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NOTABLE! The Coming Recession (2019-2020?)

ADayattheRoxbury

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Around here, it's pretty much agreed that ideas are worthless. ;)
Yeah I think that is true for the most part, other than when you are BLOCKED from using your idea in a place, and another person can implement the same exact idea that has been proven to be successful... I don't think this applies in this case, though I digress.
 

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socaldude

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I figured it would be a couple weeks before I would follow-up this post with an "I told you so..."

Turns out it didn't take nearly that long...it appears there's not yet any agreement:
It almost makes you wonder just how long they can stall this out. From now until the elections, more trade tensions is almost an inevitable financial catastrophe. I'm thinking we will have a trade truce.
 
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JScott

JScott

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It almost makes you wonder just how long they can stall this out. From now until the elections, more trade tensions is almost an inevitable financial catastrophe. I'm thinking we will have a trade truce.
I'm completely making this up (I'm no expert on trade policy or the Chinese trade strategy), but purely from a game theory perspective, it seems to me that China's best move is to just wait until the next election to put any stake in the ground regarding a trade deal.

Of course, they aren't just going to refuse to negotiate, as that will cause short-term pain between now and next November. Instead, it's in their best interest to act like they are willing to negotiate in order to appease the current US administration and minimize trade pressure between now and then.

If I were China, I would continue to point out how important it was to have a trade agreement, how dedicated I was to working something out, continue to engage in negotiations, but then always find a reason to come back to the table before putting anything in writing. (i.e., exactly what they're doing.)

That said, if the administration gets desperate for a win, I think there's a reasonable chance that the US will offer China a deal that -- at first glance -- seems like a US win, but in reality is just an agreement to go back to the status quo. This gives the administration an appearance of a win ("We signed an agreement!") but doesn't put China in a worse position.

Here's the short takeaway:

The administration cares more about looking good than a good deal. China cares more about a good deal than looking good. In the end, the most likely result is a deal that makes the administration look good while giving China a good deal. Both sides feel like they got a win (though China will happily pretend to admit to defeat).

Again, I could be wrong. But, that's where we appear to be headed...
 

Dan_Cardone

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I'm completely making this up (I'm no expert on trade policy or the Chinese trade strategy), but purely from a game theory perspective, it seems to me that China's best move is to just wait until the next election to put any stake in the ground regarding a trade deal.

Of course, they aren't just going to refuse to negotiate, as that will cause short-term pain between now and next November. Instead, it's in their best interest to act like they are willing to negotiate in order to appease the current US administration and minimize trade pressure between now and then.

If I were China, I would continue to point out how important it was to have a trade agreement, how dedicated I was to working something out, continue to engage in negotiations, but then always find a reason to come back to the table before putting anything in writing. (i.e., exactly what they're doing.)

That said, if the administration gets desperate for a win, I think there's a reasonable chance that the US will offer China a deal that -- at first glance -- seems like a US win, but in reality is just an agreement to go back to the status quo. This gives the administration an appearance of a win ("We signed an agreement!") but doesn't put China in a worse position.

Here's the short takeaway:

The administration cares more about looking good than a good deal. China cares more about a good deal than looking good. In the end, the most likely result is a deal that makes the administration look good while giving China a good deal. Both sides feel like they got a win (though China will happily pretend to admit to defeat).

Again, I could be wrong. But, that's where we appear to be headed...
Sounds pretty accurate!
 

Everyman

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„The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians. […] It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse.”
– William White


 

Rivoli

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I'm completely making this up (I'm no expert on trade policy or the Chinese trade strategy), but purely from a game theory perspective, it seems to me that China's best move is to just wait until the next election to put any stake in the ground regarding a trade deal.

Of course, they aren't just going to refuse to negotiate, as that will cause short-term pain between now and next November. Instead, it's in their best interest to act like they are willing to negotiate in order to appease the current US administration and minimize trade pressure between now and then.

If I were China, I would continue to point out how important it was to have a trade agreement, how dedicated I was to working something out, continue to engage in negotiations, but then always find a reason to come back to the table before putting anything in writing. (i.e., exactly what they're doing.)

