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 balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.
It is basically guaranteed to do so unless the business cycle has stopped for good (unlikely). The question in my mind is who the scapegoat is going to be, and how much denial there's going to be if the real effects of slowing growth start becoming apparent.
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.
> 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 balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.
I'll add the embrace of nationalism. Many of the leaders through WWI and WWII, including Churchill, put significant blame on nationalism for the wars, which is why they supported internationalism including the EU (or the beginnings of it at the time), UN, World Bank, IMF, etc.
If Europe were once united in the sharing of its common inheritance, there would be no limit to the happiness, to the prosperity and glory which its three or four hundred million people would enjoy. Yet it is from Europe that have sprung that series of frightful nationalistic quarrels, originated by the Teutonic nations, which we have seen even in this twentieth century and in our own lifetime, wreck the peace and mar the prospects of all mankind.
...
What is this sovereign remedy?
It is to re-create the European Family, or as much of it as we can, and provide it with a structure under which it can dwell in peace, in safety and in freedom.
We must build a kind of United States of Europe.
...
And why should there not be a European group which could give a sense of enlarged patriotism and common citizenship to the distracted peoples of this turbulent and mighty continent and why should it not take its rightful place with other great groupings in shaping the destinies of men?
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.
The NYT article says precisely that recessions happened 6 months to 2 years later in all cases, except in one case where the economy dipped but wasn't officially a recession in the 1960s. This is different than a stopped clock that is eventually right. In the last 50 years we had recessions or at best a very poor economy with almost no growth (only one time avoided a recession by defn) with 6-24 month lead time after negative yield curve.
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 materially different from the 1950's-before.
For all we know, the 2020's+ will repeat the past (in a way) and usher in a paradigm different from the 1960's! No more recessions every 5-10 years.
So:
* Maybe from now on there will be a recession every 20 years
* Or Fed manipulation will get "so good" that we won't have large recessions
* Or capital's other options for returns (real estate, emerging markets, etc) will look bad-ish for the next 10 years and continue to prop up the stock market because its the only good outlet for extra cash for a decade or three
I could see any of these being plausible. I think leaning on the past is a bit of a mistake. Personally, I think the third one is quite possibly the case. Other non-stock-market options simply do not look as attractive as they used to, relatively.
The future will look very different from the past, as Thiel says.
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.
Nixon was forced to take the US fully off the gold standard since Charles De Gaulle was exchanging his treasuries for gold, exposing that the US could not keep it's dollar pegged to gold at the current price. This lead to significant inflation as the dollar floated against other currencies.
It is no stretch to say that there has been a new paradigm that started in the late 60s as the Vietnam war extracted a heavy monetary toll.
So some random thoughts on the case for this time its actually different are:
1.) The internet and computing has increased the flow of information. Investments in data mining and data science by the Fed lets it make better decisions and test stuff iteratively and react to changes faster. Companies can also track inventory in a more controlled manner and not build too much too fast. Employees can find prevailing wage information easier to find better, more productive jobs. Home buyers can see how overvalued their houses are relative to other cities.
The internet and computing is enabling a much higher control loop (a.k.a. a steeper gradient descent toward optimal economic output based on the production needs for the current population).
2.) Steady reduction in the reliance on oil and gas. Much of the crazy inflation in past cycles was due to oil and gas shortages.
Would love to get opinions and more cases for why its different.
Any of the options you listed above is a possible scenario. I would add, as Thiel says, that the reason recessions happened so often after 1960s was because people's expectation of growth has been more optimistic than the real economy growth.
This resulted in over-leveraging and over-buying of entire asset classes which eventually caused a bubble.
One relevant part I liked regarding the Madoff scandal:
Obviously, you were like how could these people be so stupid to give this person all this money? Didn't they read the details? ... But one of the reasons it happened, psychologically, was because people thought 8-10% with 0 risk was perfectly normal. That's why nobody asked any questions.
> Or capital's other options for returns (real estate, emerging markets, etc) will look bad-ish for the next 10 years and continue to prop up the stock market because its the only good outlet for extra cash for a decade or three.
And if capital flows into the stock market, not to keep pace with growth or to expropriate the standard rate of profit, but simply because it has nowhere else to go, then the natural outcome of this is overproduction. Which leads to a falling rate of profit. Which eventually means falling stock prices, as earnings and market cap are always linked over the long term (even for Amazon.com, which will have to start showing a profit when it moves from #8 to #2 on the Fortune 500 list).
