell. Of course, you could always take a permanent position for a time if that would give you more of a sense of security. Or, you could fall back on the additional savings you've been able to make as a contractor, that higher rem being the benefit of the hedge you were making in the first place.

That said, I've seen companies shed permies over contractors in difficult times, because if you form the view that said difficult times will stick around for a while, the permies look worse as aliability/drain on your projections than having contractors which, although they are higher cost, can be shed trivially. Depends on location though, areas with stronger protections against letting go of permanent employees are the ones where organisations see those same permies as more of a long-term liability. In right-to-work states, for example, it's just as easy to shed either group.


That's always what I've been told. This isn't apple to apples, but I've worked as a government contractor for the past 15 years. In my experience, when money starts to dry up, sub-contractors are the first to go, but sub-contractors who are particularly important get offered positions by the prime contractor. I've also seen across the board pay cuts go out rather than people getting cut, but that rarely ends well (as anyone who knows their worth will immediately start looking elsewhere).

I would assume contractors are first to go. Work moves in house. In house staff gets cut. The remaining staff gets to work on what the contractor did and what the employees that left did. The company is not beholden to contractors as much as they are to their left over employees. Everybody has got to pay bill. The company will usually look out for their employees.

A company will usually look out for those generating the most value. Which is the point of a company in the first place.

You cannot assume this to always be true. The company could have a directive from C-levels to cut all contractors plus 10% of staff and retain the rest. You never know. Sometimes there are competing interests that effectively "tie the hands" of managers to make the most logical choice.

It's more about budgets and survival politics. The people who are setting the budgets have no idea who is generating most value.

In my experience, contracting has been a leading indicator with both contraction and expansion. Contractors get cut before full-time, but when things are still shaky later, contractors get brought on first before the company is willing to increase full-time headcount.

I got crushed in 2008-2010 when I was freelancer. There simply was no budget for anything in the companies I had worked with.

I am sure there is some business angle for freelancers to do well in a recession but I can't come up with one.


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.

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.

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.

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

Many banks saw 2008 coming. Now the fundamental reason for this inevitable breakdown was also very lucrative at the same time. This meant every bank would try to stay in the game for as long as possible because quitting too soon would have them fall behind.

In the end you get this game where two or more cars are speeding towards an edge and who breaks first loses.


That would assume everybody can interpret the information correctly and make an unemotional decision regarding their investments. In reality, everyone wants the party to go on indefinitely.

Stupid money certainly exists but it tends to systematically flow to smarter investors. This causes smarter investors to make up the majority of the money in the market. I don't want to suggest that the market is perfect. It can remain quite ignorant of important facts like "Sometimes housing market values become highly correlated" for quite a while. But once these facts become known it tends to respond very quickly.

The author said as much himself:

> Yet, I wonder if it is possible to have a recession when so many people expect one. The worst recessions are the ones that people don’t see coming.


He said that, but he's still saying that there's a recession which is foreseeable by anyone, unavoidable, and hasn't happened yet. No recession has all three of those traits.

My hypothetical ability to predict the future does not mean that you're able to do the same.

Occasionally people do discover ways to predict future market behavior in ways others cannot. If they keep it secret than can make huge amounts of money. If they blab about it in articles it stops working. Well, mostly. There's are a couple of regularities that are published but exploiting them takes investment time frames of most of a century for returns not that much more than market average and nobody is willing to do that.

That's not what happened ten years ago in many different countries.

Some people were predicting the Great Recession ahead of time but not any more than are typically predicting a recession soon.

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...


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.


Keep in mind that you'll see a corresponding increase in rents as more buyers in a given area hold off on buying. The demand ends up just shifting. That's been the effect in Boulder, CO.

It all comes down to this: If you are looking at housing as an investment, you are buying into a decades long market aberration driven by super low interest rates and government policies.

Otherwise, if you look at it in terms of the specific supply and demand curve in your geographic area, you can better steer your decision making. My area (northwest of Denver, CO near Boulder) has local government policies which have seriously constrained housing supply. That made me choose to buy despite a less favorable macroeconomic landscape to home ownership.


In Palo Alto, we have been seeing softening real estate prices for a month or two. My guess is that sellers are concerned that tech stocks will tank (as they have) and that potential buyers will dry up. I am personally waiting on the sidelines to trade up because I'd rather sell for less and buy for less in order to lock in the lower property tax rates. Most realtors I've spoken with seem to think a pause/dip in Palo Alto area real estate is inevitable in the next 6-12 months, and we're starting to see it already.

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.


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.

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.

Interest rates rising will lower prices a bit (in the end, a buyer taking out a loan will likely be paying the same, because what ever drops in house prices goes to the bank in interest). I dropped my home's price (undesirable neighborhood) pretty aggressively in the last 6 months before hiring a property manager to rent it out. I would recommend just keeping your eye out for deals. Right now is off peak season (in the US) so you might find someone desperate and get a bargain.

This is where I am right now. On the one hand, waiting allows me to save up more, and put more thought into where exactly I'm buying. On the other hand, waiting for a recession to buy is timing the market which is notoriously difficult to do.