That said, if the administration gets desperate for a win, I think there's a reasonable chance that the US will offer China a deal that -- at first glance -- seems like a US win, but in reality is just an agreement to go back to the status quo. This gives the administration an appearance of a win ("We signed an agreement!") but doesn't put China in a worse position.

Here's the short takeaway:

The administration cares more about looking good than a good deal. China cares more about a good deal than looking good. In the end, the most likely result is a deal that makes the administration look good while giving China a good deal. Both sides feel like they got a win (though China will happily pretend to admit to defeat).

Again, I could be wrong. But, that's where we appear to be headed...
Dude, that isn’t a realistic strategy for them anymore. Elizabeth Warren is the democratic front runner. Have you read her paper on Trade? She’s way harder on China than Trump. This is the new world we live in, the tariffs Trump has placed are going to be the new floor.

Biden is the only candidate who is easy on China, the left AND right are no longer in the same place with China.

Obviously China needs a deal more than the US, since they are so over-levered and economy is slowing down. I think the longer trade war goes on the more companies move to Vietnam or Mexico for supply chain. They should have caved on IP and unfair trade concessions already
 
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Kid

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Why this Elizabeth Warren looks to me like someone who talks big and then will chicken out on everything she said.
 

Rivoli

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Why this Elizabeth Warren looks to me like someone who talks big and then will chicken out on everything she said.
Thats not the point. I’m not saying her or Donald Trump are right. I’m making the point that neither party is a refuge for China’s unfair policies. If China thinks they can just wait out the US election to end tariffs, maybe that made since earlier in the primary, but its pretty clear their friendliest candidate Biden doesn’t have much of a chance. The more people see of him the more he looses in the polls.

China is toast. When the down turn comes its going to get really ugly there fast.
 
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JScott

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China is toast. When the down turn comes its going to get really ugly there fast.
And here as well if tariffs are still in place. The big difference is that our leader is elected and will get voted out of office when the shit hits the fan here; their leader can handle a decade of economic under-performance without worrying about losing his power and while shoring up new trade deals in Europe and Asia to replace the revenue lost from the US.

People seem to underestimate the difficulty of playing chicken with a country run by a dictator who doesn't much care about the well-being of the bulk of his citizens. (I'm talking about China here, just in case it wasn't clear. ;-)
 

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Rivoli

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And here as well if tariffs are still in place. The big difference is that our leader is elected and will get voted out of office when the shit hits the fan here; their leader can handle a decade of economic under-performance without worrying about losing his power and while shoring up new trade deals in Europe and Asia to replace the revenue lost from the US.

People seem to underestimate the difficulty of playing chicken with a country run by a dictator who doesn't much care about the well-being of the bulk of his citizens. (I'm talking about China here, just in case it wasn't clear. ;-)
How is USA toast if tariffs stay in place? Consumers are not going to pay for the tariffs much longer. Companies are already changing supply chains. Mexico is the new China look at how many TV’s, Refrigerators and Cars are being made there. Even beer.

The reality is China is replaceable. But the US isn’t. There isn’t another 20 trillion $ economy they can’t turn to. They were hoping they could do it domestically, but the one child policy has suffocated that idea in its infancy.

The smart money knows this, that’s why all the wealthy in China are moving to UsA and Canada, buying homes here like crazy.
 

Rivoli

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So many computers are being made in Mexico.
 
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JScott

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The reality is China is replaceable. But the US isn’t.
Most economists disagree with you on that.

As a buyer, China responsible for about 8% of our total exports? If they're replaceable in that role, why is the US government paying billions in welfare to farmers? What happens when China stops buying aircraft? And machinery?

On the import side, what happens when China decides to stop selling us rare earth elements? Where will those come from? Or will we just decide that electronics, medical equipment and automobiles aren't that necessary in our lives?

And what do you think happens when China decides to sell back our debt and not buy future debt? Where do you think treasury yields go?

China could destroy our economy if they wanted to. Obviously, it would crush theirs as well, but again, their government is less concerned about the welfare of their citizens than we are.
 

Rivoli

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Most economists disagree with you on that.

