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NOTABLE! The Coming Recession (2019-2020?)

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KenCorigliano

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My report again, will reflect the strength of the economy because it is based on many psychological factors that completely dictate its health. It's not a copy and paste of data, but the emotions those elicit.

analysis ^3
Now 2021 and 2022 could be a different story. But the more we talk about that the more prepared we can be. It's fun to look at all the posts in here from two years ago and people very adamant that a recession will occur "in two months". I'm not smart enough, and I think no one is, to make such predictions.

I might start another post on 2021-2022. Why is this different? Well China.

My circle of folks and myself are not sure how the Chinese intend to avoid or circumvent some issues that are coming down the line in 10-15 years that a major milestone occurs in 18-24 months.

I wouldn't be surprised if China starts a limited conflict within the next 18 months with Indonesia or some other (or multiple) export partners after bumping heads with contested territory. They will need to get the public's mind off of domestic issues and to reignite nationalism. I could see an intervention in Africa, Middle East, etc against some soft but tricky enemy. Not sure who or what that could be right now. The Chinese typically don't do anything new or unique, they are following the American playbook, wagging the dog isn't out of the realm of possibility. They're getting old and people's access to information is harder to control, so they have to do something to avert an economic crisis.

I will tell you there is also another development happening in 2 years that will change the game and threaten the entire fabric of the CCP. Any disturbance domestically could be a big deal. A Chinese civil war could be very costly for the global marketplace, those exposed in this area could really be pummeled and judging how asset managers navigate the next two years will help determine the recoil the US economy will experience. Whatever had a hiccup with coronavirus outbreak, I'd say to get out of anything within two degrees. The risk is quite high. I haven't met any analysts who have a favorable outlook of China (10-15yr), unless they pull off something that culturally we couldn't stomach. There is one fact which is national debt. I wouldn't put it past them to erase a majority of Chinese citizens' savings. They pretty much operate like that anyway. Not sure if the public would stand and fight. We did as Americans, but the Chinese may not. They have to rapidly move to a consumption-based economy in order to help stabilize against the incoming disruption. They are doing this now.

Access to information is lock, how to properly analyze it is key.
 

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socaldude

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Though I do understand why certain people will say the economy is awesome -- it's typically because they have a financial interest in those they are speaking with to believe it.
Yeah true, people judge the economy from their own perspective and interests. If you have ownership in stocks then yeah its going good. But most people will deny we are a in a good economy because they make $1.50 more per hour.
 
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JScott

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It falls to the same fallacy that the Scripted masses subscribe to. It's not necessarily his fault, but it is now, since this should explain a bit. But I make the case his feelings are extremely important and relevant.

The strength that I measure this economy, which by the way is presented to the Joint Chiefs of Staff, POTUS, and several other consumers. I'm not here to impress you, but to impress upon you that the strength is measured in its ability to sustain itself through stress. To measure strength in physiology you measure it against the stressors it is able to sustain--fitness. Strength isn't a good term. I don't use it but the masses do.
Wow, honestly that is the most self-indulgent drivel I have read in a really long time (followed closely by the rest of what you wrote in that post).

When people are saddled with loans, they tend to work longer and not default as much over the wide spread of all the loans, payments trickle in. They pay so much on interest the guarantors really don't care as much for a certain amount of defaults because many folks will be relieved to get some break, then rejuvenated to repay.
While I wasn't going to respond to your post, I thought it was important that I at least give everyone else reading this thread some context on whether what you wrote made any sense or not.

I chose your passage above, as I believe it's the most "interesting" point you made...

Obviously, debt will drive an expansion. Debt (or credit) merely drives future consumption forward, allowing people to spend money that hasn't yet been generated by production. Debt allows us to spur the economy over and above what actual production has thus-far created. That's going to propel an economy short-term.

But, that's not what you're saying above -- you're arguing that overleverage and too much debt (people "saddled with loans" as you put it) is good for the economy. And that is antithetical to nearly all evidence gathered over the past 120 years since this idea of economic cycles emerged.

There's a reason why the economic "business" cycle is also referred to as the "debt cycle" -- this isn't a coincidence. Economies ebb and flow based on debt accumulation (during expansions) and debt discharge (during recession).

If excessive debt were good for the economy, then even more debt should be more good...right? And if that were the case, we would never see mass default of debt or deleveraging? The accumulation of debt would keep powering the economy, making it stronger and stronger until we ran out of credit! But, that's the exact opposite of what happens, isn't it?

There's a reason why the cycle of overleverage leading to inflation leading to tightening monetary policy leading to recession has played out over 30 times in the past 150 -- literally once every five or six years since this nation reached economic maturity.

But, don't take my word for it. There are some very good books written on the topic, by some very reputable people (who are much, much smarter than I am). Here's a book I highly recommend:

Big Debt Crises: Ray Dalio: 9781732689800: Amazon.com: Books

Just because the title by-itself refutes your assertion doesn't mean you shouldn't read it. Again, I think you'd find the history quite eye-opening.

