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The Coming Recession (2018-2019?)

Discussion in 'Investing/Trading/Cryptocurrency/Altcoins' started by JScott, May 27, 2018.

  1. WinTheDay
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    Question though...seeing how during the 2008 recession I was only in 6th grade I don’t really know what even happens during a recession. Outside of jobs being lost and jobs being harder to find I don’t really know much else. What really goes on? Outside of the famous phrase “it’s a recession” being said 100x a day haha.
     
  2. DaveC
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    I'm not really a real estate expert, but I've noticed two things in Chicago:

    1) Way more foreign ownership of upscale condos, then left vacant. I only used to see this on the coasts (Vancouver, SF, NYC, etc....). I think they are wealthy investors looking to diversify.

    2) Way more vacant retail/commercial. I live in a decent neighborhood, and condos are selling like hotcakes, but commercial strips are vacant already and they are still building more. Big office complexes in the suburbs are getting abandoned. Most indoor malls are completely dead.

    I think there will be a correction here, but not as much in residential as its been driven up by a lot of buy and hold foreigners or just regular growth and not flippers and speculators as much. Commercial RE in general is going to get pounded. Malls/stores are under assault from Amazon, commercial strips are having their rents raised as its more lucrative to have expensive condos there, and office space (especially suburban) is going to be hurt from WFH trends and the need for more flexible workspace (Wework, REgus, etc...).
     
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  3. WJK
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    I think about it every day. I've started in real estate in 1976 -- 42 years ago. I wrote about the SFR market and the apartment market concerning renters earlier in this thread. Changes are in the works. There's going to be an upsurge in the percentage of residential renters over the next few years. I even think that our archetype of the American dream will change.
     
  4. JScott
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    Several things:

    - Higher unemployment, so many people are out of jobs and struggling;
    - Oftentimes there's higher-than-average inflation, so things cost more;
    - Tightening of credit -- banks don't want to lend so getting credit cards, mortgages, HELOCs, etc. are harder;
    - Consumers have less disposable income, so businesses see fewer customers and sell fewer services/products;
    - Assets often go "on sale" -- because people need money, they are willing to part with their assets (everything from real estate to jewelry to art to automobiles) for below market prices;
    - People with money (investors) look for safe-havens for their cash, so investments that are "recession proof" often do well;
    - People often move to cheaper housing and/or double-up with friends/family, so Class A & B real estate often takes a hit.

    I'm sure I've missed some there (maybe some big things), but those are the first things that came to mind...
     
  5. msufan
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    msufan Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    It sure feels to me like this might be a good point to reduce exposure to stocks for the time being. I am partially out but not completely and am curious what others are thinking/hearing/noticing.
     
  6. MJ DeMarco
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    You might be late on that, market hit a triple top today and the S&P futures are down nearly 30 overnight (trade war stuff). Looks like a pretty significant down move might happen Wednesday.

    I've paired down significantly and actually started going long volatility. I've been short vol for nearly 4 years.

    To repeat...

     
  7. JScott
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    A couple weeks ago, I purchased a good bit of LEAP Puts (expiration 1Q19 and 2Q19) on QQQ and XHB. Basically a hedge against the real estate I own that I would consider selling early next year. If the market stays strong, I make money on the real estate; if the market tanks, I make money on the options.

    At this point in the economic cycle, I think it's important to hedges in place for any large investments that won't likely weather the storm very well (like real estate).
     
  8. garyfritz
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    @JScott, how do you plan to manage your rental properties when the SHTF? Very likely some of your renters will no longer be able to afford their rent. But very likely the same will be true for lots of other people too, so replacing your renters will be difficult. How to respond to that?
     
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  9. msufan
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    Won't there be homeowners forced to sell their houses and switch to renting a place, though?
     
  10. msufan
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    msufan Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Connect the dots for me. Are you referring to the midterms in November? If so, are you thinking that this recession could lead to a Democrat surge in November because the party in charge will be blamed? Or something else?
     
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    Most people / Ray Dalio believe the recession isn’t coming 2018. More like end of 2019, beginning of 2020
     
    Last edited: Jul 11, 2018
  12. Rivoli
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    But the yield curve hasn’t inverted. And there’s haven’t been a recession within 9 months of the inversion or before it like the past 60 years


    Sent from my iPhone using Tapatalk
     
  13. JScott
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  14. JScott
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    All of my units are C Class properties, which are much more immune to a market downturn -- typically, Class A and B properties get hit worse, as those renters move down a class to save money. That said, I've decided to be opportunistic and sell my 38 unit Class C apartment complex. We got a better offer than I think we're likely to get after a downturn, and I'd rather sell now than in five years for the same price (and don't want to hold it longer than that).
     
