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NOTABLE! The Coming Recession (2019-2020?)

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JScott

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I just couldn't let this go, so I did some more digging and found this gold mine:
https://research-doc.credit-suisse.com/docView?language=ENG&format=PDF&sourceid=em&document_id=1081995001&serialid=3Wu3wFUMyBePtRtdFV1OMYgKjlWVo06EvleE1YFXV0o=&cspId=1767182447312478208&toolbar=1

Finally something written by someone who has worked inside the US Treasury and NY Fed, and has a deep understanding of how the repo market functions. I read the full paper above, but it is both long and difficult to unpack, but this article does a pretty good job at summarizing it:

"It's About To Get Very Bad" - Repo Market Legend Predicts Market Crash In Days

Really seems like we're setting the stage for a fireworks show, and sooner rather than later.
Thanks for those links. Absolutely the best analysis of the repo market issues I've read, and finally explains (to me) why the additional hundreds of billions being injected through t-bills isn't fixing the underlying problem.
 

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@nitrousflame , thank you for the links.
Very thought provoking.
And @JScott, I appreciate it that you take the time to explain some of the fundamentals.

I'm really beginning to wonder if cash is really king anymore.
Perhaps it is some other mainstay assets....
I am concerned that there might be troubling times ahead that many are not prepared for.
 
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JScott

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For people (like me) that don’t understand this stuff at the same level as @JScott and @nitrousflame and all the others that have contributed so much to this thread, can you tell us what we should be doing to prepare? If we own houses, stocks, etc.
Here's the issue...

There are drastic measures that the Fed can take to fight off market instability in the short-term. Specifically, they can inject ridiculous amounts of money into these markets and start additional QE.

In fact, they're already doing it:


The big question is how long that will those drastic measures keep the underlying issues from catching up to the markets. Days? Weeks? Months? Years?

Nobody knows exactly how long we can manipulate and buy our way out of a major liquidity crunch and a potentially really bad market downturn. But, at some point, the underlying liquidity issues are going to catch up to us and things are likely to get ugly.

And the longer the Fed takes drastic actions to avoid it, I'm guessing the worse it's going to be.

But, again, the issue is that the *when* is anyone's guess...

Now, if you had a crystal ball and knew when, the answer would be to sell any equities you own prior to it happening. Sell off any non-cash flowing real estate. And move to cash.

But, even that isn't necessarily the right strategy. If it were a major crash (not saying it will be, but *if*), or if that crash were coupled with major inflation, you might not want to be in cash either.

Long story short, nobody knows when or how bad, so there's no reason to take drastic measures just yet (in my opinion). But, I'm already starting to hedge, I'm out of equities, I'm holding a lot of cash and I'm happily buying some gold and silver (some physical, but mostly funds/ETFs).

Oh, and it appears a lot of other investors are starting to hedge as well:

 

elusive97

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Reading some of these latest replies doen't fill me with confidence. If I'm struggling now, I dread to imagine how hard my life will get under a recession :arghh:
 

jon11

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I would be interested to hear your opinion MJ on bitcoin as a hedge against fiat inflation?

It looks like the FED is going full retard with the helicopter money, so if you dont want to pile into the slaughterhouse of cash/RE/stonks then what other uncorrelated asset exists?
 

simplymoto

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Truth is no asset is fully free from a bubble, the best way is to diversify

Gold - If you bought gold post 2008, you have lost out dearly, if you bought gold in the past 12 months you have gained steadily

Equities - If you bough prior 2008 you have lost, if you bought post 2008 you have gained wealthily, same goes for property assets.

ETF - It's a mirror of equities, only more diversified going into the biggest stocks

Crypto - Well, if you bought prior to 2017 congratulations, you have struck gold! But who knows where crypto will go given its huge uncertainty, hopefully up.
 

nitrousflame

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For people (like me) that don’t understand this stuff at the same level as @JScott and @nitrousflame and all the others that have contributed so much to this thread, can you tell us what we should be doing to prepare? If we own houses, stocks, etc.
While I appreciate the mention, I still very much consider myself a student. With that said, and without a crystal ball, I think the best way to prepare would be to hold uncorrelated assets.