Don't feel like reading a whole book? Here's a 30 minute video summary from the same author:

View: https://www.youtube.com/watch?v=PHe0bXAIuk0&feature=youtu.be

I guess if you want or need to argue that we are currently in the greatest economy ever (to help further your political or financial ideology), it helps if you can make the argument that being the most overleveraged we've ever been is a good thing. But, to date, I haven't heard anyone reputable make the argument that overleverage makes for a good economy.

I don't have the energy to argue with you, but if you decide to write any books on this topic that support your assertions, please let me know, and I'm happy to read them.

Btw, you list your location as Washington, DC area. You don't happen to work for the government, do you? Because that would certainly explain the need to justify "the greatest economy ever!" :rofl:
 
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lewj24

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I would agree with the statement the economy is the best it's ever been
Yea when you look at the inflated stock prices. In real terms it's nowhere close. How many people have the 50's lifestyle nowadays where the man of the family can make enough right out of high school to support a family, house, car etc...

When people are saddled with loans, they tend to work longer and not default as much over the wide spread of all the loans, payments trickle in. They pay so much on interest the guarantors really don't care as much for a certain amount of defaults because many folks will be relieved to get some break, then rejuvenated to repay. Banks fail on runs not on not getting student loan money back. I haven't see facts to justify why anyone should be afraid of the debts arguments. This is just one minor example addressing why anyone would fear economic fitness because people are racking up debt. The subprime mortgage crisis was not so much one of debt, because that's what we remember and despite the above bumper sticker of getting off Fox or other news and doing our own research, these people have no idea why it actually occurred. Here's a perspective.
Sorry man but this whole paragraph is wrong. Not to burst your bubble but the housing bubble blew up because of defaults on low interest rate mortgages. If default doesn't matter then why is it illegal to bankrupt out of student loans? Oh yea because it matters! Banks don't fail because of bank runs silly. They fail because the money they loaned out didn't get paid back to them. Then people find out and then panic and cause bank runs. The bank runs in the great depression were caused by the banks losing money because it lent to a bunch of farmers who couldn't sell their crops after the trade war started.

- Inflation is probably around historic averages, but has missed the Fed's 2% target for several years now, and there's a lot of economists who are concerned about stagflation. Even pumping trillions of dollars of QE into the markets doesn't seem to be helping. I'd say this is a concerning data point, but nothing to be too alarmed about just yet.
This is about the only thing I disagree with you on. Inflation is insane. The gov't is lying to make their numbers look better. Think of all the numbers that look better just because we can't see the inflation in them. That's why everyone is so confused with the statistics. It's a bunch of invisible inflation.
 
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James Fend

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@KenCorigliano @JScott - Great points by both of you.

With all due respect @KenCorigliano there are some points I agree with, but there are several I don't. I think you are greatly under-estimating China, and there appears to be some bias instead of looking at things for what they are in a neutral perspective.

I would caution to pull yourself "out of your own mind" and see if you are feeling "invincible". Imo; I think being too far left, or too far right greatly handicaps one to move well in all aspects of life, especially in markets and financials. In this case, imo, you are right in the cluster of the primary sentiment group that is approaching the final stage of greed and then into invincibility.

With that said; I do agree that with so many (especially Millennials) expecting a Recession since 2018, that the opposite would happen and markets would fly. However, the public interest in the term "recession" is what I call "dead" stage; meaning it has lost it's huge public fear and trending towards greed/invincibility that the economy will not recess. Whenever something is "dead", it means its dribbling on the bottom, found a floor, and just awaiting to explode back onto the scene.
 
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JScott

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This is about the only thing I disagree with you on. Inflation is insane. The gov't is lying to make their numbers look better. Think of all the numbers that look better just because we can't see the inflation in them. That's why everyone is so confused with the statistics. It's a bunch of invisible inflation.
Yup, you're absolutely right, and I'm always torn between relying the data that's released and coming up with some gut-generated number that seems more right, but that isn't supported by the publicly-released data.

I've read estimates of 5-7% inflation over the past 20 years, and while it's probably not that high (though maybe), I agree with you the numbers being released aren't accurate. Even the BLS has indicated that they have changed their methods of calculation here, so obviously the numbers being released can't be considered apples-to-apples on older data...though like you said, it's probably worse than that.
 

scottmsul

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Yield curve starting to invert again. 10yr still higher than 2yr though.

1581434346234.png
 

Kevin88660

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Now 2021 and 2022 could be a different story. But the more we talk about that the more prepared we can be. It's fun to look at all the posts in here from two years ago and people very adamant that a recession will occur "in two months". I'm not smart enough, and I think no one is, to make such predictions.

I might start another post on 2021-2022. Why is this different? Well China.

My circle of folks and myself are not sure how the Chinese intend to avoid or circumvent some issues that are coming down the line in 10-15 years that a major milestone occurs in 18-24 months.

I wouldn't be surprised if China starts a limited conflict within the next 18 months with Indonesia or some other (or multiple) export partners after bumping heads with contested territory. They will need to get the public's mind off of domestic issues and to reignite nationalism. I could see an intervention in Africa, Middle East, etc against some soft but tricky enemy. Not sure who or what that could be right now. The Chinese typically don't do anything new or unique, they are following the American playbook, wagging the dog isn't out of the realm of possibility. They're getting old and people's access to information is harder to control, so they have to do something to avert an economic crisis.