As a buyer, China responsible for about 8% of our total exports? If they're replaceable in that role, why is the US government paying billions in welfare to farmers? What happens when China stops buying aircraft? And machinery?

On the import side, what happens when China decides to stop selling us rare earth elements? Where will those come from? Or will we just decide that electronics, medical equipment and automobiles aren't that necessary in our lives?

And what do you think happens when China decides to sell back our debt and not buy future debt? Where do you think treasury yields go?

China could destroy our economy if they wanted to. Obviously, it would crush theirs as well, but again, their government is less concerned about the welfare of their citizens than we are.
China buys Treasurys because it has to. U.S. debt is the safest place for Chinese forex reserves - China offers loans to the U.S. so that the U.S. can keep buying the goods China produces.


I’m sorry, but 8% of exports (12% of economy) is literally not even 1% of our economy. Trump does that damage with a tweet for breakfast.
It’s political rather than serious economic need that drives that push.

Look at the other way. China is the largest exporter in the world, and we are like 20% of that. We could kill China in months.

Rare earth minerals is not what people make it up to be. We have so much in California we could supply our own needs. The only reason we aren’t getting into itis because Chinese dumping.

Mountain Pass rare earth mine - Wikipedia
Google Maps

I already pointed out more automobiles and electronics are being made in Mexico now.

Dont fall for the paper tiger. China is a debt meme, that isn’t going to survive the next 10 years.
 
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PizzaOnTheRoof

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@JScott, I'm leaning towards @Rivoli on China.

Either economy collapsing would be devastating for the other, at least in the short term.

However the US is the worlds superpower, reserve currency, and basically leader of the free world. We have many other countries on our side should China pull the rug out.
 

Rivoli

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Even all things being equal, even if we were equally dependent on each other (we aren’t at all) just look at the debt

For every dollar of GDP China has cost it $2.60 of debt. That’s just insanity. America is also bad at 110% debt to GDP, but growth isn’t slowing like it is in China. USA is 2-3 % a year. China has gone from double digits down to 6% and it’s going to get worse.

If you take debt to grow a company, and instead of growth going up it goes down, you have a Sears. It’s really bad.

So much is obscured about China, and the worst part is most economist are from Wall Street. They have a vested interest in the China story because the corporation a make the money off globalization.

Remember most economist said the economy was great in 2006.

You have to look and understand for yourself these days.
 
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JScott

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@JScott, I'm leaning towards @Rivoli on China.

Either economy collapsing would be devastating for the other, at least in the short term.

However the US is the worlds superpower, reserve currency, and basically leader of the free world. We have many other countries on our side should China pull the rug out.
I agree that the US has the upper-hand long-term. But, in a short term "war," I believe China can do much more damage to our economy than we could do to theirs.

On the bright side, this is a debate that will likely be decided in the next year or two. If China truly has little leverage here, that should become clear pretty soon. Likewise, if China has more leverage than you guys give it credit for, we should know prior to the next election.
 

PizzaOnTheRoof

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I agree that the US has the upper-hand long-term. But, in a short term "war," I believe China can do much more damage to our economy than we could do to theirs.

On the bright side, this is a debate that will likely be decided in the next year or two. If China truly has little leverage here, that should become clear pretty soon. Likewise, if China has more leverage than you guys give it credit for, we should know prior to the next election.
Hope for the best, plan for the worst.
 

socaldude

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I don't know too much about this but let me get this straight, the fed buys short term collateral then has these institutions buy them back even when they don't have liquidity. What could possibly go wrong.
 
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James Fend

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Not spreading no FUD or anything, but in roughly 10 years, it will mark 100 years since the Great Depression. And we are running on the longest cycle w/o recession. Pure speculative jabber, but mini-bump-in-the-road-recession followed by a Great Depression'ish in the next 10-20 years anybody?

The list 'obviously super terrible things' seems to just be compounding at a faster rate.... it all eventually and inevitably has to reach a tipping point one day.
 

PizzaOnTheRoof

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Not spreading no FUD or anything, but in roughly 10 years, it will mark 100 years since the Great Depression. And we are running on the longest cycle w/o recession. Pure speculative jabber, but mini-bump-in-the-road-recession followed by a Great Depression'ish in the next 10-20 years anybody?

