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NOTABLE! The Coming Recession (2018-2019?)

Primeperiwinkle

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We've had 33 recessions over the past 160 years... This is hardly the end of the world.
I was joking about the end of the world, I am in a committed relationship w/ hyperbole.

Thank you for the video.

I heard cash is good when the world's falling apart..
Nah man, being friends with the conspiracy guys and knowing a really awesome old millionaire dude w/ a 350 acre farm right up the highway is my go to for all Apocalypse Scenarios. Also, I’m super good at praying. ;)
 

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CigarMan

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I think you're missing the point...

The Fed is purposefully pushing for inflation (they admitted it) and are purposefully putting on the economic brakes by raising interest rates. We need a recession right now. And the Fed knows it. It's the only way to deflate the debt bubble and avoid a much worse economic catastrophe down the road.

The Fed's sole job is to slow the economy when it's at risk of getting derailed and the restore the economy when the risk has been averted. Debt and lack of wage growth are the risks that the economy is currently facing (typically it's runaway inflation, but not this time), and the Fed is happy to push us into recession to fix those things. As they should.

The economic cycle lasts about 6 years on average (looking back 160 years), and we're currently at 11 years in this cycle. Low interest rates, flooding the economy with cash for several years and lack of wage growth have propped this expansion up, and the Fed needs to force the next part of the cycle to reduce debt and reset employment/wages.
This makes no sense to me.

The fed has a mandate to keep inflation at 2%. Why would the be "pushing" for inflation? Facts is the fed is raising rates which lowers inflation.

The idea that the fed would introduce a recession is interesting. How does that reduce debt and address the lack of wage growth... which has been a problem for a very long time. Wage growth has JUST started going up, a recession would reverse that not solve it.

The reason intrest rates were so low for so long was the recovery had been weak. We might be in a long cycle but there is no historical benchmark to judge against because we have never implemented this level on QE before and never had rates this low.
 

CigarMan

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We've had 33 recessions over the past 160 years... This is hardly the end of the world.

Recessions are a natural part of the economic cycle. Things are actually worse when the cycle doesn't play out as it should and the government intervenes to artificially prop it up (as they've done the past 10 years).

To start, watch this:

View: https://www.youtube.com/watch?v=PHe0bXAIuk0


As for markets that won't be affected by a recession, focus on those markets that don't require credit and are geared towards necessity, not luxury.
I hope this is a ordinary recession. We have more tailwinds than 2008 and we have never been in this situation before. It is a experiment.

So many other things are going on we have never seen before. Companies buying back shares at record rates for years upon years.

This is great for shareholders because they own more of the company as the outstanding shares are reduced and metrics like earnings per share are artificially boosted.

What happens during a recession when these companies have a hard time servicing their debt because revenues are down and interest rates are up? Will they issue more shares to meet their obligations? This will result in rapid decline in stock price.

I don't think we are in for a typical recession. Infact I think we still have not dealt with the 2008 recession.
 
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@JScott What is your opinion on the residential assisted living market during the recession and in general? Worth investing in? I am an RN and this is something I have been pretty serious about. Possibly might partner with investors. This would be my first home purchase so I was thinking to purchase and convert it into an assisted living home using some sort of home loan and I have some nursing grants in mind for first home owner. At least 5 beds. Walk in tubs, safety grab bars, ramps at entrance etc. I was thinking to get your flipping book and flip that first property into an assisted living home. Not sure if flipping is the best choice though rather than just buy and hold type of deal.
 
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JScott

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What happens during a recession when these companies have a hard time servicing their debt because revenues are down and interest rates are up? Will they issue more shares to meet their obligations? This will result in rapid decline in stock price.

I don't think we are in for a typical recession. Infact I think we still have not dealt with the 2008 recession.
Stock prices should go down -- they are still tremendously inflated (do a search for Buffett Indicator and you'll get an idea of where prices should be). During downturns, businesses suffer. That's the way it works.

As far as it not being a typical recession coming up, that could certainly be the case. We're about 75 years into the long term debt cycle, which makes it about the right time for the next major deleveraging. And given our consumer and corporate debt levels, that's wouldn't be terribly surprising.

