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Yield Curves Invert in U.S., U.K

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Re: Yield Curves Invert in U.S., U.K

#401
post #325

Earlier quoted context omitted.

There are two things China has been doing for years that the WTO hasn't put an end to. The stated goals of the trade war include stopping those, which I can - as anything but a fan of anything to do with Trump - actually agree need to stop. I'm far from certain the scale and breadth of tariffs involved are necessary to stop them, but I agree those two practices need to stop. One of those is outright IP theft. One esp…

One of the things he campaigned on in 2016 was bringing manufacturing jobs back to the US for low-skilled workers. I can see that being a third thing this could possibly help.

It's possible, but tariffs against only China won't do much of that. There are loads of countries with relatively low wages that already supply things to US markets. India, Vietnam, Bangladesh, Pakistan, Mexico, Malaysia, Indonesia, and Thailand from the top of my head produce lots of things in US stores. Much of it is lower tech stuff like produce or textiles, but the shipping and investment pathways are already there. A threat of general tariffs on some goods might do more for that, but that would involve Taiwan, South Korea, Japan, and Europe for electronics, appliances, and automobiles.

Countries don't only impose import tariffs when trade wars get really ugly, either. Imagine all of OPEC hitting the US with export tariffs in their countries. Or imagine Mexico, Germany, Japan, and South Korea charging export tariffs on their car manufacturing for exports to the US. A 10% or 20% export tariff costs the consumer the same as an import tariff of the same amount, but the money goes to the exporting country's government, which if they want they can use to subsidize the industry being taxed. The target country can't credibly accuse you of dumping if you're intentionally charging them more than everyone else.

The US does a lot of outsourcing of parts and subassemblies. Then US companies import those to make into other products or assemble them into more complex systems. Those import costs go up under tariffs, and much of the demand goes down for the finished product when there are tit-for-tat tariffs to sell those overseas. Meanwhile if some country neither party is in a trade war with starts buying the parts and doing the final assembly, they can undercut US manufacturers' prices because they have lower taxes in place on those products.

It would take years to move all the vertical supply chains into the US and to do so would be extremely expensive. The low-cost labor from overseas would likely be replaced with factories with a much higher level of automation to keep the costs down. That's going to provide more professional jobs and highly skilled technical jobs and fewer low-skilled and trades jobs than people might like to imagine. All the while, the resources to build those new factories is higher from the tariffs unless we're building it all with domestic parts. There is no training program in place of which I'm aware to teach coal miners and steel mill workers to assemble things like motherboards and flat panel displays, either, which means the labor costs for those things is much higher than just the wages if those jobs aren't automated away.

Re: Yield Curves Invert in U.S., U.K

#402
post #392

Earlier quoted context omitted.

Regardless of the man himself, historically the "deep state" (for lack of a better phrase) has so much inertia that radical changes (even if desired) by the White House end up moderated. I think it's more correct to say that people are realizing that the old order under the president is gradually eroding and its moderating effects are weakening, which adds compounding risks (directly in the trade war stuff but also h…

I think the better phrase is simply "bureaucracy".

Sure, or "institutional memory/inertia". Or "policy debt".

Or "the normative power of the factual".

Re: Yield Curves Invert in U.S., U.K

#403
post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

> Point to consider is the effect of Quantitative Easing (QE). Here, the Fed buys long-term treasuries such as 10-years. This makes long-term rates appear lower than they would otherwise be.

It's not just that. The reason yield curve inversions tend to imply recessions is that it's an indication people are taking their money out of stocks and putting it into long-term treasuries. But China just announced a round of currency devaluation. With what's happening in Hong Kong on top of that, it makes people want to dump assets denominated in Chinese currency in favor of ones (like treasuries) denominated in other currencies like USD and GBP. So you get low supply and high demand and what happens? Low long-term bond yields.

Consider that recessions are typically caused by something. A decade ago it was the housing crisis, in the 1990s it was the dot com bust, in the 1980s it was savings and loan, in the 1970s it was the oil crisis, etc.

So what's the cause supposed to be? It can't be a trade war with China. Some tariffs on a few hundred billion in imports is tens of billions of dollars, which is a rounding error against a $20T economy.

There is also too much debt sloshing around which something has to be done about at some point (probably printing a lot of money), but that's been true for years and nothing about it is likely to change overnight one way or the other.

So what's the thing that's supposed to be causing this? Because without that it looks a lot like a misleading indicator.

Re: Yield Curves Invert in U.S., U.K

#404
post #382

Earlier quoted context omitted.

He used it as a tool, the companies became bankrupt, he got rich. I imagine he will get rich even if U.S. goes through a bankrupcy.

He didn’t “get” rich. He was born rich. He would have much more money today if he had passively invested it. The man is a managerial train wreck that’s been consistently burning untold wealth for 30+ years. Much of what he has left was gotten by repeatedly breaking the law, and somehow only ending up with civil liability instead of criminal convictions. Now he is actively wrecking the US economy and has somehow bulli…

I agree with you that passive investment would have got the same gains, but it's much easier to see in hindsight, it was not that easy to see beforehand.