The list 'obviously super terrible things' seems to just be compounding at a faster rate.... it all eventually and inevitably has to reach a tipping point one day.
If we got spooked every time an anniversary of a terrible event came around, we’d never leave the house.
 
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JScott

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Not spreading no FUD or anything, but in roughly 10 years, it will mark 100 years since the Great Depression. And we are running on the longest cycle w/o recession. Pure speculative jabber, but mini-bump-in-the-road-recession followed by a Great Depression'ish in the next 10-20 years anybody?

The list 'obviously super terrible things' seems to just be compounding at a faster rate.... it all eventually and inevitably has to reach a tipping point one day.
The way economic cycles tend to work is that we have recessions every 5-7 years (on average), and those recessions wipe away a lot of the bad debt that was accumulated during the previous expansion (this is why the basic economic cycle is called "the debt cycle."

But, it doesn't generally wipe away all the debt. Which means that after each recession, the country is left with a bit more debt than after the previous recession.

It looks a little like this:

28234


This is additive over many economic cycles, and the total debt eventually looks like this:

28235

After about 15-20 cycles, the debt remaining is so high that we can't escape from the recession and we see a major economic downturn that's much, much worse.

28236

This is a depression and during a depression, we tend to see all the debt that accumulated over the previous 50-100 years wiped away -- this is called a deleveraging. And it can take decades to recover from it.

And the interesting part is that this is just a cycle in and of itself, albeit a much longer cycle. This is called the "long term debt cycle" (for obvious reasons):

28237

Note that the last time we saw a deleveraging was during The Great Depression, which was about 90 years ago. If the 50-100 timing for these events holds true during this long-term cycle, we're probably pretty close to that deleveraging event.

Just some food for thought...
 
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JScott

JScott

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Btw, to go along with my post above, three things to keep in mind:

1. Consumer debt is currently at an all-time high at over $4T.
2. Mortgage debt is currently at an all-time high at over $9T.
3. Corporate debt is currently at an all-time high at over $19T.

Do with that information what you will...
 

JunkBoxJoey_JBJ

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Unreal.

It's like I said in a way earlier post with MJ, not even understanding all of the statistics etc, but it just seems (common sense) this can't continue they way it has been! ...?
 

WJK

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The way economic cycles tend to work is that we have recessions every 5-7 years (on average), and those recessions wipe away a lot of the bad debt that was accumulated during the previous expansion (this is why the basic economic cycle is called "the debt cycle."

But, it doesn't generally wipe away all the debt. Which means that after each recession, the country is left with a bit more debt than after the previous recession.

It looks a little like this:

View attachment 28234


This is additive over many economic cycles, and the total debt eventually looks like this:

View attachment 28235

After about 15-20 cycles, the debt remaining is so high that we can't escape from the recession and we see a major economic downturn that's much, much worse.

View attachment 28236

This is a depression and during a depression, we tend to see all the debt that accumulated over the previous 50-100 years wiped away -- this is called a deleveraging. And it can take decades to recover from it.

And the interesting part is that this is just a cycle in and of itself, albeit a much longer cycle. This is called the "long term debt cycle" (for obvious reasons):

View attachment 28237

Note that the last time we saw a deleveraging was during The Great Depression, which was about 90 years ago. If the 50-100 timing for these events holds true during this long-term cycle, we're probably pretty close to that deleveraging event.

Just some food for thought...
I was in a terrible downturn in Los Angeles around 1990. The RE market crashed hard. It took most of that decade to recover. The 1980s had been all about OPM (using other people's money). Almost all of my friends in the RE business ended up in bankruptcy court with their hats in the hands.

Now, I'm part of the counter culture. I'm working a personal program to getting debt-free -- even my RE mortgages paid off. I've tried to talk to some of the other investors around me and they think I'm crazy. But, I remember the 1990 recession, and all of that pain I watched then. And, before that in 1980, the interest rate went from 12% to 21% just about overnight. There's nothing sure about the financial markets. I just know that equity and cash are king!
 

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