But again, that's a completely natural part of our economy -- it's really, really bad...but, it's likely going to happen every 50-100 years whether we like it or not.
 
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This makes no sense to me.

The fed has a mandate to keep inflation at 2%. Why would the be "pushing" for inflation? Facts is the fed is raising rates which lowers inflation.
Fed is doing both. First, Fed concerns about deflation have been weighing on them for a couple years now:

The Fed Is Serious - It Wants Higher Inflation

And yes, they are raising interest rates at the same time, which doesn't seem to make much sense (it's like riding the gas and brake at the same time). But, it does make sense if you put it into a longer-term perspective.

What happens when the next downturn comes? How does the Fed spur growth? They lower interest rates.

But, if they never raised rates, and the Fed Funds rate is near 0%, how do you lower rates?!?!? You can't. So, to prepare for the next downturn, the Fed needs to get rates up to have some runway to lower them. That's what they're doing now.

The alternative is what has happened in Japan over the past couple decades. That's much worse.

The idea that the fed would introduce a recession is interesting. How does that reduce debt and address the lack of wage growth... which has been a problem for a very long time. Wage growth has JUST started going up, a recession would reverse that not solve it.
Recessions reduce debt. That's the best part about recessions. Consumers and businesses default on their debt, essentially hitting the "RESET" button on the economy. That's why the short-term economic cycle (the business cycle) is often referred to as the short-term debt cycle.

Take a look at this chart and see what happened after 2008:

Total Consumer Credit Owned and Securitized, Outstanding

It was the largest debt reduction our country has seen since the Great Depression (though it still wasn't nearly enough).

And a recession is also a reset on employment and wages. It allows businesses to catch up on consumer demand (which lowers inflation), and it increases real wages across the board for those who are still employed. Take a look at this -- you'll notice that during the recessions (grey bars), we nearly always see a big jump in real wage growth:

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over

The reason intrest rates were so low for so long was the recovery had been weak. We might be in a long cycle but there is no historical benchmark to judge against because we have never implemented this level on QE before and never had rates this low.
We're not the only economy in the world. We can look at countries like Japan to get an idea of what low interest rates, lack of wage growth and huge debt obligations can do to an economy. The Fed is trying to avoid this fate -- that's why they're raising interest rates. And that's why (I believe) they are pushing for a recession. The alternative is a long, protracted stagnation where wage growth doesn't keep up with expansion, and workers suffer. Eventually resulting in a stagnant economy.
 

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What happens when the next downturn comes? How does the Fed spur growth? They lower interest rates.

But, if they never raised rates, and the Fed Funds rate is near 0%, how do you lower rates?!?!? You can't. So, to prepare for the next downturn, the Fed needs to get rates up to have some runway to lower them. That's what they're doing now.
That's the main reason I fear what is going to happen in Europe when the next recession strikes. The economy has been growing but the rates (EURIBOR) are negative, so debt is super cheap. You can get a 30-year loan for buying RE at EURIBOR + 2.5% or 5% fixed!
 

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For everyone's reading pleasure...
 

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CigarMan

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Stock prices should go down -- they are still tremendously inflated (do a search for Buffett Indicator and you'll get an idea of where prices should be). During downturns, businesses suffer. That's the way it works.

As far as it not being a typical recession coming up, that could certainly be the case. We're about 75 years into the long term debt cycle, which makes it about the right time for the next major deleveraging. And given our consumer and corporate debt levels, that's wouldn't be terribly surprising.

But again, that's a completely natural part of our economy -- it's really, really bad...but, it's likely going to happen every 50-100 years whether we like it or not.
I will check out the Buffet indicator.

I know we go in cycles. I just don't see this situation as normal because we have never been in this situation before.

Any predictions on what this cycle looks like?
 

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MoreValue

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Pretty much...

I like to think of our economy like a runaway truck without brakes. The driver (in this case, the Fed) has two choices:

1. Let the truck keep going as long as possible until a cliff comes along and the truck goes over it; or
2. When the truck starts going too fast, force a controlled crash now to avoid running off that cliff down the road.