  15. MJ DeMarco
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    Let's just say that there are some very powerful people / countries that would like to see a reversion to the "status quo", and these are entities that can move markets.

    If not this November, in 2020.
     
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  16. Rivoli
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    Any further reading on this I can look at? Sounds intriguing.

    Ray dalio said it’s a 60-70% chance recession before trumps reelection - but unlikely this year.

    I’m planning my business strategy around a recession Q3 2019 - Q1 2020


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  17. garyfritz
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    I see, thanks. My properties are all solidly class B -- ~15-20 years old, nice neighborhoods. Northern Colorado has NEVER had a significant downturn (nothing more than about 10%) but who knows what the future will hold?
     
  18. JScott
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    JScott Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    I don't know exactly what constitutes "northern Colorado," but the Denver MSA was down about 24% peak to trough during the 2008 recession.
     
  19. garyfritz
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    Generally north of the Denver/Boulder MSA area. :smile2: So Fort Collins, Loveland, Longmont, Windsor, Greeley, etc. I can't remember the source I got it from (where did you look?), but if I remember right I found history going back over 100 years, and there were no big dips.

    The FRED database shows only a 10% drop in the statewide all-transactions price index from 2007 to 2011, at a time when the Case-Shiller index dropped 28%. NoCo is supposed to have done better than the statewide average and certainly better than Denver.
    All-Transactions House Price Index for Colorado

    Several projections suggest a significant (>20%) downturn in 2019-2022, however.
     
  20. JScott
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    I don't know how to find data for smaller areas (outside the major MSAs), so I honestly don't know what north of Denver did. That said, Colorado values, in general, peaked before much of the country -- probably closer to 2004. So, if you're going to compare peak to trough, you should compare a little earlier.
     
  21. JScott
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  22. JScott
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    Something I posted in response to a FB question I received yesterday about the great unemployment numbers (and an article that came out a couple hours later that says it better than I did)...

    "If that unemployment number was associated with increased wages keeping up with inflation, that would be a very positive sign. Unfortunately, wages are stagnated, and inflation is forecast to increase over the next 6 to 12 months. Couple that with interest rate hikes, and Americans are now spending more money on their monthly consumer debt, which is at a peak.

    The foundational metrics of our economy have not been strong for 12 years now, and are only getting worse... now that the FED is reversing course on inflation and interest rates, and the likely impact of tariffs on working class jobs (if the tariff stuff progresses as indicated), I'm still very, very bearish on the economy at this point.

    And that doesn't even factor in the corporate credit situation... With all the recent stock buy backs, and the peak in corporate credit extension, I think corporate credit could be the next bubble.

    Will be interesting to see how much corporate welfare is extended should that be the case. We still haven't fully recovered from the government welfare extended to the financial sector back in the first Obama administration term.

    Long story short, we've been kicking the can for 12 years now, and that can is getting much bigger and heavier while our foot is getting very sore.

    ....

    Oh, and that doesn't even touch one the risk to the currency markets given the current political climate. But that would get into politics, and I'm going to avoid that in this discussion... [​IMG]"
    Analysis | Inflation hits 6-year high, wiping out wage gains for the average American
     
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  23. JScott
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    Two great charts provided to me by another investor...

    Unemployment by year (note the correlations to recessionary events in gray):

    [​IMG]

    Yield curve by year:

    [​IMG]
     
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  24. garyfritz
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    By what measure? Inflation-adjusted maybe? That FRED data I linked didn't show any peak until late 2007, but it's not inflation-adjusted.

    If I adjust for inflation (using Denver MSA CPI from FRED), the Colorado prices still don't peak until 2006.

    BTW it turns out FRED has all-costs data for the Fort Collins - Loveland MSA, where my properties are. According to that (non-inflation-adjusted) data, there was only a 5% dip in 2008-2011, and none before that.
    All-Transactions House Price Index for Fort Collins, CO (MSA)

    Yes, the yield curve is a traditional recession warning. But here's a deeper analysis.

    Ed Yardeni is an extremely well-regarded analyst with a very good record. In his 7/10/18 blog he looks at the yield curve and several other measures. His conclusion is, as long as Trump doesn't crater the economy with a trade war, we're still in pretty good shape.

    Dr. Ed's Blog
     
  25. JScott
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    Sorry, didn't mean to say "peaked" before much of the country...meant to say trended upwards before much of the country. Using Case-Shiller for my data:

    http://www.hbadenver.com/site/publisher/images/emailContent/case-shiller-index-graph.png


    Yup, there's a lot of "this time it's different" talk these days. I remember a lot of "this time it's different" talk back in 2006 as well, and I'm sure there's a lot of "this time it's different" talk before each recession. Maybe he's right and this time it really is different, but I'm betting (literally) that it's not. I guess we'll see...
     

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