I will tell you there is also another development happening in 2 years that will change the game and threaten the entire fabric of the CCP. Any disturbance domestically could be a big deal. A Chinese civil war could be very costly for the global marketplace, those exposed in this area could really be pummeled and judging how asset managers navigate the next two years will help determine the recoil the US economy will experience. Whatever had a hiccup with coronavirus outbreak, I'd say to get out of anything within two degrees. The risk is quite high. I haven't met any analysts who have a favorable outlook of China (10-15yr), unless they pull off something that culturally we couldn't stomach. There is one fact which is national debt. I wouldn't put it past them to erase a majority of Chinese citizens' savings. They pretty much operate like that anyway. Not sure if the public would stand and fight. We did as Americans, but the Chinese may not. They have to rapidly move to a consumption-based economy in order to help stabilize against the incoming disruption. They are doing this now.

Access to information is lock, how to properly analyze it is key.
If things are so great why are radical populists running ahead in polls now...

Right wing nut-Trump
Left wing lunies- Bernie and Elizabeth.

There are so much angers on the ground that the politicians know. So much for the low unemployment, low inflation and record high stock market price.
 

KenCorigliano

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If things are so great why are radical populists running ahead in polls now...

Right wing nut-Trump
Left wing lunies- Bernie and Elizabeth.

There are so much angers on the ground that the politicians know. So much for the low unemployment, low inflation and record high stock market price.
Value gap. Read the books.
 

KenCorigliano

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@KenCorigliano @JScott - Great points by both of you.

With all due respect @KenCorigliano there are some points I agree with, but there are several I don't. I think you are greatly under-estimating China, and there appears to be some bias instead of looking at things for what they are in a neutral perspective.

I would caution to pull yourself "out of your own mind" and see if you are feeling "invincible". Imo; I think being too far left, or too far right greatly handicaps one to move well in all aspects of life, especially in markets and financials. In this case, imo, you are right in the cluster of the primary sentiment group that is approaching the final stage of greed and then into invincibility.

With that said; I do agree that with so many (especially Millennials) expecting a Recession since 2018, that the opposite would happen and markets would fly. However, the public interest in the term "recession" is what I call "dead" stage; meaning it has lost it's huge public fear and trending towards greed/invincibility that the economy will not recess. Whenever something is "dead", it means its dribbling on the bottom, found a floor, and just awaiting to explode back onto the scene.
Ok look...just because you're rich or a fast laner, doesn't mean you are right or have the right to think you're right.

I have no dog in this fight. This is what I do for a living and I'm very particular to stay center unless facts push me elsewhere. I'm using this an exercise to hone my ability to train folks in the art of advanced critical thinking and third and fourth order effects analysis. Most people are tremendously wrong about a lot of things, prediction is very very difficult. And when those who affect the process begin to predict the process, they change the outcome. That is very hard to deal with in forecasting. I've made one dangerous assessment and it is going against many of the folks on here. But I am an expert in this, it's my field. There has to be a lot of things happening to cause a "recession."within the next 10 months. I'm actually questioning many posters on here if they even realize what that means. That would take a lot. I don't see any of those factors happening, especially during an election year after a failed impeachment and an outbreak handled very well by the US. We are doing very well. We could be causing all kinds of damage and distruction to ourselves and we're not. If you haven't been overseas, in some of the most terrible places on the planet, you won't realize your Starbucks coffee that is 3 degrees cooler than you like it, isn't a crisis. Am I optimistic, F*ck yea. The health of the economy is one of PERCEIVED VALUE. I get a lot of value out of being an American, in America.

As easy as it is to copy and paste numbers from sources that actually gather them from folks like those on my teams, there are no assessments. You have to step it forward. The list of numbers above does nothing, just like the number of the Dow Jones Industrial Average, it means nothing. What I tend to do with these kinds of personalities is ask, "ok then what?" And after two of those questions, they are left staring blankly because they really don't know how to walk the dog back. This is a lesson on critical thinking. Even folks in Congress and moderately high executive branch officials have broken logic chains.

I'll use your own advice: Random Rant #1: Never Argue with a Slow Laner In the world of critical thinking there are lots of slow laners. Read Freakonomics, Superforecasting, Accidental Superpower, and the Absent Superpower, you may enjoy the reads.

Regression analysis can bring us some good data and then we can reverse (forward) engineer those to find similar facts today but that simply doesn't work. I read many of these people's posts, including yours from years, even decade or more ago and the same bias exists. Even MJ gave Twitter 18 months to live as well as many predictions that were not just wrong but disastrously wrong. Betting against Twitter made a lot of sense, the platform was way too simple, and didn't appeal to guys like him or maybe you, but the billions across the planet with primitive cell phones and slow data connections and government entities across the globe with no IT budgets and no way to mass message their constituents? GOLD. These are the factors I take into consideration. It's not sexy but neither is the first 3/4 of trying to be un scripted.

So keep your posts on here with the predictions and we'll see what happens.