Housing: I hold some real estate, both personal and investment, but I consider them to have long time horizons. I'm not currently planning on making any changes to this category.

Stocks: I don't like diversifying into oblivion, nor do I like the idea of being out of the markets entirely. So as a compromise with myself, I spent a lot of time with Backtest Portfolio Asset Allocation backtesting different allocations until I found one that I felt comfortable with, and then I put a portion of my overall portfolio in it. In this category, I have mostly stocks, gold, staples, and bonds but I think it's safe to say that I have a lower stock allocation, and higher gold allocation than the average.

Cash: I'm still keeping a decent portion of my overall portfolio in cash.

Crypto: I've long been a fan of crypto, and it's about as asymmetrical and uncorrelated as they come. However, it's still unknown how it will behave in a true economic downturn, so definitely be careful with this one.
 

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Lol in the mean time the market just goes up and up. Almost inflationary.:inpain:

Imagine a trade war meltdown or bad news from the fed. This thing will shoot down like a bullet.
 

MHP368

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My crystal bowl is saying that FED notes are already dead and gold backed currency ready and agreed upon... when and where is a completely different question...
Any of you folks familiar with EROI and the economy as an energy system framework? (Declining returns on energy sources leave less energy available for all of societies needs culminating in society falling off an energy cliff and collapsing)
 

Bekit

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Any of you folks familiar with EROI and the economy as an energy system framework? (Declining returns on energy sources leave less energy available for all of societies needs culminating in society falling off an energy cliff and collapsing)
Never heard of it, but I just looked up this article, and it's pretty fascinating.

"EROI is, simply put, the energy gained from a unit of energy spent in the process of obtaining energy." Makes me think of the biological process of converting glucose to ATP, where you spend a little ATP to get a much bigger return, like 38:1 if I remember right.

What were your thoughts on the topic?
 

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MHP368

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What were your thoughts on the topic?
Well the thing about it is Ive never seen a good counterpoint. The economy as an energy system isnt actually a fringe position its just mostly thought of as maybe , equally as important as financial chicanery not the primary driver of abundance.

But , for most alarmist stuff you'll have at the least one or two well thought out rebuttals. Think matt ridley and "the rational optimist" or some marine scientist explaining we have enough unknown variables to not panic about the methane clathrate gun. Most hyperbolic "real bad shit" has some equally sensible response. Declining EROI? Nothing.
 

MHP368

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Actually I should clarify on that , since everyone's using different methodology and definitions of EROI the entire matter does seem to involve a lot of apples to oranges or apples to tennis ball comparisons. So , that does leave a lot of room to question what ratio if any is a bare minimum and where the global energy supply is at now or could be given physical and technological limits.
 
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JScott

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As expected, the Fed found it necessary to flood the repo market over the past two weeks to overcome the liquidity issues generated by corporate Q4 tax payments coming due.

Current repo investments by the Fed are well above their highest point prior to 2008, which occurred about two months before Lehmann Brothers collapsed.

 

Tossek

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Hi,

i might got that wrong but I thought repos are overnight short term contracts. How do you pay their bills with that? At some point earnings have to come in.

If I go to a bank and state that I would like to pay my taxes by credit, they would throw me out.
 
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JScott

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Hi,

i might got that wrong but I thought repos are overnight short term contracts. How do you pay their bills with that? At some point earnings have to come in.

If I go to a bank and state that I would like to pay my taxes by credit, they would throw me out.
Big companies often float their future tax payments in the repo market to earn some return before the payments are due.

When the payments are due, they stop lending on those markets and use the cash to pay their tax bills.
 

Silverfox148

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We've probably seen the last recession in our time until the system actually goes full on bust which means it's probably won't matter what kind of paper real/digital you are holding.

The Fed and the government just can't afford to have another recession for political/stability reasons, it's money printing/injecting from now on until it blows(which can be a very very long time).
 

MJ DeMarco

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Current repo investments by the Fed are well above their highest point prior to 2008, which occurred about two months before Lehmann Brothers collapsed.
29415
 

SarahO

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Here's the issue...

