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.
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.
> 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.
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.
> 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.
This is really quite different, and is actually in practice more similar to selling options because of the bad effects of increased volatility. They massively underperform under heightened volatility, simulations are right there in prospectuses (in fact I'd go as far as to say that their expected value is 0 over the long run, but like very long, maybe 10-30 years). And yes you should always read the specs/prospectuses/10-Ks of the contracts/funds/companies that you buy.
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” - Talmud
I was curious about this, so I tracked down the actual quote in the Talmud. The "land" in question basically means farming. I don't think we'd find that relevant today. And the talmud actually advises 0% to land / farming as the majority position.
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173. A hundred Zuz [invested] in business, and every day meat and wine; a hundred Zuz [invested] in land, and salt and vegetables (Jeb. 63a; D. 463).
The Jews seem at one time to have had a disinclination to acquire much land, possibly on account of the uncertainty of tenure in the time of persecution. Cf. the wording of proverb no. 130. The opinions on the question of landed property differ very widely. Ben Sira says: "Hate not laborious work, neither husbandry, which the Most High hath ordained" (Ecclus. vii. 15). The fact that "husbandry" is specially mentioned is in keeping with Ben Sira's general view, shared by the Greeks, that occupation with the soil led to boorishness. A Rabbi of the second century AḌ. gives it as his opinion that there could be no worse occupation than agriculture, and on seeing a field ploughed across its breadth he exclaimed sarcastically, "Plough it also long-wise, and still you will find that to engage in commerce is more profitable" (Jeb. 63a). Rab, who lived in the third century, noticed the ears of corn being fanned by the breeze, and declared "However much you may fan, it is better to devote oneself to commerce" (ibid.). On the other hand, it is also said, "A man who does not possess a piece of land is not fit to be called a man" (ibid.); and another Rabbi adopts a middle course by advising "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve" (B. M. 42a).
This is actually a good advice. Just remember to rebalance (not too often; in my opinion once a year is a good frequency) to buy more of what is low and sell some of what is high.
I'd phrase that more specific by saying "by selling what is too high". If something is much higher than when you bought it, but the reasons you had for buying it in the first place are still valid, then you should keep it.
How many months out options are you using, and when do you roll over? I'm mostly in 2022 expirations, this way I don't have to obsess over daily changes in Mr Market moods (unless some good opportunity is coming along, like that rally in TSLA).
I'm not in on TSLA - I've been doing covered calls here monthly. Even when they're called away there's enough of a spread between Friday morning and mid-morning where I sell the covered call.
This wisdom was clearly conceived before the advent of widespread, liquid options markets. Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive so there is a substantial price to pay for capping one's downside risk.
> Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive
I didn't realize it was impossible to become insolvent just by spending money.
Options are priced by the same market forces that a speculator attempts to time. You can always lose the price you pay for the options, although you can avoid insolvency by not buying more than you can afford to lose.
The media are always predicting the next recession so it's just a case of picking the time they are right. Which is about once every ten years, on current form.
The standard technique is known as a "short sale", or "shorting" [1]:
You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y.
So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y.
Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2].
Stay liquid, try to save money, put it in things that do hold their value in times of crisis like gold (or yes perhaps bitcoin/ethereum). Then when the crisis happens buy everything cheap.
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.
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.
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
> 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.
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.
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).
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.
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.
Taxes are such an important and partisan issue that they are instituted in ways that are deliberately difficult for future legislative bodies to interfere with. Any sort of dynamic system would give some institutional body the ability to control tax rates without having to succeed in passing legislation, which is not something legislators want. Consider the Federal Reserve, which dynamically sets interest rates. Congress has very little input on this process (which is good!) and the tenure of the Chair is long enough that entire sessions of Congress can go by without Congress having any input at all. It’s hard to convince legislators that they should hand over power like this on issues that effect their chances of re-election, even when it’s correct.
> Juicing an already hot economy with tax cuts and low interest rates is just stupid,
The economy isn't "hot" (obvious attempt to negate positive facts), it's healthy. "Juicing" it is improving it further and making the population wealthier. There's nothing negative about that.
If tax cuts and low interest rates led to more real investment and value creation, you would be right. Unfortunately, they are primarily going into real estate and the stock market ATM either directly or indirectly via speculative investments. There isn’t much real growth out there, and everyone is waiting for the inevitable downturn in the cycle anyways so they are playing to safe.
You could have written those same words in 1999 and 2007. Which is the point. All absolute metics look great at the peak of an expansion, by definition. But the "negative records" you complain about are proxies for measuring the derivative, which is what you care about when discussion recession risk.
Isn't record low unemployment in the face of "record Trade deficit + record fiscal deficit + record govt debt + record corp debt" a massive problem? Where do we go from here?
No, it's not a problem. And the trade deficit is also a result from people being able to afford to buy goods. Government debt is no problem at all for a healthy economy. Corporate debt is a sign of trust in those corporations.