If your area is already a buyers market, then you should just go ahead, and buy some place you like.


Depends on the area. Like here in Portland prices were already way lower than surrounding areas so prices have increased a lot over the last couple years. It's been a shock to people that are in their little bubble and don't realize it's still cheaper than Seattle, SF, LA.

If people here really knew whether or not that was a good idea we would be billionaire rock-star investors. Trying to time the market is a fools errand for most folks.

I was gonna say similar, and fall back on the old 'Market can remain irrational longer than you can remain solvent' trope :)

If you really want a safe(r) hedge in this situation, one option is to buy the cheapest property you can live with. That way:

- You're off the rental ladder - Are building up an asset with mortgage payments - Are in as shallow as possible if an event occurs that puts your ability to service the morgage in jeopardy - Are out less if you do lose the property - Can make a jump to a more expensive/nicer property in due time if market conditions allow - BUT potentially miss out on capital gains/leverage as a lower cost property will increase, in real terms, less value if property prices rise.

If you're risk averse (I am) it weighs up as a good option. But you miss out on significant potential rewards (not living in as nice a place, not reaping as much capital gains, longer commute or lower wages in the area). Such is gambling.


My Econ game isn't as strong as it used to be, and this is by no means financial advice, just some spitballing...

I'd guess interest rates will rise, hopefully not like they did in the 80s, but I think Trump has been running the economy too hot... meaning inflation and your payments will go up. We want people to save (invest) not spend (consume) to fix this upcoming case (if I understand it correctly). As a result, I doubt lending will freeze since interest rates are likely to rise so getting a loan really shouldn't be too difficult if you've got good credit and a downpayment...

To be honest, I'd say it likely won't matter as recessions of some kind are fairly common and generally relatively benign with even moderately good economic policies. I highly doubt we'll see anything like the 2008 recession...

/shrug


Historical, but I do not see an upward swing in inflation. https://inflationdata.com/Inflation/Inflation_Rate/CurrentIn...

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.


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.


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

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

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?

You gather with friends and find solutions together

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

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.

I think it's interesting to note that those companies were born out of a recession, and their IPOs could mark the end of a boom.

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.


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

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.

Isn't them rushing to an IPO a signal that they think there will be a downturn?

Not refuting that a recession is coming, just that it won't be in 2019.

Their IPOs maybe the last hooray. I hope it won't be as bad as 2002-2003 for tech employment. That wasn't much fun.

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

If you are in the USA and have capital gains look for an opportunity zone investment. Incredible new upside of the Tax Cut and Jobs Act of 2017.

* defer your capital gains that you owe today * pay no capital gains on any returns if you comply with terms of opportunity zone investments (10 year holdup of capital requirement) * earns a 15% discount on your original capital gains taxes owed


Depends on your time horizon. If you have over 20 years before retiring the broad stock market is still likely going to outperform pretty much any other investment but it will be a bumpy ride.

Agreed. Time in the market beats time out of the market.

It would still be stupid to buy in at the top of the market if you assume it's going to tank - which is far more likely now.

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

This is true, however, how does one know when the market is down? It's down now. But maybe it's falling much further and you're catching the falling knife? Maybe it starts a 5-year boom tomorrow and you've missed your chance?

I guess that extends the thought expressed in other comments that no one really knows when a recession is about to hit. If they did, it would be preventable.

A good investor knows his risk and his time horizons. Obviously, don't throw thousands into the stock market just before you're about to retire, even if the market looks to be down, if you don't have a very sizable nest egg. Additionally, a good investment should be a good investment even during the hard times -- for instance, I don't think Amazon is going anywhere for a while. Otherwise you're speculating, which is a valid form of investing, but you can't ignore the risk, i.e. you have to have cash and assets that will protect you if you lose all your money or the apocalypse happens.

It's complex. I'm not saying I'm a good investor, but I am trying to learn from the past!


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

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


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.


There are some indexes that go up on market volatility, as well as some "reverse" indexes

Those are meant for day-trading and now for long-term or even medium term investment.

So bonds, or money market funds

The bond market, and international stock market are less correlated with US large cap stocks. Historically though you are still better off investing in the S&P 500 or similar, it is virtually impossible to know what the market will start falling and when to sell, or when it is at the bottom and to start buying again. Time in market beats timing the market.

I'm playing the cannabis market right now and i'm bleeding.

not just because of the slow growth of the canna industry, but the fear in Trumps trade wars and volatility in commodities is affecting every asset class.

Honestly, I would keep my hard cold cash. sit on it until the opportunity arises.


Maybe I am ignorant, but how does a trade war affect cannabis stocks? Is there some China connection I am missing?

If you're investing for the long term, why not just find a spot you're comfortable with on the way down and invest money in an index fund while the market is down? A recession is the perfect time to invest, isn't it?

If you have a good long term strategy you shouldn't be worried about timing the market. I invest in a few ETFs, 80/20 stock to bond ratio, a mix of domestic USA / international.