There are drastic measures that the Fed can take to fight off market instability in the short-term. Specifically, they can inject ridiculous amounts of money into these markets and start additional QE.

In fact, they're already doing it:


The big question is how long that will those drastic measures keep the underlying issues from catching up to the markets. Days? Weeks? Months? Years?

Nobody knows exactly how long we can manipulate and buy our way out of a major liquidity crunch and a potentially really bad market downturn. But, at some point, the underlying liquidity issues are going to catch up to us and things are likely to get ugly.

And the longer the Fed takes drastic actions to avoid it, I'm guessing the worse it's going to be.

But, again, the issue is that the *when* is anyone's guess...

Now, if you had a crystal ball and knew when, the answer would be to sell any equities you own prior to it happening. Sell off any non-cash flowing real estate. And move to cash.

But, even that isn't necessarily the right strategy. If it were a major crash (not saying it will be, but *if*), or if that crash were coupled with major inflation, you might not want to be in cash either.

Long story short, nobody knows when or how bad, so there's no reason to take drastic measures just yet (in my opinion). But, I'm already starting to hedge, I'm out of equities, I'm holding a lot of cash and I'm happily buying some gold and silver (some physical, but mostly funds/ETFs).

Oh, and it appears a lot of other investors are starting to hedge as well:

I’ve also been told that instead of just trying to time the market, I should be rebalancing to asset classes based on targets (which are determined by my age). Allows me to take profits on the way up, and rebalance to assets that are cheaper.
 

nitrousflame

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Current repo investments by the Fed are well above their highest point prior to 2008, which occurred about two months before Lehmann Brothers collapsed.
I've been hearing rumors lately that Deutsche Bank may be the primary recipient of the Repo operation. So far the only supporting evidence of this is from the more conspiracy leaning sites/channels, but then I stumbled across this article from Reuters:

From the article:
“We reaffirm our expectations that the Fed could test this facility later this year and launch it for full-scale operations in early 2020,” Deutsche Bank strategist Steven Zeng wrote in a research note published late on Friday.
I find it quite interesting that back in July, two months before the September spike in overnight rates, Deutsche Bank and Citi were predicting that the Fed would soon start testing a repo program.

Coincidence? Perhaps, but it also seems to poke a giant hole in the notion that this action from the Fed was in any way a "surprise."
 
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JScott

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I've been hearing rumors lately that Deutsche Bank may be the primary recipient of the Repo operation.
I would not be surprised. Deutsche has been a shitshow for a while. I know hedge funds closed their prime brokerage accounts with Deutsche back in 2016 after all the bad news. They were afraid it might go under. Seems like it has gotten worse since then. Unfortunately they are too big to fail so if they go kaput, everyone will feel it.
 

James Fend

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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.
Posted this after that "oil refinery attack" a few months ago. Inevitably, we have yet again another conflict. Which... surprise; gotten just a bit worse and as a result raises the price of oil. Knock on the doors enough and the door falls down. Will surging oil prices that will inevitably happen (due to Iran and US) whether a year from now or a month from now; will it be the catalyst for a recession?

My guess: Low chance, but interesting to see it becoming more and more of a "never saw it coming" type of possible catalyst.

But with January being a traditional "high volatility" for markets type of season; it will be interesting to watch!

Either way: 2020 is starting out with a bang.

p.s. - For the mid-term.. My bet is still on Gold. And *grits teeth* maybeee..... even a 80% Bitcoin rally to $11,700 to fill that CME gap.
 

Michael Burgess

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I think I've recently had my tinfoil hat wiggled on too tight...

Over the last couple days, I've gone deep into listening to more content (Peter Schiff, Mike Maloney, etc) reminding me of how the economic system actually works. The Federal Reserve (a non-government group) prints money out of thin air, loans it into a banking system that allows the monetary supply to expand via fractional reserves, and robs wealth from real economic wellbeing through inflation. The US dollar is just a fiat currency based on nothing more than the promises of a government, and it sounds like the majority of the US economy is dependant on cheap and easy credit to survive.

