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NOTABLE! The Coming Recession (2019-2020?)

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Tossek

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VIX is currently down over 7%, and I'm not smart enough to know if this is a fake recovery or not.....(sigh) !!
Isn't it odd? At least 3 millions lost their jobs and it seems like stocks are up because the hope is that they are fed (pun intended) with money even more. It is sad that real economy and the stock market are sometimes so uncorrelated. I cannot believe that this is the level stocks priced in the near or mid range future.

Or, the bank's economic models are running wild and computer trading is lose because they cannot handle such heavy impacts and believe they are some kind of false negatives :-D
 

NovaAria

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It honestly feels unreal how disconnected from reality the stock market seems, these days.

Stocks are up and everything seems like its recovering when you look at the green numbers, but then you hear about people refusing to pay rent and landlords about to start doing their rounds with a gun in hand.
 

LightningHelix

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It honestly feels unreal how disconnected from reality the stock market seems, these days.

Stocks are up and everything seems like its recovering when you look at the green numbers, but then you hear about people refusing to pay rent and landlords about to start doing their rounds with a gun in hand.
Probably a blip in the market, due to confirmation of the 4T dollars about to get injected. I'm not entirely sure what to make of it, but I guess the idea that business won't go belly-up, because the government will save them encourgaes people to invest.

Expect some foreclosures soon and a drop in housing market, because i don't think housing is going to be excused during this time.
 

biggeemac

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Probably a blip in the market, due to confirmation of the 4T dollars about to get injected. I'm not entirely sure what to make of it, but I guess the idea that business won't go belly-up, because the government will save them encourgaes people to invest.

Expect some foreclosures soon and a drop in housing market, because i don't think housing is going to be excused during this time.
I hope you're right. I have cash.
 

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Unemployment claims for the last 50 years. I know this is just one variable of many but i think its an important one because its close to the human element.

I dont blame trump for wanting to reopen the economy as he obviously has a duty. Im guessing nothing will get back to normal until mid summer or if we hit peak infection but its ultimately up to the governors to reopen the local economies.

We can go either way but we are obviously at a heightened risk of a financial collapse.:wideyed:
 
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JScott

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It honestly feels unreal how disconnected from reality the stock market seems, these days.

Stocks are up and everything seems like its recovering when you look at the green numbers, but then you hear about people refusing to pay rent and landlords about to start doing their rounds with a gun in hand.
Keep in mind that any public information is going to be built into the stock market pricing within minutes. And all the information that's coming out -- unemployment numbers, people not paying rent, etc. -- is already expected and baked into the market.

Basically, the rise in the market today was a signal that the unemployment number wasn't than expected...
 

Silverfox148

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The stock market as thought of in a traditional sense is long dead, with stock buybacks, algos, confirmed government insider trading based on Covid-19 briefings, etc.
Juicing it up via trillions in stimulus, etc.

It cannot be thought as nothing more than a rigged game at this point, play but it's rigged.
I think we will see some major positive changes in the economy long term over this, people waking up the real value of their life and therefore time.
 

Vas87

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Won't this stimulus package just boost business profits slightly, but not increase spending by the consumers? So basically prolong the recession? Or am I just making shit up.
 
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JScott

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Won't this stimulus package just boost business profits slightly, but not increase spending by the consumers? So basically prolong the recession? Or am I just making shit up.
My guess (and it's just a guess) is that this stimulus package won't do much besides keep the economy (and the people within it) from going under. This won't be enough for businesses to generate profits; hopefully it will be enough for them not to go under.

As for the recession, it hasn't even been officially declared. And there's no telling whether the economy will come roaring back or will take a nose-dive (or somewhere in between) after all this is done.

I believe it will boil down to two things:

1. How long the lock down lasts; and
2. How much $$$ the government is willing to inject into the economy.

If we hit May 1, and we're still in lock down, that's when I would start to worry about longer-term impacts to the economy.
 

valuecreator

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Well, how long the lockdown lasts depends on how long the government wants it to go on, and I'm pretty sure they're willing to keep throwing money at the economy until the cow's come home.
 

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Yoda

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If we hit May 1, and we're still in lock down, that's when I would start to worry about longer-term impacts to the economy.
I doubt we could avoid longer-term impacts given current circumstances. A lockdown through April is just going to heighten them. We're already past short-term effects.
 

daivey

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Inflation is coming.

that's a sure bet.

Precious metals.
Miners.

They are going to get a big booost with negative interest rates.
 
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JScott

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Inflation is coming.

that's a sure bet.

Precious metals.
Miners.

They are going to get a big booost with negative interest rates.
Don't agree it's a sure bet.

Very possible? Absolutely.

But, there's more to consider than just the money supply. The Fed expanded the money supply to the tune of $4.5T after 2008 (25% of GDP), and the economy struggled to achieve the 2% inflation target set by the Fed for nearly a decade.