He made money by burning other people and companies, but he came out quite well from it.

Re: Yield Curves Invert in U.S., U.K

#405
post #382

Earlier quoted context omitted.

He used it as a tool, the companies became bankrupt, he got rich. I imagine he will get rich even if U.S. goes through a bankrupcy.

He didn’t “get” rich. He was born rich. He would have much more money today if he had passively invested it. The man is a managerial train wreck that’s been consistently burning untold wealth for 30+ years. Much of what he has left was gotten by repeatedly breaking the law, and somehow only ending up with civil liability instead of criminal convictions. Now he is actively wrecking the US economy and has somehow bulli…

[deleted]

Re: Yield Curves Invert in U.S., U.K

#406

Earlier quoted context omitted.

I'm in the "worse than 2008" camp, mostly due to the reasons the OP gives. Another consideration is that our current expansion has been a very long one, and the longer an expansion goes on, the more fraudulent cruft accumulates, the cruft beings things like assets not marked to actual market value, money-losing businesses subsidized in various ways, and sometimes outright Madoff-like fraud. This cruft appears financi…

There isn't anything like the housing bubble right now. There's nothing that really allows people who shouldn't be able to borrow lots of money to borrow lots of money like housing did last time. What you're describing is just the normal stuff that happens in all recessions. And as much as we had a long boom, we also had quite a long painful recovery from 2008, it wasn't the same as normal recovery which explains why…

> There isn't anything like the housing bubble right now.

What do you think about the carbon bubble?

Re: Yield Curves Invert in U.S., U.K

#407

Earlier quoted context omitted.

Come on this guy is the president of the US people need to stop calling him ignorant and dumb just because they don't like aspects of his persona (racist/greedy/cunning/divisive). He is surrounded by aides and business people giving him information and trying to forward their own agendas. He's not just sitting there thinking "wouldn't it be fun to start a trade war to look tough". I respect Krugman as an economist bu…

Would it have been wrong to call King George III mad?

Perhaps not, but then, he wasn't elected in spite of everybody in the media saying he was stupid and would never win.

So now you keep saying he's stupid, and doesn't know what he's doing. I'll just keep reminding myself that he managed to get himself elected.

Re: Yield Curves Invert in U.S., U.K

#408
post #346

Earlier quoted context omitted.

First of all predicting a crash is a fool’s errand. It as much about emotions as it is about fundamentals. There’s a perfectly valid explanation for the valuation of Startups and the availability of capital for startups in the last 9 or so years. After 2008 crash, markets were stagnant until 2012. At the same time capital was being eased by govts worldwide. This capital has to flow somewhere. Tech startups were ripe…

This is an insightful comment. The reason why tech has done so well in the past 10 years is partially due to luck. While investment dollars continued to pile up post-2008, tech was one industry who had recently shown really impressive returns. As such, that's where the dollars flowed. My concern is what happens when a few of those unicorns fail (e.g. Uber)? If sentiment shifts enough, you might see tech suddenly beco…

How many employees does Uber need to operate? They could probably lay off 80% of their staff, keep the lights on, and the stock price will soar.

Re: Yield Curves Invert in U.S., U.K

#409
post #382

Earlier quoted context omitted.

He used it as a tool, the companies became bankrupt, he got rich. I imagine he will get rich even if U.S. goes through a bankrupcy.

He didn’t “get” rich. He was born rich. He would have much more money today if he had passively invested it. The man is a managerial train wreck that’s been consistently burning untold wealth for 30+ years. Much of what he has left was gotten by repeatedly breaking the law, and somehow only ending up with civil liability instead of criminal convictions. Now he is actively wrecking the US economy and has somehow bulli…

> He didn’t “get” rich. He was born rich.

"If you want to be a Millionaire, start with a billion dollars and launch a new airline." -- https://en.wikiquote.org/wiki/Richard_Branson

If you start with a lot you can deplete much of it before you have only a little.

Re: Yield Curves Invert in U.S., U.K

#410

Earlier quoted context omitted.

I think the rational definition of Deep State is just the government “lifers” who stay in significant spheres of influence for most of their career. I.e. key defense, intelligence, financial, etc positions.

The problem is that "Deep State" is a loaded term. You could very well argue that the N-word is a historically accurate (and Latin) way to describe African Americans. Instead of using "Deep State", it might be better to say "Agency Directors", if you wanted to use neutral language. "Deep State" is loaded. Of course, its more popular these days to value-signal which side of an argument you're on, rather than appearing…

So you don’t have to play ball in order to be cycled from public sector to private sector to high level government positions along with the attendant corporate lobbying to Congress on approving various government positions?

It’s a pipeline and someone has their hands on the valves.

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