Here are many news articles totally against what I'm saying. There are a lot of reputable sources here:

One year ago:

Two years ago:
Hedge fund billionaire: 70% chance of recession before 2020 election [yes that's Ray Dalio predicting Recession that should have happened two months ago]

Here are articles with keyword "recession" in Google indexed news articles since 2008:
30378

Here are web searches on Google with "recession" related terms since 2004:
30379

There are some similarities I do acknowledge that. News articles can only be analyzed by their time-frame. Look at the graph and you will see that much news came at the time to exacerbate the situation in 2008-9 whereas since late 2018 articles have been circulating, with a height at which time Dalio made his predictions.

Hopefully this sheds a little bit of light on this. I think I'll be moving over to the Insiders forum to get a bit different perspectives and go more in-depth. Oh could there be a stinging correction, yes. Do I have cash on hand to take advantage of one, yep. A recession though, if it hits, will hurt. But if you positioned your finances in October 2018, you would have taken a LOT off the table in gains in 16 months depending of course what instrument you held, but S&P 500, October 2018 ~$2600; S&P 500 today $3,357.75 . That's 33%, without returns.

So take a picture of your bank accounts or brokerage accounts that show you moving your assets from stocks to cash or whatever you are doing in anticipation of your predictions. I'll show you that I am 78% "short term" meaning high risk.

30380

You can also see in another account I am very much lopsided in short term as well.
30381

So let's see it. Let's see your accounts in all cash in anticipation of the recession.
 
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lewj24

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But I am an expert in this, it's my field
You are no expert. Your words don't back it up. You say a lot of words with little substance and think bank runs are why banks fail..
 

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James Fend

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Ok look...just because you're rich or a fast laner, doesn't mean you are right or have the right to think you're right.
Hey Ken, absolutely agree. Someone's opinion does not rank higher regardless of what rank, class, etc. they are. Just to let you know (maybe it came across that way, although I didn't think it did), I personally am not this way. I do not think I am rich, and I definitely don't feel any superiority from being a forum OG. I like to think I am actually the polar opposite!

I am wrong ALL THE TIME! And I try to be the first to own up to it! Anyways...

I agree with some of the stuff you mentioned in your post, and I also dis-agree with some. I think you make some Great points, and even if some I don't agree, it is very enlightening as I absolutely enjoy other perspectives!

I think maybe some of your points were concluded without looking at both sides and only one. And I put my guess and opinion on your sentiment compared to where I think we might be in the cycle. I am absolutely not married to the idea that I am right, nor am I married to the idea that I am wrong. It's merely just my opinion. I honestly don't get a kick out of saying "I called it!" even when I am right sometimes.

Me and @JScott butt heads all the time lol. And I'm sure he and others eye-rolls tons of my posts, but at the end of the day.. I fully respect his knowledge & experience. I think he respects some of mine?? (maybe? lol). But either way, your insight is valuable to me just as any others in this thread.

Anyways, I got a kick from my old post you linked to. Wow! That was 11 years ago, and I was hesitant to read it since I cringe on ALOT of stuff I've said/done in my youth days including my early 20s haha. Reading that old post wasn't so bad so I guess I am saved on that one lol.
 

James Fend

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On another note: I still think stocks and markets have a strong sell off starting this week.

I think the down-playing of the Coronavirus and it's impacts on economies by any govt. official can only hold on for so long before the real ripples kick in.

On that note... I mentioned awhile back in this thread when it first out-broke that the death count would be greater than 800+ merely due to calling govt. officials "bluff". And I, for one, am extremely saddened that indeed it became reality.

There was a post by @AgainstAllOdds in another thread I glanced at that shared the same sentiment as mine.

The deaths are very real over there in China. They are real people, real humans. Real families torn apart. They are completely devastated and it breaks my heart to think of what they are going through.

F*ck business, F*ck supply chain, F*ck delays, F*ck guessing or thinking of the virus from purely just a financial market stand point (me included)... these are just minor speed-bumps compared to their absolute chaos.

When it first broke out, I reached out to all my China manufacturers and suppliers of both past and present. And I reached out to them again. I mentioned Zero about business and all about their well-being. Luckily, none are directly impacted from a health standpoint.
 
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KenCorigliano

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Hey Ken, absolutely agree. Someone's opinion does not rank higher regardless of what rank, class, etc. they are. Just to let you know (maybe it came across that way, although I didn't think it did), I personally am not this way. I do not think I am rich, and I definitely don't feel any superiority from being a forum OG. I like to think I am actually the polar opposite!

I am wrong ALL THE TIME! And I try to be the first to own up to it! Anyways...

I agree with some of the stuff you mentioned in your post, and I also dis-agree with some. I think you make some Great points, and even if some I don't agree, it is very enlightening as I absolutely enjoy other perspectives!

I think maybe some of your points were concluded without looking at both sides and only one. And I put my guess and opinion on your sentiment compared to where I think we might be in the cycle. I am absolutely not married to the idea that I am right, nor am I married to the idea that I am wrong. It's merely just my opinion. I honestly don't get a kick out of saying "I called it!" even when I am right sometimes.