I'm certainly not worried about inflation short-term -- lack of demand will likely create deflationary pressure for at least the next few months. After that, it will depend on a lot of things:

- Does the Fed reverse QE?
- Do businesses see this crisis as an opportunity to reduce costs?
- Do businesses see this crisis as an opportunity to increase automation?
- Are investors going to be risk averse and hoard cash?
- Does the dollar start to waver as the world's reserve currency?
- On the supply side, do banks ultimately tighten up on credit/lending?
- What happens with trade deficits, tariffs and import trends?

All other things being equal, debt at over 100% GDP and QE at likely over 50% GDP isn't good by any means... But, I don't think inflation is inevitable in the short-term or mid-term, depending on a lot of other factors.
 

ZF Lee

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But, I don't think inflation is inevitable in the short-term or mid-term, depending on a lot of other factors.
Well, what are some major factors you have in mind?
 
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JScott

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Well, what are some major factors you have in mind?
I listed them in that same post:

- Does the Fed reverse QE?
- Do businesses see this crisis as an opportunity to reduce costs?
- Do businesses see this crisis as an opportunity to increase automation?
- Are investors going to be risk averse and hoard cash?
- Does the dollar start to waver as the world's reserve currency?
- On the supply side, do banks ultimately tighten up on credit/lending?
- What happens with trade deficits, tariffs and import trends?
 

Antti

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What if there would be a real shortage of basic necesseties? Could it quickly ramp up inflation? Some people are predicting that we could have a shortage of food in Europe later this year if the farmers and food industry are badly affected by the virus. I don’t think we are talking famine or anything but even half empty shelves in stores for prolonged period of time would be something that we in the west haven’t seen since the ww2. However, I don’t know how realistic this scenario is, maybe (and hopefully) it’s just fear mongering..
 
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GIlman

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I'm with you, @MoneyDoc. I sold one of my buildings (got a solid deposit and the transaction is locked in to close June 1st), and refinanced one of my properties to a lower rate as well. I've seen a lot of speculative and over-priced purchases happen, in my opinion, and think a lot of investors are going to get their a$$ kicked if the economy slows down.

I might be mistaken, but I feel a lot more comfortable consolidating all of my projects right now, and trying to stack cash + precious metals to prepare for the possible opportunities to come.
I’m just curious about something. I see people selling physical assets for paper. If inflation/stagflation kicks in the real estate market may suffer for a while. But I’m thinking the paper (money) market will as well. Real estate values will return. Paper never seems to.

is the plan to sell high and rebuy lower in the medium term. I feel I’d rather be in physical back assets (metals, property, etc) vs paper (money, bonds, etc).

@JScott what are your thoughts on outlook on different asset classes.
 
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levijean

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gold - up
govt bonds - up
cash - up
pretty much everything else - down
 

Envision

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I’m just curious about something. I see people selling physical assets for paper. If inflation/stagflation kicks in the real estate market may suffer for a while. But I’m thinking the paper (money) market will as well. Real estate values will return. Paper never seems to.

is the plan to sell high and rebuy lower in the medium term. I feel I’d rather be in physical back assets (metals, property, etc) vs paper (money, bonds, etc).

@JScott what are your thoughts on outlook on different asset classes.
I’d agree with you here GIlman, having hard physical assets in a time like this is one of the best things you can do. I’d imagine there will be more stimulus pushed through the government in effect devaluing cash and inherently increasing physical asset value over the coming months and years as the supply doesn’t increase in proportion. The same thing happened after 2008 - we had massive supply issues in real estate after the crash which forced values to crazy levels.
 

Michael Burgess

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I’m just curious about something. I see people selling physical assets for paper. If inflation/stagflation kicks in the real estate market may suffer for a while. But I’m thinking the paper (money) market will as well. Real estate values will return. Paper never seems to.

is the plan to sell high and rebuy lower in the medium term. I feel I’d rather be in physical back assets (metals, property, etc) vs paper (money, bonds, etc).

@JScott what are your thoughts on outlook on different asset classes.
The decision for me on that property was influenced by a few factors, and I made the decision several weeks before the Coronavirus issue broke out and become an obvious issue to me. I think the timing worked out in my favour though.

I have owned that property for just under 1 year, and with a relatively small amount of energy and money invested, had an opportunity to clear ~$60,000 in profit without needing to address some other issues I knew were coming up with it. I didn't want to put more time and money into the project, and felt like I'd reached a great return compared to effort invested.

Personally, I have been taking on a lot of new projects (and debts) over the last year as well, so it was an opportunity for me to de-leverage a bit, and get some more cash to work with. I'm actually closing on another multifamily property tomorrow as well, so I'll still have some exposure to any price inflation as a result of the economic stimulus.

I'm also holding physical silver, and think cash is a good place to be in the *short term* - I feel it's likely there will be a lot of deals that cold hard cash can scoop up quickly when others are panic selling.
 

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UnrealCreative

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A few questions then...