I don't know nearly enough about macroeconomics or the history of money to speculate, but I've definitely had some thoughts of liquidating assets and buying a bunch of gold, silver, guns, and seeds lately hahaha
 

c4n

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My major takeaway from the past two years is: don't try to time the market.

I've been out of stocks for the past two years because of my fear of an impending crash. In retrospective (I know, I know, hindsight is 20/20) it would have been much wiser to have some skin in the game and take partial profits on the way up while rebalancing into cheaper assets, as @SarahO wisely mentioned.

Luckily I had some success in crypto and in some bonds with very low liquidity, but a good chunk of my money could have been used better than sitting in a bank at < 0.50% interest rates.
 

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My major takeaway from the past two years is: don't try to time the market.

I've been out of stocks for the past two years because of my fear of an impending crash. In retrospective (I know, I know, hindsight is 20/20) it would have been much wiser to have some skin in the game and take partial profits on the way up while rebalancing into cheaper assets, as @SarahO wisely mentioned.

Luckily I had some success in crypto and in some bonds with very low liquidity, but a good chunk of my money could have been used better than sitting in a bank at < 0.50% interest rates.
yep. I’ve come to understand that we can’t predict these things. The Fed can support the market for a long time, and they have continued to do so.

Also, most people understand this, but the younger you are, the more you can accept the volatility, given that you don’t have to cash out any time soon (for retirement assets).
 
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JScott

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...listening to more content (Peter Schiff, Mike Maloney, etc)...
....
...I've definitely had some thoughts of liquidating assets and buying a bunch of gold, silver...
Always consider the motive when taking financial advice...

In this case, Peter Schiff has been a BIG fan of gold ever since he launched this...


And Mike Maloney owns this:


Not commenting on whether precious metals are a good investment or not -- just pointing out that the financial "gurus" aren't always offering objective advice...
 

msufan

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We've probably seen the last recession in our time until the system actually goes full on bust which means it's probably won't matter what kind of paper real/digital you are holding.

The Fed and the government just can't afford to have another recession for political/stability reasons, it's money printing/injecting from now on until it blows(which can be a very very long time).
I feel like there is some truth to this. And I'm not sure we're as far away from it "blowing" as you think.
 

Silverfox148

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I feel like there is some truth to this. And I'm not sure we're as far away from it "blowing" as you think.
I use to think the bubble just had to burst at some point, but when we look at the reality of the situation a market/economic crash would introduce true political instability beyond the blue vs red political wars, reform would be demanded beyond token measures. It's the same reaction you see with a child who is unwilling to bear short term pain for long term gain, there will be no more market crashes until the major crash, we may not get to see it during our lifetime.

Don't try to time this market, you are betting against the only major reserve currency. Forget all the talk about capitalism, moral hazard, and anything you may have learned school, it's all about the power and keeping it for the status quo. Better to ride with the current and enjoy the profits that are to be had.
 

Tossek

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I feel like there is some truth to this. And I'm not sure we're as far away from it "blowing" as you think.
I dont know. Most of the predictions are based that "the system" is going along as usual. But we are not in a stable system by definition and it is adaptive. For example, to some extend the repo market was not part of the discussion for several years. But starting in mid 2019 we see this big spike. The fed will decide whether this is more a delta function or a heavy side function ( short vs long time) and then it will have its effect. For the guys it is not to see the technical implications of their doing. In physics and engineering I need a close loop (measure and control) system to regulate for a certain value. Mostly FED uses interest rates for this. That is why we are discussing things like inverted yield curves here, or repo rates.

If I have one value to control and I know how to co troll it, that is simple. But the markets are adaptive. A tool that worked 20 years ago might not work the same way anymore.

I do not want to be a fed representative, I stick with my machines.

if they find major flaws they have to fix the system, integrate a new mechanism and usually this is preceded by a big bust. We can ask why? Look, it is similar how AIs work. You build up a neural network and train it for example to run along a path, underneath filled with lava. Everytime the ai failed, you reset the system and start from zero until you find your perfect match of regulating parameters. But you have to start from zero. In economics you cannot, and here we have to do huge efforts to reset our system to "working" mode again where we thing we can run it smoothly again.

Just my engineering perspective...
 

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