Me and @JScott butt heads all the time lol. And I'm sure he and others eye-rolls tons of my posts, but at the end of the day.. I fully respect his knowledge & experience. I think he respects some of mine?? (maybe? lol). But either way, your insight is valuable to me just as any others in this thread.

Anyways, I got a kick from my old post you linked to. Wow! That was 11 years ago, and I was hesitant to read it since I cringe on ALOT of stuff I've said/done in my youth days including my early 20s haha. Reading that old post wasn't so bad so I guess I am saved on that one lol.
Love it. For me, immersing myself in these conversations greatly matures my thinking and ability to communicate with folks who have differing opinions. I really appreciate the post. This is one of the first indicators that staying on this forum is worth the time investment.
 

KenCorigliano

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You are no expert. Your words don't back it up. You say a lot of words with little substance and think bank runs are why banks fail..
Arnold, please google Legrangian Relaxation, or click the link. It will help you understand why some items are simplified. Bottom-line banks fail when money due (out) exceeds money (in); with much consideration of personnel and real estate overhead.

The GAO performed a comprehensive review of Bank Failures. Financial Institutions: Causes and Consequences of Recent Bank Failures.

My note above about lack of analysis is cited in the Executive Summary:
"The Department of the Treasury and the Financial Stability Forum's Working Group on Loss Provisioning have observed that the current accounting model for estimating credit losses is based on historical loss rates, which were low in the prefinancial crisis years. They said that earlier recognition of loan losses could have potentially lessened the impact of the crisis, when banks had to recognize the losses through a sudden series of provisions to the loan loss allowance, thus reducing earnings and regulatory capital. The Financial Accounting Standards Board has issued a proposal for public comment for a loan loss provisioning model that is more forward-looking and focuses on expected losses, which would result in banks establishing earlier recognition of loan losses for the loans they underwrite and could incentivize prudent risk management practices. Moreover, it should help address the cycle of losses and failures that emerged in the recent crisis as banks were forced to increase loan loss allowances and raise capital when they were least able to do so."

"Second, GAO's econometric analysis of call report data from 2006 through 2011 found that failing small banks extended progressively less net credit as they approached failure, and that acquiring banks generally increased net credit after the acquisition. However, acquiring bank and existing peer bank officials GAO interviewed noted that in the wake of the bank failures, underwriting standards had tightened and thus credit was generally more available for small business owners who had good credit histories and strong financials than those that did not. Third, officials from regulators, banking associations, and banks GAO spoke with said that involvement in local philanthropy declined as small banks approached failure but generally increased after acquisition. Yet, these acquiring banks may not focus on the same philanthropic activities as did the failed banks. Finally, GAO econometrically analyzed the relationships among bank failures, income, unemployment, and real estate prices for all states and the District of Columbia (states) for the 1994 through 2011 period and found that bank failures in a state were more likely to affect its real estate sector than its labor market or broader economy. "

What this means in Legrangian perspective, people need the money to continue to circulate in the community, when the local bank shrinks that supply there is a compound effect. People still came to the bank for credit (not necessarily people running to the bank to withdrawal their savings, like I'm assuming you only are thinking this), but could not get the credit. This started suffocating the local economic ecosystem.

There you go. Read the report, like I did and you may understand more if you have the schema to do so, if not this could be a good foundation to begin with. And it's not CNN, it's actual real data from data scientists who job is to do this. They are the GAO so take that fact as a data point in the perspective.
 

KenCorigliano

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Arnold, please google Legrangian Relaxation, or click the link. It will help you understand why some items are simplified. Bottom-line banks fail when money due (out) exceeds money (in); with much consideration of personnel and real estate overhead.

The GAO performed a comprehensive review of Bank Failures. Financial Institutions: Causes and Consequences of Recent Bank Failures.

My note above about lack of analysis is cited in the Executive Summary:
"The Department of the Treasury and the Financial Stability Forum's Working Group on Loss Provisioning have observed that the current accounting model for estimating credit losses is based on historical loss rates, which were low in the prefinancial crisis years. They said that earlier recognition of loan losses could have potentially lessened the impact of the crisis, when banks had to recognize the losses through a sudden series of provisions to the loan loss allowance, thus reducing earnings and regulatory capital. The Financial Accounting Standards Board has issued a proposal for public comment for a loan loss provisioning model that is more forward-looking and focuses on expected losses, which would result in banks establishing earlier recognition of loan losses for the loans they underwrite and could incentivize prudent risk management practices. Moreover, it should help address the cycle of losses and failures that emerged in the recent crisis as banks were forced to increase loan loss allowances and raise capital when they were least able to do so."