-Could this mean the end of the USD fiat system as it currently stands? I don't see how the fed could keep printing and handing out free money backed by nothing.

-If you're 100% cash, what would be the play? Wait until deflation when things are cheap and begin buying businesses, RE, metals, farmland, etc?

My knowledge of macroeconomics and how to manuever in financial meltdowns is embarrassingly limited.
 

GIlman

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A few questions then...

-Could this mean the end of the USD fiat system as it currently stands? I don't see how the fed could keep printing and handing out free money backed by nothing.

-If you're 100% cash, what would be the play? Wait until deflation when things are cheap and begin buying businesses, RE, metals, farmland, etc?

My knowledge of macroeconomics and how to manuever in financial meltdowns is embarrassingly limited.
I’m trying to find the article, but something happened that is going to probably impact the fiat currency in the mid to long term. It was a bloomberg article, but based onwhat they were saying the Treasury and Federal Reserve were significantly combined, giving the president a lot of direct control of monetary policy Directly.

anyone that has more expertise in finance can you weigh in on this?
 

levijean

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You guys realize that you're pricing assets in terms of a currency that's going to zero?

Playing violin on the deck of the sinking $Titanic.

Gold is not going up.It's the $ going down.
Its been on its way to zero since FDR took the USD off the gold standard in 1933.
 
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JScott

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I’m just curious about something. I see people selling physical assets for paper. If inflation/stagflation kicks in the real estate market may suffer for a while. But I’m thinking the paper (money) market will as well. Real estate values will return. Paper never seems to.

is the plan to sell high and rebuy lower in the medium term. I feel I’d rather be in physical back assets (metals, property, etc) vs paper (money, bonds, etc).

@JScott what are your thoughts on outlook on different asset classes.
As I said above, I'm not too concerned about inflation in the short-term, simply because there is going to be little consumer demand, which is generally needed as a driver of inflationary pressure. If nobody is buying stuff, businesses need to lower prices, not raise them.

But, it's certainly a longer-term risk, and you like pointed out, stagflation is also a risk. This is what happened with Japan back in the late 90s when they overextended their central bank and wasn't able to control the expanded money supply.

Now, if you think inflation is a risk, the easiest takeaway is that cash is the wrong place to be. The most basic fact about inflation is that it makes your $$$ worth less.

What assets do you want to hold in an inflationary environment?

Leveraged real estate (or leveraged anything) is the best asset. That's because when you get a loan against something, you lock in a payoff at the value of the currency the day you get the loan. But, if that currency is worth less tomorrow, you're now paying off the loan with fewer dollars.

I always find using extremes to be the best way to clarify these types of concepts...

Imagine you get a $500,000 loan against a piece of real estate today. And let's say we have hyper-inflation next month, and the value of the dollar falls off a cliff. Suddenly, a gallon of milk costs $10, gas is $20/gallon, etc. Everything costs 10x as much as it did today.

If this happens, wages have to keep pace. So, instead of you making $50,000 per year, you're now making $500,000 per year (10x as much, for the sake of this example). But, you've locked in that loan at $500,000 -- that used to be 10 years of salary for you...now it's just one year of salary! It's a lot easier to pay off that loan in inflated dollars.

Not to mention, your income from that property has increased based on inflation as well. If you were getting $1000/month in rent, you now may be getting $10,000 (again, based on our 10x hyper-inflation example). So your money isn't going as far, but your asset is generating more of it.

Which leads me to the second best type of asset -- anything that cash flows. As inflation increases, so does your cash flow from any cash flowing assets. Hopefully this increase is one-for-one, but even if it's not, it's still better than cash, which is dropping precipitously.

Finally, precious metals or anything with perceived intrinsic value is a reasonable offset of inflation. Gold, silver, guns, ammo, etc.

Worst asset classes? Paper. Anything tied to the dollar. Stock market. Etc...

All that said, please don't interpret this post to mean I think we're going to have hyper-inflation. That was just an example to make my point. I don't think that *today* this is a big risk.
 

lewj24

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Leveraged real estate (or leveraged anything) is the best asset.
Should there be a caveat where leverage is good during inflation as long as you have a fixed interest rate? In an inflationary environment wouldn't they raise interest rates if you have a variable loan? Making your loan cost way more?
 
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JScott

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Should there be a caveat where leverage is good during inflation as long as you have a fixed interest rate? In an inflationary environment wouldn't they raise interest rates if you have a variable loan? Making your loan cost way more?
Yes, having a fixed rate is important. That said, a couple things to consider:

1. Most variable rate loans (at least conventional and portfolio loans) will have a cap on the rate increase -- generally about 2%. So, even a modest amount of inflation will offset that.

2. I don't foresee rates increasing in the next few years, at least. We've been in a declining rate environment for two decades, and unless the Fed radically changes course, I think we'll stay near 0% for at least a good while. (This is just my opinion, of course...I could be wrong!)
 

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