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‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

nytimes.com

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Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#91

Post by Bartweiss »

simonsarris wrote: post #73

People often note, like another comment here notes: > since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago This is an interesting line of thinking, but I think it's a mistake. We can use this fact itself and circumscribe some meta-thinking around it. Put the same fact another way, this is arguing that the 1960's started a brand new paradigm that was mater…

This is a very good point. It's worth comparing to history, but it's also worth keeping an eye on when the old paradigm breaks.

The lasting booms starting post WWII surprised economists of the time. Stagflation was so out-of-model that the 1970s caused a major shift in economic theory. The list goes on.

And, of course, we already know that traditionally aligned indicators have been out of sync since ~2007. Productivity and wages broke lockstep in the 70s, wage growth has lagged employment growth to an unprecedented degree since 2009, the current consumer debt bubble is overwhelmingly student loan debt which is largely non-dischargeable and impossible to repossess.

There's an entire genre of thinkpieces arguing that the economy has been doing something unprecedented since 2008, a lot of which line up with your third theory where a strong stock market is basically a reaction to weak fundamentals in other investment categories. It's weird to see that abandoned when people try to do predictions from past indicators.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#93

Post by shams93 »

throwaway5752 wrote: post #78

The difference is that a powerful group of people is enacting policies that have triggered recession/depression in the past and no good historical precedent/academic support for working. It's seems kind of crazy to me we're ignoring that part. We're starting trade wars on multiple fronts, exiting or weakening multilateral alliances (and simultaneous giving an advantage to our global adversaries), and weakening the ba…

Ultimately they're not raising tariffs on end products, they're raising it on parts, but that will still cause inflation plus unemployment because tariffs on parts will drive production out of the US where it gets taxed on the way back in, so you'll both lose exiting US jobs while driving up the cost of products coming back in as you both make it impossible to produce in the US and also drive up prices.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#94

Post by cal5k »

marcosdumay wrote: post #90
cal5k wrote: post #42

An article from 2005 with the same prediction: http://money.cnn.com/2005/12/27/news/economy/inverted_yield_... The recession didn't happen until 2-3 years after that, making me question the utility of such predictions. "A recession will happen - eventually" is about as useful as predicting your own eventual demise.

There is something on the order of a decade between recessions. A signal with a 3 years error is actually useful here. If the signal is instead "there will be something in 2-3 years", that's instead a great signal.

As another commenter below astutely pointed out, with a mean time between recessions of 4.7 years you could blindly make this prediction every year and be right more often than not (with a 3 year window).

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#95

Post by ergothus »

rm_-rf_slash wrote: post #53
cal5k wrote: post #42

An article from 2005 with the same prediction: http://money.cnn.com/2005/12/27/news/economy/inverted_yield_... The recession didn't happen until 2-3 years after that, making me question the utility of such predictions. "A recession will happen - eventually" is about as useful as predicting your own eventual demise.

To be fair, the economy was still fairly strong by that point. It wasn’t until 06-07 that the subprime lending really got out of hand, and even though 07 was technically when the recession started, it didn’t become a full-blown panic until 2008 when Lehman Brothers and Bear Sterns collapsed. The yield curve is like seeing upturned leaves in the wind: a storm may coming, but it’s not clear when.

My knowledge of predicting recessions is unchanged, but my way of looking at leaves on the ground is forever changed...

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#96

Post by matte_black »

throwaway5752 wrote: post #87
tjr225 wrote: post #33

As someone who (I'm guessing like a lot of others who post here) didn't really have any financial responsibilities during the .com bust and the real estate bust, it will be interesting to have a neck in the game this go around!

This, in a nutshell, is why the human condition is so tragic. This won't be "interesting", believe me. Watch what happens when the body of startups funded by global pools of capital (which are the underlying source of capital for VCs) sees the NPV of software startups vanish as lower expected investment returns smack up against higher risk-free rates. The current software economy is incredibly leveraged and intertwin…

So when WeWork files for bankruptcy is that the signal to start moving into cash?

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#97

Post by melling »

tryptophan wrote: post #76
melling wrote: post #59

Earlier quoted context omitted.

The unwind of QE is just getting started. It’ll be interesting to see the impact.

If anything, unwinding QE would raise long term rates.

You are oversimplifying it.

Actually, no one knows the repercussions.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#98

Post by simonsarris »

Bartweiss wrote: post #91
simonsarris wrote: post #73

People often note, like another comment here notes: > since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago This is an interesting line of thinking, but I think it's a mistake. We can use this fact itself and circumscribe some meta-thinking around it. Put the same fact another way, this is arguing that the 1960's started a brand new paradigm that was mater…

This is a very good point. It's worth comparing to history, but it's also worth keeping an eye on when the old paradigm breaks. The lasting booms starting post WWII surprised economists of the time. Stagflation was so out-of-model that the 1970s caused a major shift in economic theory. The list goes on. And, of course, we already know that traditionally aligned indicators have been out of sync since ~2007. Productivi…

> Productivity and wages broke lockstep in the 70s

Welllll kinda. Total inflation adjusted comp has done almost nothing but go up: https://fred.stlouisfed.org/series/COMPRNFB

But I think this too was a paradigm change: Wages shifted to untaxed benefits, like healthcare. At least I think that's going on.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#99

Post by apo »

One way to profit from yield curve inversion:

When you see a persistent yield curve inversion, buy the longest maturity treasuries you can find. For example, 30 years.

This is counterintuitive because shorter maturities (2, 5 years) will yield more when you make your purchase. However, your capital gains will likely compensate for missed yield after the recession has run its course and return a tidy profit.

Alternatively, the economic landscape after the recession may be much worse afterwords. Persistently low interest rates (even deflation) will be in your favor if you decide to keep your treasuries because you'll find nothing to buy with a better risk/return ratio.

Of course, it goes without saying that selling your long treasuries to pay expenses will truncate your returns.

Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention

#100

Post by jedberg »

scrooched_moose wrote: post #15
AznHisoka wrote: post #7

"Stocks have been in a sideways struggle since the Standard & Poor’s 500 last peaked on Jan. 26." Is this really true? Almost every single stock I've been tracking has just been going up this year, especially the tech ones. Even ones with decreasing revenues like GoPro.

Ford has been sliding for 5 years: https://finance.yahoo.com/quote/F?ql=1&p=F GE has been in freefall: https://finance.yahoo.com/quote/GE?p=GE&.tsrc=fin-srch Honeywell has basically been stagnate since January: https://finance.yahoo.com/quote/HON?p=HON&.tsrc=fin-srch Same with 3M: https://finance.yahoo.com/quote/MMM?p=MMM&.tsrc=fin-srch The S&P500 index as a whole has crept up a little but many of them are struggling…

It's interesting if you look at the winners and losers in the S&P500, most of the winners are new tech, most of the losers are old tech or non-tech.

So the question is, are the new-tech companies the only thing propping up the S&P500, or are they truly the "new economy" and will continue to thrive while all others fail?

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