The Fed's job is #2 -- controlling the economic crash so that a runaway economy doesn't have a much worse crash further down the road.

Inflation is the thing that speeds up the economy. And interest rate hikes are the brakes to slow it down and start a controlled crash.
Pretty much...

I like to think of our economy like a runaway truck without brakes. The driver (in this case, the Fed) has two choices:

1. Let the truck keep going as long as possible until a cliff comes along and the truck goes over it; or
2. When the truck starts going too fast, force a controlled crash now to avoid running off that cliff down the road.

The Fed's job is #2 -- controlling the economic crash so that a runaway economy doesn't have a much worse crash further down the road.

Inflation is the thing that speeds up the economy. And interest rate hikes are the brakes to slow it down and start a controlled crash.
If it’s really this simple, why haven’t people caught on? People say you can’t predict the next crash, but I don’t see why not. Still kicking myself for not knowing this. Well, now I gotta hold cash until I hear interest rates are decreasing
 

CigarMan

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Fed is doing both. First, Fed concerns about deflation have been weighing on them for a couple years now:

The Fed Is Serious - It Wants Higher Inflation

And yes, they are raising interest rates at the same time, which doesn't seem to make much sense (it's like riding the gas and brake at the same time). But, it does make sense if you put it into a longer-term perspective.

What happens when the next downturn comes? How does the Fed spur growth? They lower interest rates.

But, if they never raised rates, and the Fed Funds rate is near 0%, how do you lower rates?!?!? You can't. So, to prepare for the next downturn, the Fed needs to get rates up to have some runway to lower them. That's what they're doing now.

The alternative is what has happened in Japan over the past couple decades. That's much worse.



Recessions reduce debt. That's the best part about recessions. Consumers and businesses default on their debt, essentially hitting the "RESET" button on the economy. That's why the short-term economic cycle (the business cycle) is often referred to as the short-term debt cycle.

Take a look at this chart and see what happened after 2008:

Total Consumer Credit Owned and Securitized, Outstanding

It was the largest debt reduction our country has seen since the Great Depression (though it still wasn't nearly enough).

And a recession is also a reset on employment and wages. It allows businesses to catch up on consumer demand (which lowers inflation), and it increases real wages across the board for those who are still employed. Take a look at this -- you'll notice that during the recessions (grey bars), we nearly always see a big jump in real wage growth:

Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over



We're not the only economy in the world. We can look at countries like Japan to get an idea of what low interest rates, lack of wage growth and huge debt obligations can do to an economy. The Fed is trying to avoid this fate -- that's why they're raising interest rates. And that's why (I believe) they are pushing for a recession. The alternative is a long, protracted stagnation where wage growth doesn't keep up with expansion, and workers suffer. Eventually resulting in a stagnant economy.
You bring up some good points.

I think Japan is a bad example because their population is shrinking..

We are already in a period of expansion without wage growth. Seems too late to protect against that. Infact we just saw a the beginning of wage inflation which seems to have scared the FED.

Recession would definitely reduce debt but playing that game seems to be insane.

The only thing that saved the credit market was the FED buying back debt from the banks when 0% interest failed to induce liquidity.

So you have now a system of capitalism for the poor and socialism for the rich. The banks operate in a zero risk environment because they get bailed out by the fed.

I agree we don't live in a bubble and global markets matter. I think it would have better to wait for a stronger economy before they started jacking up rates and and monthly QT. Then start a gradual process.

This is just reckless. 0% interest rates was not be enough to pull us out of this problem in 2008... now the problem is much bigger.

I don't see how this ends in anything but disasters.
 

CigarMan

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If it’s really this simple, why haven’t people caught on? People say you can’t predict the next crash, but I don’t see why not. Still kicking myself for not knowing this. Well, now I gotta hold cash until I hear interest rates are decreasing
Interest rate cuts at this point will cause the fed to lose all credibility and could result in major decline in the dollar.

Personally I am waiting for the FED to start printing massive amounts of money again.. ride the market back up then invest into gold/silver/crypto before inflation kicks in.
 

e_fastlane

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We've had 33 recessions over the past 160 years... This is hardly the end of the world.

