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NOTABLE! The Coming Recession (2019-2020?)

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JScott

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...the indicator to watch for is the US unemployment rate. I think that will show and predict the futher internal demand most accurately.
Historically, unemployment is a lagging indicator:

 

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James Fend

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Shock/Catalyst/Trigger
  • Asset Bubble: 15%
  • Government Policy: 65%
  • Oil Price Surge: 20%
I would watch Oil Prices very carefully though over the next 1-4 years. I think this might be a sneaky one.
Interesting.. I posted this about a month ago on this thread. Just some additional thoughts on why I mentioned this:

Although.. the recent events with Saudi Arabia/Iran is Not "The Trigger".... yet...or may never be... or may be in combination of.

Anyways, the reason I even mentioned Oil in the first place is because I actually knew an event exactly like this was inevitably going to happen within the next year or two... I shy'ed away from explaining it publicly because well, my fundamentals for whatever seem to trigger the "you're bat shit stupid" reactions; best to keep to myself lol.

Anyways; this is based upon the psy of emotional cycles. Relations also have mini-cycles within big social emotional cycles on their own. And this, precisely, is why I included it and put it at 20% probabilty, higher than even any financial asset bubble.

To better explain; this latest event isn't a one-off random event. It is an after-effect of the current stage of the psy emotional cycle it's at. The relations (the cause) will remain the same and slowly get worse behind the scenes, and another after-effect will again sooner or later inevitably pop up again. Each time much worse... it will be hidden, effects will be fast, it will catch people off guard, and only someone can see just what exactly happened in hindsight.

Anyways; just thought it's interesting to observe and see how it all plays out. Do I think it still remains at 20% probability.. yes. At this point, nothing from a fundamental side that imo points it to be higher in what I think will be the 'official trigger' they put in Wikipedia 15 years from now. Or again, it could be in combination with and go hand to hand with the other 'triggers'.

But it's a sneaky one that I think most people have never looked at before today and will likely forget all about by next month.

That chart I posted a month ago is still the factors that I will go by for the upcoming year(s).

Until those factors happen; markets will continue it's upward trend until near election time next year.
 
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JScott

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For those that might be interested, I did a live-stream Q&A for real estate investors the other night, and much of the discussion focused on the economy, economic cycles, where I think we are in the current cycle and the data that supports this view.

Some of the discussion is real estate heavy, but a good chunk is pure economic stuff...

Here's the video for anyone who might be interested -- if you just care about the economics stuff, jump to about 16:30 in Part 1 and continue into Part 2:

Part 1.
View: https://www.youtube.com/watch?v=lhHYoJj7bn0


Part 2.
View: https://www.youtube.com/watch?v=H4Zj6ywLj6I


Part 3.
View: https://www.youtube.com/watch?v=KTYP6oNFkHo
 

JunkBoxJoey_JBJ

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For those that might be interested, I did a live-stream Q&A for real estate investors the other night, and much of the discussion focused on the economy, economic cycles, where I think we are in the current cycle and the data that supports this view.

Some of the discussion is real estate heavy, but a good chunk is pure economic stuff...

Here's the video for anyone who might be interested -- if you just care about the economics stuff, jump to about 16:30 in Part 1 and continue into Part 2:

Part 1.
View: https://www.youtube.com/watch?v=lhHYoJj7bn0


Part 2.
View: https://www.youtube.com/watch?v=H4Zj6ywLj6I


Part 3.
View: https://www.youtube.com/watch?v=KTYP6oNFkHo
Haha...And shameless plug, no links or mention by title, but look at J’s latest book on RE/cycles and more - really good.:thumbsup:
 

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Do you think there is an objective way of measuring how "recession-proof" a business is? I am curious if there are any historical patterns for what industries and types of businesses do well, and which don't.

I would guess that "essentials" survive and ultra-luxury brands are not heavily impacted, but curious to see if there is any deeper analysis that you could point me towards.
Marriage photo-shot and funeral business. High profit margin too.
 

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JScott

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Yeah, this wouldn't have been a big deal (at least not as much of a big deal) had this corrected itself after a day or two, but the fact that overnight rates have been fluctuating so greatly for four straight days is starting to get concerning. The biggest issue is that (it appears) they don't know what's causing the liquidity issue in the first place -- you can't fix something if you can't diagnose it!
 

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they don't know what's causing the liquidity issue
Bloomberg had a pretty good explanation (can't find the link now) and said it was estimated tax payments and people/corporations were seeking liquidity to pay taxes. I know for a fact that I contributed to that circumstance as I had to withdraw 1/2 million from a MM 2 weeks ago, some for taxes, and some for some other purchases. Yet, this circumstance happens ever quarter, not sure what makes this time any different.
 

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I've been following this repo stuff as well and find it quite interesting. I find it especially curious that:
1) As MJ mentioned, tax forecasting happens regularly (it's not some unexpected surprise), and
2) This has now been going for several days and the amounts needed are increasing...