"Second, GAO's econometric analysis of call report data from 2006 through 2011 found that failing small banks extended progressively less net credit as they approached failure, and that acquiring banks generally increased net credit after the acquisition. However, acquiring bank and existing peer bank officials GAO interviewed noted that in the wake of the bank failures, underwriting standards had tightened and thus credit was generally more available for small business owners who had good credit histories and strong financials than those that did not. Third, officials from regulators, banking associations, and banks GAO spoke with said that involvement in local philanthropy declined as small banks approached failure but generally increased after acquisition. Yet, these acquiring banks may not focus on the same philanthropic activities as did the failed banks. Finally, GAO econometrically analyzed the relationships among bank failures, income, unemployment, and real estate prices for all states and the District of Columbia (states) for the 1994 through 2011 period and found that bank failures in a state were more likely to affect its real estate sector than its labor market or broader economy. "

What this means in Legrangian perspective, people need the money to continue to circulate in the community, when the local bank shrinks that supply there is a compound effect. People still came to the bank for credit (not necessarily people running to the bank to withdrawal their savings, like I'm assuming you only are thinking this), but could not get the credit. This started suffocating the local economic ecosystem.

There you go. Read the report, like I did and you may understand more if you have the schema to do so, if not this could be a good foundation to begin with. And it's not CNN, it's actual real data from data scientists who job is to do this. They are the GAO so take that fact as a data point in the perspective.
The dramatic decline in the U.S. housing market that began in 2006 precipitated a decline in the price of mortgage-related assets, particularly mortgage assets based on nonprime loans in 2007. Some financial institutions found themselves so exposed that they were threatened with failure, and some failed because they were unable to raise capital or obtain liquidity as the value of their portfolios declined. Other institutions, ranging from government-sponsored enterprises such as Fannie Mae and Freddie Mac to large securities firms, were left holding “toxic” mortgages or mortgage-related assets that became increasingly difficult to value, were illiquid, and potentially had little worth. Moreover, investors not only stopped buying private-label securities backed by mortgages but also became reluctant to buy securities backed by other types of assets. Because of uncertainty about the liquidity and solvency of financial entities, the prices banks charged each other for funds rose dramatically, and interbank lending conditions deteriorated sharply. The resulting liquidity and credit crunch made the financing on which businesses and individuals depend increasingly difficult to obtain. By late summer of 2008, the ramifications of the financial crisis ranged from the continued failure of financial institutions to increased losses of individual wealth and reduced corporate investments and further tightening of credit that would exacerbate the emerging global economic slowdown.
 

Kevin88660

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This post has a lot of cleaning up to do. First "economy" is a nebulous term, but is the speaker focused on GDP and GNP, average wage earning, unemployment rate, inflation rate, savings rates, treasury rates, or a single or group of stock markets? So define what you're speaking about otherwise you're just ruminating about the water cooler. Overall the strength of the US economy is stellar. We are energy independent, internationally speaking, we are exporting a healthy amount, we are attracting talent more than everyone else, we're plowing away at patents, people are living longer, medical advances are in rapid succession, so yes for those not totally owned by their impulses, I would agree with the statement the economy is the best it's ever been. It is very solid. There are only three things that could really tear us down right now, three centers of gravity that the Hill is trying to figure out how to fix (just like our energy dependency). You can PM me if you're interested in that...
National debt is still climbing. Trade deficit is coming down largely due to taxing imports not factory jobs return. The median Level of liquid cash in bank for an American is less than 5k. This means that more than half of Americans are permanently in semi-liquidity crisis.

I do not see the point of “calling the next recession” because U.S. economy (and many western economies) have been in the zombie state ever seen 2008. There has never been a recovery. Talking about when the Fed induced stock market bubble will pop is a different matter because the stock market has evolved independently of the real economy for a long long time.

For me to be bullish on U.S. economy I must see the following happen.

1) Major devaluation of the U.S. dollar
2) Major debt restructuring
3) Repel of union friendly laws to attract factories to come back
4) Education reforms to increase high school education standard (improve pisa ranking)
5) Healthcare reform to lower medical cost
6) Social Security reform. Tell the seniors voters their cash payouts are getting cut

Since there is no political will to do the hard stuffs it is hard to get optimistic. All I see is kicking the cans down the road. Starting trade wars and cutting tax like Trump wont move the jobs back. You need real competitiveness for real money making ability.
 
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JScott

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biggeemac

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I'll leave this here:

Any thoughts on the effect on the real estate market? I was preparing to close on a house for investment purposes, but this kinda has me thinking.
 
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JScott

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Any thoughts on the effect on the real estate market? I was preparing to close on a house for investment purposes, but this kinda has me thinking.
During most downturns, rental real estate is local.

In addition, class of property matters. A-class and B-class property tend to hold up worse than C-class property or mobile homes. People tend to move to less expensive housing during a downturn, but don't generally give up their housing -- so lower class housing tends to do well.

In terms of location, places with diverse employment and population growth tend to do better than places with homogeneous type business and decreasing population.

But, if you buy the right property in the right location, you may find that rents and occupancy will actually go UP during a downturn.
 

KenCorigliano

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During most downturns, rental real estate is local.

In addition, class of property matters. A-class and B-class property tend to hold up worse than C-class property or mobile homes. People tend to move to less expensive housing during a downturn, but don't generally give up their housing -- so lower class housing tends to do well.

In terms of location, places with diverse employment and population growth tend to do better than places with homogeneous type business and decreasing population.

But, if you buy the right property in the right location, you may find that rents and occupancy will actually go UP during a downturn.
Wow someone read my post up there or just understands the situation, past MSNBC or worse GOLDMAN SACHS... I'm like is someone really quoting GS? And on real estate??