Recessions are a natural part of the economic cycle. Things are actually worse when the cycle doesn't play out as it should and the government intervenes to artificially prop it up (as they've done the past 10 years).

To start, watch this:

View: https://www.youtube.com/watch?v=PHe0bXAIuk0


As for markets that won't be affected by a recession, focus on those markets that don't require credit and are geared towards necessity, not luxury.
Dalio seems to be saying that long term debt cycle happened during the 2008 recession, which implies the next recession isn't a "big one" atleast not for that reason. Correct?

However, the video is from 2013 and he might have missed the mark on that one, since consumer debt is actually at an all time high.

I just don't see this situation as normal because we have never been in this situation before.
Thats literally what happens in every recession. No recession is exactly the same or happens for the same reasons. Going through each one of them, everyone always says "this situation is different". Which is factually true, but doesn't mean anything. It's always unique and then economists analyze it retrospectively.
 
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Never1

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If it’s really this simple, why haven’t people caught on? People say you can’t predict the next crash, but I don’t see why not. Still kicking myself for not knowing this. Well, now I gotta hold cash until I hear interest rates are decreasing
There aren’t that many people who are individual traders, relative to all those people whom place their retirement savings in the trust of advisors and brokers etc... to manage their investments.

Market timing is quite difficult, and most of those advisors just tell their clients to ride it out (provided they aren’t retiring in the next 3-5 years).

The markets always bounce back.

Individuals who self manage can move in and out quickly, but are prone to more “emotional” trades and often miss opportunities.

My strategy involves a big picture view, top and down and trade with the trend. When things change, I change my bias to the market.

Right now, I am bearish, but it took since October for this shift in trend to play out. That’s a long time of waiting and watching, patiently, especially if you have lots of money long stocks.

The urge to exit at the first sign of a downturn can kill you. You can get whipsawed all over the place, while jumping the gun too quickly, once you see big rallies happening while you were ready to go short or flipped short, already.

Market tops take a long time to play out.

Months of all sorts of up and down action can literally wipeout your account.

I’m bearish, but I am very cautious.

I keep an eye on the broader indicators to confirm my bearishness. (Layoffs, bond yields, negative economical reports) etc...










Sent from my iPhone using Tapatalk
 
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JScott

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I will check out the Buffet indicator.

I know we go in cycles. I just don't see this situation as normal because we have never been in this situation before.

Any predictions on what this cycle looks like?
Every recession is unique in some ways, and familiar in others.

Look at 2008 -- what we saw with real estate and lending and big banks was unprecedented.

Look at 2001 -- what we saw with dot com and 9/11 was unprecedented.

Look at early 1970s -- what we saw with energy and the Cold War was unprecedented.

Look at the 1930s - what we saw with banking and the stock market was unprecedented.

While all of these events were exacerbated by unique factors, they all looked pretty much the same. Different lengths. Different magnitudes. But, the fallout happened in similar ways and in similar parts of the economy.

So, I agree with you that the next recession likely isn't going to be normal. There is no normal. But, it will still be familiar.
 
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JScott

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If it’s really this simple, why haven’t people caught on? People say you can’t predict the next crash, but I don’t see why not. Still kicking myself for not knowing this. Well, now I gotta hold cash until I hear interest rates are decreasing
Many people have caught on. Have you read this thread? MJ hasn't just been throwing out wild guesses. I haven't be just throwing out wild guesses. Neither have others...

Now, that said, everything that happens in the economy is cyclical, but there are large margins of error. We don't know if the interest rate hike from yesterday is the straw that will break the camel's back, or if it will just push us closer to the brink of the next recession.

Maybe we're in the midst of it, maybe it's still a few months away, maybe it's a year or more away. We don't know to that level of granularity, but anyone paying attention knows that it's coming.

Here are the previous 33 recessions...throw out the top and bottom 2, and they are all between 3 and 10 years long:

https://i.imgur.com/3ylBO0F.jpg

Not too hard to see that pattern...
 