Seems like every article I read though says something slightly different about what is actually going on. The AFP link quotes a $275B figure as being pumped into the market. Is that figure just click bait though? My understanding was that these repo injections are just overnight loans paid back the next day. In other words, if for example they injected $100B for 4 days, that would still be essentially the same $100B, not $400B, right?
 

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I've been following this repo stuff as well and find it quite interesting. I find it especially curious that:
1) As MJ mentioned, tax forecasting happens regularly (it's not some unexpected surprise), and
2) This has now been going for several days and the amounts needed are increasing...

Seems like every article I read though says something slightly different about what is actually going on. The AFP link quotes a $275B figure as being pumped into the market. Is that figure just click bait though? My understanding was that these repo injections are just overnight loans paid back the next day. In other words, if for example they injected $100B for 4 days, that would still be essentially the same $100B, not $400B, right?
Yea, it's really confusing stuff, like to trying to learn how to read Japanese. Hard to make any sense of it, much less make forecasts or educated decisions based on what's going on.
 

MTEE1985

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Bloomberg had a pretty good explanation (can't find the link now) and said it was estimated tax payments and people/corporations were seeking liquidity to pay taxes. I know for a fact that I contributed to that circumstance as I had to withdraw 1/2 million from a MM 2 weeks ago, some for taxes, and some for some other purchases. Yet, this circumstance happens ever quarter, not sure what makes this time any different.

I was on a call Tuesday with the chief global strategist from JPM and he was trying to explain it. His viewpoint was not a big deal nor a sign of an underlying issue. Not the same scenario as 2008 when the banks were short on reserves leading to QE.

Take it with a grain of salt of course.
 

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What record volume in stock markets means in today's context?
 
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JScott

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I've been following this repo stuff as well and find it quite interesting. I find it especially curious that:
1) As MJ mentioned, tax forecasting happens regularly (it's not some unexpected surprise), and
2) This has now been going for several days and the amounts needed are increasing...
Yup, this is why I'm skeptical of the explanation that's being repeated -- no reason why this quarter should be any different than the last 40 quarters where the Fed was successful at predicting how much liquidity was needed at this point in the quarterly cycle.

My understanding was that these repo injections are just overnight loans paid back the next day. In other words, if for example they injected $100B for 4 days, that would still be essentially the same $100B, not $400B, right?
Correct... While some people are referring to this as QE, it's not additive, so it's not the same thing.
 

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Yup, this is why I'm skeptical of the explanation that's being repeated -- no reason why this quarter should be any different than the last 40 quarters where the Fed was successful at predicting how much liquidity was needed at this point in the quarterly cycle.



Correct... While some people are referring to this as QE, it's not additive, so it's not the same thing.
the troubling thing is that from what I read on bloomberg was that they were going to keep it in there though and keep doing it for the next few weeks...
so it's not supposed to be balance sheet expansion....but.... if it never comes out??? then what is it really? lol


anyway, my understanding of the repo market is:
Bank A needs to settle with Bank B - $1million.
But Bank A doesn't have $1million on hand to settle.
So ordinarily it would borrow from Bank C to settle with Bank B.... in this process, Bank A would put up collateral of say a treasury note.
Next day, all would be settled... Bank A settled it's account with Bank B, and was able to pay Bank C and get it's collateral back.

The issue today is:
All of the same as above. HOWEVER. this time, Bank A can't get the $1million dollar loan from Bank C to pay bank B. For some reason Bank C will not accept the collateral (and neither will any of the other banks)... Unless they are compensated more to make up for the risk..... e.g. "Bank A, I will give you the $1million and hold the treasury as collateral (or some other bond) BUT, I want 10%"...

So, why is the fed losing control the overnight rate?

These banks are supposed to have liquidity because their reserve ratios have been adjusted... so they should have cash on hand...

Another question is, is it some foreign bank causing issues?
And we're talking big $$$$$$$ numbers here.... so is this a BIG BANK that is having issues with it's reserves and covering??

Anyway, I dont know that much more on the repo market and if someone can explain it better that would be great too.
 
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JScott

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the troubling thing is that from what I read on bloomberg was that they were going to keep it in there though and keep doing it for the next few weeks...
so it's not supposed to be balance sheet expansion....but.... if it never comes out??? then what is it really? lol
A couple things:

- So far, the infusion of capital by the Fed hasn't been additive. In other words, it's pulled out every day, and re-infused the following night. So, technically it's not QE. But, like you pointed out, if for some reason it doesn't get pulled out, that's pure QE.

- As of yesterday, the Fed injected capital into the 14-day markets. I'm not an expert here, but as far as I can tell, this serves two purposes: 1. Provides liquidity into overnight markets; and 2. Denies the opportunity to see what's actually going on in the overnight markets. My guess is that this was done on purpose so that the 24-hour news cycle wouldn't keep highlighting the issue, but now we have to wait another two weeks to see if the issue is fixed.