I probably won't make massive gains but in the long run I'll make ~5% steady.

I think if you value steady returns over wild swings you can do well with Vanguard ETFs - the low overhead offsets the les returns than day trading / active buying and selling


If it were my money, I’d be all in with stocks that have exposure to China trade war fears. When the current strife passes, they’ll rocket back up. I tend to buy the fear and sell the joy (if I sell at all.) But that’s just me.

if you think the market will go down you should short it...

Pretty much this. Market trends change how you invest, but they certainly don't prevent you from profiting either way. The last couple months have been particularly lucrative if you're shorting the market.

I'm pretty ignorant here, how do you short "the market"?

If you don't know how to short, you should NOT be shorting. Shorting is incredibly risky with limited upside and unlimited downside.

You can do options, futures, short individual stocks, or even buy ETFs that take an inverse position.

As someone else said, if you have to ask this question it's something to be cautious about doing. But, you have to start somewhere so good luck.


I got a bunch of the same response, so I guess I didn't ask the question clearly.

I'm well aware of how a short works. I was asking what parent poster had in mind when they said "if you think the market's going down, short it". Short what? Specific stocks? That's not the same thing as shorting "the market". When people say "buy the market" or whatever they're usually talking index funds or etc.

So did he mean some kind of leveraged inverse VFINX? Or a baroquely complex derivates ETF that's just a ticking time bomb like those inverse VIX funds from earlier this year?

Anyway, sorry for the late reply.


buy contracts for the ability to sell shares at a determined price later when the underlying share is actually worth less than what you are contractually allowed to sell it at.

What would be the best way to do this? Is there an index fund or something that is based on shorts? Sorry for the lack of knowledge.

I have n account with Charles Schwab and it's pretty straightforward to short a stock or etf: https://www.schwab.com/resource-center/insights/content/what...

there's inverse ETF's. SPXS is a leveraged "bear fund" that gains value as the S&P500 decreases in value. SPXS is particular will move 3X the movement of the S&P500 so a loss of 1% in the market is a gain of 3% in SPXS.

SPXS has been an awful fund to hold since 2009.


Be careful with leveraged ETFs because of decay. They are really only good to hold short periods.

https://seekingalpha.com/article/1864191-what-you-need-to-kn...


In the spring of 2008 I bought gold. It worked quite fine.

investing should always be based on your age, not market conditions

over 60? lower risk...it may take longer for riskier assets to recover than you have to live

under 30? higher risk...the markets have always done well over a multi-decade timeframe


Into a piece of yellow metal.

Edit. More background on that:

In 2014, after years and years of my parents droning "think about buying a house," I finally decided to teach my parents a lesson, and show them just how bad their investment advice is.

So in the end, I lost around 53 thousand dollars in total from FX, fees, lawyers, drop of property value, and my ability to sleep well at night.

And in 2016, I got kicked out of Canada, as my employer was unable to secure me an LMIA after trying 3 times.

The only thing that prevented me from hitting the bottom was that I was also saving gold since I was 15, when I first bought few crumbs from semi-legal gold prospectors from China.


Gold isn't as invere to the market as people think. In the last month it is only up 1%[1], while the market has tanked.

[1] https://yhoo.it/2Uptpoy


No idea why you are downvoted. Indisputably the safest investment for several millenia running.

Inflation adjusted price of gold is down almost 50% from 1980:

https://www.macrotrends.net/1333/historical-gold-prices-100-...


How many 1980 investments are at fifty percent or better today?

Since 1980, after adjusting for inflation Gold lost 50%, the S&P 500 is up 600%, or 1700% with reinvesting dividends in the S&P 500.

Completely beside the point. The question was safety, not potential profitability.

Also, please paint the full picture: How many percent of all 1980 investments retain halt their value or more today? My first guess would be: A small minority.


Looking at safety, investing in individual stocks or precious metals like gold is a poor choice. Index funds, or bonds have much less volatility.

To paint a full picture, how many people who invested in physical gold still have it, and how many had it stolen or lost it, or were scammed buying something other than real gold?


Depends what you mean by "safe".

Gold is considered a commodity investment, and shares the high volatility that is common in this class. (https://view.ingwb.com/sector-and-volatility-commodities)

Gold does have unique historic status as a currency or a backer of currency. I'm not in 100% agreement, but this does mean some see gold as a hedge against large-scale financial trouble.

However, that same historic status has made this asset in particular vulnerable to investment scams. (https://www.aarp.org/money/scams-fraud/info-2016/gold-coin-i...) This is one caution about this investment that you don't have to worry about as much compared to if you invest in, say, pork futures.

I would argue the "safest investment" is a diversified portfolio, personally.


During periods of fx doubt, even more so. This includes recessions and right after them

Gold is extremely volatile. You can lose 50% or more in the medium term if you buy when its at an all time high.

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.


Agreed. Typical financial market herd psychology BS.

He also said "the worst recessions are when nobody sees them coming" and asks if a recession can happen if everyone is saying it's happening.

> "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.




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