Trade deficit - going way down wrt China. Also, dollar is strong, and we turn commodities from other countries into more valuable goods that we export.
Record fiscal deficit/gov debt - hard to judge without also looking at gdp + asset growth, which US is doing great in (stock, real estate). Also. US is safe haven for investors right now
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.
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.
Lot of OPs points are subjective and some could always have been happening but with the hyper media we're more aware.
IMO, number one thing should be the upcoming massive retirement population. First time where working population will be smaller than retiring population.
Also, looks like the modeling done for retirement plans are based off equal or greater population for the next generation. Life expectancy longer than when these were implemented. Boomers struggling to sell their massive rural houses.
Don't believe? Walk into a McDonald's and look behind the counter. You'd expect to see all these young inexperienced workers but majority of time I now see +45 workers back there.
Structural demographic transition across the first world. This will lower productivity and labor participation rate, and will increase the reliance on social safety nets, which will likely be funded with debt and/or central bank intervention. Japan is the future for everyone, it’s just the time scale up for debate.
In the US alone, 10k people turn 65 each day (retirement age for Medicare eligibility and their full retirement age for collecting Social Security).
Minor correction: your full retirement age depends on your year of birth. It's above 65 for almost everyone retiring today.
It is only 65 for people born in 1937 or earlier. For people born in [1938, 1943] it goes up by 2 months every year. It is 66 for people born in [1943, 1954]. It then goes up 2 months per year until reaching 67 for people born in 1960 and later.
Fertility rate is below replacement rate worldwide except Africa and a handful of other countries. Even with immigration, it’s still somewhat zero sum (there’s only so much worldwide labor available, less so that can migrate). Even generous government and societal benefits (parental leave, cash transfer payments) have been unable to push the fertility rate up in developed/semi developed countries.
It’s a good thing; the world has too many people to sustain everyone at first world standards, so a managed decline in population (while respecting the rights of existing humans) is optimal policy.
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.
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.
This is precisely because the market is pricing in bad future (low interest rates). US 10 year is around historic all time lows. And I assume you heard about how low the yields tanked (i.e. how high bond prices soared) in other developed countries.
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.
I made a more readable version of this at 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”
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.
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.
Side note: I really enjoy browsing wikipedia's portals. The sections on them (like on the Main Page) like 'Did you know...', 'Selected article', 'Selected quote', 'On this day...' are really nice to peruse, and are a nice complement to the type of content in normal articles.
I remember reading at some point (though I can't find it now) that portals were sort of considered a "failed experiment", but they've become some my favorite places to casually browse.
This isn't a fair criticism if the gloom and doom is true. Japan's economy is contracting, Germany's economy is at a virtual standstill, and Hong Kong is in recession. China and India report next week and are both likely to show economic contractions. In the US the services sector contracted in February to a six year low. These are the biggest economies in the world and they are all flashing big red warning signs.
There is something to be said about self fulfilling recessions fueled by the media but I don't think this article warrants such critique. It is not much more than a statement of fact of the economic conditions of the biggest countries of the world.
Basically the same article had been run every year for the past decade. Each time it is accompanied by statements of fact about the biggest economies. Even if this time is true, they regularly push the doom and gloom angle.
It's a self fulfilling prophecy because they always predict it's comimg, ignoring when they're wrong.
IMHO, the best way to fight such fear is, among other things, to insist on educating the masses and to open science as much as possible to them as well.
There is nothing in the news that should ever affect your investment strategy as a regular consumer. Emergency fund, max Roth IRA/401k diversified according to goal retirement age, and save separately for other stuff (house/car/kids).
If it’s more complicated than that you 100% need a progressional to do it for you, even if that means calling fidelity/etc and having them take a look.
I don't particularly like the news, but it pays the follow certain types of news that could have an outsize impact on you.
Furthermore, the "prescribed" ultra long equities/diversified index fund allocation strategy you alluded to above is relatively new by historical standards. It's possible that this strategy doesn't pan out well in certain types of prolonged global economic states (such as persistent global stagflation, as one example).
I'd agree with the above if your investment strategy had been around for longer (more "Lindy"). One example folks like to cite is the Talmud Asset Allocation:
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” -Talmud
One example of a portfolio that might be more robust is one of 1/3 land, 1/3 personal business/equities, 1/3 emergency fund cash/gold/bonds. With that portfolio, in just about every time period in human history, you'd probably be okay and wouldn't have to worry about the news at all.
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.
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.
Fiat currency, coupled with an economy based on usury (aka interest), is definitely not sustainable. It's scary to think about what may happen when it all comes down.
It's interesting that everyone hundreds of years ago understood that usury was bad but the most highly educated economists today don't understand this.
https://asia.nikkei.com/Business/Industry-in-focus/Virus-hit...
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...
JPMorgan Now Expects China Q1 GDP To Drop To 1%, Crash To -4% If Coronavirus Is Not Contained