 

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My guess is that this was done on purpose so that the 24-hour news cycle wouldn't keep highlighting the issue, but now we have to wait another two weeks to see if the issue is fixed.
First it was 1 overnight loan. Then it was additional overnight loans. Now we have overnight loans continuing through October 10, and they're starting 14-day operations. If anything, it seems like things are only getting worse!
 
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JScott

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First it was 1 overnight loan. Then it was additional overnight loans. Now we have overnight loans continuing through October 10, and they're starting 14-day operations. If anything, it seems like things are only getting worse!
Maybe not worse, but almost certainly not better...
 

MJ DeMarco

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First it was 1 overnight loan. Then it was additional overnight loans. Now we have overnight loans continuing through October 10, and they're starting 14-day operations. If anything, it seems like things are only getting worse!
Fishy fishy!

 

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what bothers me about this is that there is zero transparency. oh you mean the fed has lost control of some artificial rate. and they dont give answers. i dont trust anything that withholds answers or gives answers that dont make sense. sounds to me that institutions are scared someone is gonna go broke.
 
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JScott

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what bothers me about this is that there is zero transparency. oh you mean the fed has lost control of some artificial rate. and they dont give answers. i dont trust anything that withholds answers or gives answers that dont make sense. sounds to me that institutions are scared someone is gonna go broke.
I'm not smart enough to fact-check this article, but assuming it's correct (you can ignore the bitcoin part at the end), it sheds some light on what might be going on with the repo markets:

 

cmaq

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I'm not smart enough to fact-check this article, but assuming it's correct (you can ignore the bitcoin part at the end), it sheds some light on what might be going on with the repo markets:

If that's true. That's concerning.
 
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JScott

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- So far, the infusion of capital by the Fed hasn't been additive. In other words, it's pulled out every day, and re-infused the following night. So, technically it's not QE. But, like you pointed out, if for some reason it doesn't get pulled out, that's pure QE.
Okay, looks like this is now officially QE...

 

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MJ DeMarco

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If that's true. That's concerning.
Okay, looks like this is now officially QE...
I've read these and it indeed seems a bit concerning.

Question is, what do we do as investors do?
Is there even anything to do?
Pull money into Gold?
Hard assets?
Mattress money?
Get money out of the banks?

I've always struggled with trying to figure out what another financial calamity (worse than 2008) would look like and how to be prepared for it.
 

cmaq

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While I wouldn't be close minded to what's written there. I'd say it's borderline conspiracy theory. You can easily mold a story with fear and numbers to make someone believe something whether it's true or not. I'd lean on most of this being false. But would be open minded to it being possible just because anything is possible.

I worry about the same constantly. Perhaps real estate? But that has its risks , and the lack of liquidity in comparison to other investments, and costs to acquire make it difficult to justify as a primary option, unless your into that thing.

As of now seems like diversify banks and keep it all under the FDIC insurance. Or take it to international banks, backed by countries in better financial positions (but not experience with this so can't comment on whether that's a good idea or not).



I've read these and it indeed seems a bit concerning.

Question is, what do we do as investors do?
Is there even anything to do?
Pull money into Gold?
Hard assets?
Mattress money?
Get money out of the banks?

I've always struggled with trying to figure out what another financial calamity (worse than 2008) would look like and how to be prepared for it.
 

tpuffer

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While I wouldn't be close minded to what's written there. I'd say it's borderline conspiracy theory. You can easily mold a story with fear and numbers to make someone believe something whether it's true or not. I'd lean on most of this being false. But would be open minded to it being possible just because anything is possible.

I worry about the same constantly. Perhaps real estate? But that has its risks , and the lack of liquidity in comparison to other investments, and costs to acquire make it difficult to justify as a primary option, unless your into that thing.

As of now seems like diversify banks and keep it all under the FDIC insurance. Or take it to international banks, backed by countries in better financial positions (but not experience with this so can't comment on whether that's a good idea or not).
Cash-flowing real estate assets can definitely help in these situations. Liquidity shouldn't matter as much so long as the cashflow is adequate. Having some investment in "Recession Resistant" classes of real estate also helps to mitigate risks. Mobile Home Parks and self-storage generally have a lower break-even point in the event that cashflow tightens up due to lowering rents. Mobile home parks are very affordable housing and will always have a strong market demand. Self storage is similar in the regard in that people seem to always need a place to store their things in general, and in a recession people may have to downsize from their McMansions, they got divorced due to money issues, etc.

If you find someone who has a good real estate deal you can partner with them.

The real estate guys radio has some great podcasts about things to invest in. They chat about the economy and other investment classes besides real estate - such as precious metals.
 

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