 

MJ DeMarco

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It’s over guys.
Care to be more detailed? I know you have a manufacturing business reliant on China. Something you seeing? Disruption of your business?
 

James Fend

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I've posted quite a few predictions based upon my fundamentals on this thread, and I think it's the wrong place to. I will now begin posting my analysis stuff on the Bitcoin thread instead.

My analysis takes on more of a non-traditional view and often contrarian and "crazy" completely illogical view that didn't add much or get attention here (which makes sense since this thread is based upon more technicals).
 
Last edited:
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JScott

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Any thoughts on the effect on the real estate market? I was preparing to close on a house for investment purposes, but this kinda has me thinking.
Btw, here's something I posted on Facebook this morning that sums up my thoughts on how to hedge a real estate downturn -- it's long, but posting it in case anyone finds it useful...

---------------------------

I was talking to an investor yesterday on the phone, and he half jokingly said to me, "I wish we could buy insurance for our flips that would pay out if the market crashed."

I explained to him that this basically exists. And I will explain it here in a bit more detail than necessary, so that you can apply this in other parts of your investing and business life as well (I promise to get to the take away eventually. )

The important thing to understand is that when it comes to asset classes -- different things you can invest in -- there's a statistical measure called "correlation."

When two asset classes have a high correlation, they tend to move up and down together. When one goes up, the other goes up. When one goes down, the other goes down. For example, gold and silver have a high positive correlation.

Asset classes can also have negative correlations. Meaning that when one goes up, the other tends to go down and vice versa. Gold and stocks, for example. When stocks drop, gold temps to go up. When stocks go up, gold tends to drop in value.

Which brings us back to the insurance discussion. When you buy insurance, insurance companies are very particular about how they invest that money. And they will often try to invest in assets that are negatively correlated to the insurance product.

For example, it's in the insurance company's best interest to take your hurricane insurance premium and invest it in something that will go up if there is severe weather (if they're at risk for lots of big payouts, they're at least making money on the investment of the premiums). This is called hedging, and ensures that the insurance company doesn't lose money both on a drop in asset value *and* having to pay out claims at the same time.

So, this brings us back to the question of how we can be insuring our active real estate investments from a market drop. Basically, if we invest in assets that are negatively correlated to the real estate market, we are providing our own insurance against a market drop.

So, that leads us to the question:

What asset class is the most negatively correlated to the real estate market going up?

And the answer is:

The real estate market going down.

In other words, if we make a bet on the real estate market going down, we can hedge against losing money with our active real estate investments should the market actually go down.

The other consideration is that we want to make a *long-shot* bet on the real estate market going down. By doing that, we spend a very little amount of money but get a big payoff if there is a catastrophic event. In other words, in most cases, we will lose that small insurance bet. But in a catastrophic situation, we'll get a big payoff.

Imagine if you're making $20,000 per month on real estate flipping. And taking $2,000 a month from that and betting against the catastrophic event. Most months you're going to lose the $2,000, but if and when that catastrophic event comes, your payoff could be $100,000.

It's costing you money every month that you may never get back, but it also lets you sleep well at night knowing that in a worst-case scenario you won't lose everything.

Which brings us to our takeaway...

What is that bet you can make on the real estate market going down that has high enough odds that you only have to spend a little bit to make a lot in a worst-case scenario?

The answer I like (there are probably others) is buying Puts against real estate-related stock options. To break down what that means, a Put is a stock market bet that a stock or fund will drop in value. If you buy a Put the correct way, you can spend a little money that you will typically lose completely, but in the case of a big drop in value of the stock or fund, would be worth a whole lot.

My favorite specific insurance bet is buying Puts in a fund called XHB. This is a fund that tracks the performance of homebuilders. If the real estate market starts to get hit, this fund typically falls quickly.

Every month, I take about 2% of my total perceived exposure in my active real estate holdings and I buy long-shot Puts for this homebuilder fund. Every month for the last year or so I have completely lost this bet, but I know that if the real estate market ever collapses, that that could pay off 20 or 30 times or more.

Just like any insurance, I will probably lose money on these bets long-term. But the key is that I will only be losing a little bit each month as opposed to a whole lot at once, smoothing my cash flow and my risk.

By the way, while it wasn't expected, the downturn in the market over the past week had a big impact on XHB, and I actually recouped much of my investment from the past year.

Keep in mind, this is not meant as investment advice. This is purely education and hopefully enough information to help you do your own additional research to figure out if and how you can protect yourself if you're concerned about any negative events in the real estate market or other markets you might invest in.
 

biggeemac

Gold Contributor
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Jun 25, 2011
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During most downturns, rental real estate is local.

In addition, class of property matters. A-class and B-class property tend to hold up worse than C-class property or mobile homes. People tend to move to less expensive housing during a downturn, but don't generally give up their housing -- so lower class housing tends to do well.

In terms of location, places with diverse employment and population growth tend to do better than places with homogeneous type business and decreasing population.