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JScott

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Dalio seems to be saying that long term debt cycle happened during the 2008 recession, which implies the next recession isn't a "big one" atleast not for that reason. Correct?
Dalio is magnitudes smarter than I'll ever be, but I disagree with him here...

If 2008 was a massive deleveraging, we'd have seen two things:

1. A downturn lasting decades, not a couple years;
2. A return to very low debt levels.

We saw neither of those.

Now, in 2008, we did see something: A convergence of the business cycle downturn (the cycle that lasts about 6 years) and the real estate cycle downturn (the cycle that lasts about 18 years). When these coincide, the recession tends to be much greater. I believe that's what we saw in 2008.
 

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Anecdotal evidence incoming:

Oh man, I'm feeling it right now.

1) I got laid off from my full-time job yesterday
2) My girlfriend's mom asked me out of the blue how she can sell all her stocks in her 401k so she doesn't lose money.

Number 1 I'm not too worried about. I was actually prepping to scale my electronics business back to full-time again. It is a bummer to have that decision made for me though :/

Number 2 was super interesting.
I was thinking "Surely we are due for a bounce after this drop" and considering laddering into some puts, but hearing laypeople start talking about selling it all shows that this starting to worry the larger population.
Last time people asked me about investing was when bitcoin was on its huge upswing (before the bubble burst that following Jan).
I'm not going to read too much into it. It could be a sign of panic and indicate equities are being oversold. It could also be a sign that the selling is definitely a longer term trend now (I mean think about it, before my girlfriend's mom sells all her stocks, she'll at least be tightening up her spending for the holidays... which equals a bad consumer spending report release).

Short version:
ouch, I got laid off
people who never think about their investments, are starting to think about selling it all
 

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that's not quite how recessions work. They're defined retroactively. You won't know until a couple quarters later that you were in one.

I suspect it's already started and we won't know until Q2-Q3 2019.
"Predicting" in hindsight. Spoken like a true economist.

 

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MJ DeMarco

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Many people have caught on. Have you read this thread? MJ hasn't just been throwing out wild guesses. I haven't be just throwing out wild guesses. Neither have others...
You and I have been saying this since the summer ... when the market was hitting near all-time highs, the economy was seemingly booming, and everything was rosy.

We bought puts.

I stopped selling options short.

It's easy to say "a recession's coming!" in hindsight after the market has deteriorated 10-15%.

It's not so easy to say it when things are cheeky and everyone is making money while people are blogging about retiring early at 35 with $500,000 saved.

Some warning words I mentioned in the summer...

I come to this conclusion based on that 1) the market has been unable to recover the February correction and 2) Large up days in the S&P is accompanied by below average volume (no conviction) and 3) Netflix is a 350 stock with a 250 PE.
And I will add that Lululemon (a freaking Yoga pants company) is now a $125 stock with a PE of 55.
Netflix is now 250. LULU continued up to 160, and is now 115.
 

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So because it's a far right wing website, the rules of mathematics are somehow invalid?
Its a conspiracy website, so the probability of missing information is high. Good fake news always has some truth, but usually leaves out just enough to make it something they can spread. Not saying this specific article, but wanted to point out this websites history so information can be taken in appropriately. Math can only give you the truth if it has all the onfo
 

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The folks on this thread were spot on.

The market looks like it's pricing in a recession.

But the bigger question now is how much of a recession?

A huge slow down? A minor bump? A financial catastrophe?
 

MJ DeMarco

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20 year chart, monthly increment.

Kinda scary that the recent moves are more pronounced than in 2008.

upload_2018-12-21_11-19-5.png
 

CigarMan

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So how we benefit from this from this bear market/crash?

Short term high quality bonds?
 

JonnyC

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So how we benefit from this from this bear market/crash?

Short term high quality bonds?
My plan, for what it's worth: pay off debt, sock away cash, wait for market to drop by ~20% to 25%, plow excess cash into index fund. Check https://www.aaii.com/journal/article/stock-market-retreats-and-recoveries.touch for average drops of recessions.

I would consider excess cash anything over 6-12 months living expenses, depending how optimistic I am on the timeline for a rebound.

Would love any advice or input from the experienced members, this will be the first major recession that affects me as an adult.
 

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