But, if you buy the right property in the right location, you may find that rents and occupancy will actually go UP during a downturn.
Thanks, we are actually having a bit of a hard time getting our financing to go through.
Btw, here's something I posted on Facebook this morning that sums up my thoughts on how to hedge a real estate downturn -- it's long, but posting it in case anyone finds it useful...

---------------------------

I was talking to an investor yesterday on the phone, and he half jokingly said to me, "I wish we could buy insurance for our flips that would pay out if the market crashed."

I explained to him that this basically exists. And I will explain it here in a bit more detail than necessary, so that you can apply this in other parts of your investing and business life as well (I promise to get to the take away eventually. )

The important thing to understand is that when it comes to asset classes -- different things you can invest in -- there's a statistical measure called "correlation."

When two asset classes have a high correlation, they tend to move up and down together. When one goes up, the other goes up. When one goes down, the other goes down. For example, gold and silver have a high positive correlation.

Asset classes can also have negative correlations. Meaning that when one goes up, the other tends to go down and vice versa. Gold and stocks, for example. When stocks drop, gold temps to go up. When stocks go up, gold tends to drop in value.

Which brings us back to the insurance discussion. When you buy insurance, insurance companies are very particular about how they invest that money. And they will often try to invest in assets that are negatively correlated to the insurance product.

For example, it's in the insurance company's best interest to take your hurricane insurance premium and invest it in something that will go up if there is severe weather (if they're at risk for lots of big payouts, they're at least making money on the investment of the premiums). This is called hedging, and ensures that the insurance company doesn't lose money both on a drop in asset value *and* having to pay out claims at the same time.

So, this brings us back to the question of how we can be insuring our active real estate investments from a market drop. Basically, if we invest in assets that are negatively correlated to the real estate market, we are providing our own insurance against a market drop.

So, that leads us to the question:

What asset class is the most negatively correlated to the real estate market going up?

And the answer is:

The real estate market going down.

In other words, if we make a bet on the real estate market going down, we can hedge against losing money with our active real estate investments should the market actually go down.

The other consideration is that we want to make a *long-shot* bet on the real estate market going down. By doing that, we spend a very little amount of money but get a big payoff if there is a catastrophic event. In other words, in most cases, we will lose that small insurance bet. But in a catastrophic situation, we'll get a big payoff.

Imagine if you're making $20,000 per month on real estate flipping. And taking $2,000 a month from that and betting against the catastrophic event. Most months you're going to lose the $2,000, but if and when that catastrophic event comes, your payoff could be $100,000.

It's costing you money every month that you may never get back, but it also lets you sleep well at night knowing that in a worst-case scenario you won't lose everything.

Which brings us to our takeaway...

What is that bet you can make on the real estate market going down that has high enough odds that you only have to spend a little bit to make a lot in a worst-case scenario?

The answer I like (there are probably others) is buying Puts against real estate-related stock options. To break down what that means, a Put is a stock market bet that a stock or fund will drop in value. If you buy a Put the correct way, you can spend a little money that you will typically lose completely, but in the case of a big drop in value of the stock or fund, would be worth a whole lot.

My favorite specific insurance bet is buying Puts in a fund called XHB. This is a fund that tracks the performance of homebuilders. If the real estate market starts to get hit, this fund typically falls quickly.

Every month, I take about 2% of my total perceived exposure in my active real estate holdings and I buy long-shot Puts for this homebuilder fund. Every month for the last year or so I have completely lost this bet, but I know that if the real estate market ever collapses, that that could pay off 20 or 30 times or more.

Just like any insurance, I will probably lose money on these bets long-term. But the key is that I will only be losing a little bit each month as opposed to a whole lot at once, smoothing my cash flow and my risk.

By the way, while it wasn't expected, the downturn in the market over the past week had a big impact on XHB, and I actually recouped much of my investment from the past year.

Keep in mind, this is not meant as investment advice. This is purely education and hopefully enough information to help you do your own additional research to figure out if and how you can protect yourself if you're concerned about any negative events in the real estate market or other markets you might invest in.
Thank you, thats actually very helpful. I own three properties and am in the process of closing on another. I will admit that my business is fairly unique in that I run a business out of the homes as opposed to flipping, but I still think about this scenario. If something reduced my property values by 20% give or take, it would not impact my business, but this is still great information.
 

elusive97

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Any thoughts on the effect on the real estate market? I was preparing to close on a house for investment purposes, but this kinda has me thinking.
I'm with ya Mac! My house goes on the market on Monday. All the estate agents in Jan/Feb told me they've never seen so many buyers on the market so I'm praying the virus doesn't put them off. It sucks conveyancing often takes 8-12 weeks or more in the UK, I'm more worried of a collapse mid-sale affecting things. I'm desperate to sell up, but don't wanna lose a lot of cash!

In addition, class of property matters. A-class and B-class property tend to hold up worse than C-class property or mobile homes. People tend to move to less expensive housing during a downturn, but don't generally give up their housing -- so lower class housing tends to do well.
Thanks for that insight, kinda reassuring. I'm selling a 'working class house' with good transport links in an increasingly gentrified area so I'm hoping even if the recession starts I can get 90% of the value. 80% or less and I'm at a huge loss :(
 

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