Let's say bonds are yielding 10%. Here's a stock that has a dividend of $1/year. What should the price be? $10 (assuming the company is not growing), because that's the price you would pay to get the same return in bonds. (Note that the bond market is twice as big as the stock market, so it defines the "normal" rate of return.)
Now bonds drop to 2.5% rate of return. Now the same stock is worth $40.
It's not just that the stock market is the only good outlet for extra cash. It's that the low rate of return in other markets raises the price of stocks until the risk-adjusted yield rates match.
Everything seems to always be speeding up, so I'd bet on a shorter cycle (3-7 years, to pull numbers out of my ass) before I'd bet on longer cycles (20 years).
Although faster cycles might also mean faster adaptation, soooo.
David Kelly from JPMorgan and Bullard, the head of the Fed Reserve of St. Louis, say the yield curve going inverted doesn't mean that much because it's being manipulated by the Fed - that means it's broken as a measuring tool (still should be watched, though)
A Fed chairman is never going to say, "Yup, there's a recession coming": the incentives of their position don't permit it. So they will always come up with reasons why a signal with a previous 100% success rate doesn't mean much now, but in the end, it always amounts to "This time is different", aka, the four most expensive words in history.
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 intertwined. Most startups are not cashflow positive, and they're explanation for that is that they have low CapEx. However, it's all been transferred to OpEx that is the web of mutuality between them. There is a huge body of low quality startups that are going to stop paying monthly Slack, Git(hub/lab), Trello/Atlassian, Twilio, Mongo, every other monthly-billed service, and put the breaks on AWS/GCE/et al spending. The AWS spending, for example, will result in layoffs in Seattle, which will lead to people forced out of their homes and forced sales for losses (which will ruin them financially), and that will result in a cycle of real estate deflation (which, as you saw in 2006, leats to pools of buyers trapped in their home, killing construction and labor mobility). And thankfully we'll have deregulated or de-fanged federal regulators just in time for all of this! WeWork is the obvious first bankruptcy, since they almost entirely exist because of venture funding froth. I don't know who have funded them offhand, but that might result in forced selling of private shares and lower private valuations, with further deflation risks in that sector. Then it will expand to the broader economy. /rant.
edit: I worked through both the dot-com and mortgage-backed security fraud crises. They were terrible.
Same, I remember how much the last one stressed out my Dad. I was in high school and didn't fully appreciate the significance of what was going on. I'm a bit anxious anticipating the next one, but it's part of the game!
Investors will mistake the loud pop caused by the bursting crypto bubble for gunshots. They'll jump for cover, becoming scared of tech, but as they do they'll then mistake another loud sound, this time a kaboom, of the AI hype cycle exploding. With it will go chatbots, self-driving cars and voice-powered assistants.
Then there's a rupture and a glow then a mushroom cloud appears on the horizon. People are unsure of what happened. Was that Facebook? Amazon?
Either way, this will tear a hole through the spacetime fabric of tech itself thus causing a black hole of fear; Google and Apple will hold on for dear life as everything around them gets sucked in.
At first a few Bird scooters fly past into the black hole of fear, Uber/Lyft sail by and explode in mid-air as they're sucked in, Zenefits instantly is ripped apart and evaporates creating a sort of Aurora Borealis surrounding the massive hole.
Somehow the blackhole of fear eventually closes and everything in midair tumbles back to sanity. Google/Apple regain their footing and observe the destruction around them.
The only thing left will be a few broken Lime scooters, a robotic arm that makes burgers and shitload of defense contracts.
Of course they bury the most important part in the last sentence of the article.
> So if long-term rates were pushed lower by central bank bond buying, and now short-term rates are being pushed higher as the Fed tightens its monetary policy, the yield curve has nowhere to go but flatter.
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.
I think it's nearly unarguable that the current market is irrational. The problem is the old adage that the market can remain irrational longer than you can remain solvent, and thus simply shorting it can result in short-term bankruptcy.
Worse, there's a corollary that even trying to move your funds into lower-risk vehicles now can still lead to long-term losses vice keeping them in higher-risk investments now and moving them later (e.g. in a month, or a year, or two years).
I honestly don't know what to do with my money. Right now I'm basically keeping everything where it is: not selling stocks, bonds or real estate, but not buying much either. But leaving my cash as cash has its own cost.
In same boat. I've just been splitting my new investments between stock and cash and treat my cash as part of my diversification strategy (or a hedge against possible market peak). If a recession occurs, I'll hope it drops a lot, put my cash back in, and hope it comes back up. All those things have always happened (recession, recovery - not necessarily me timing a market bottom) so I feel ok about my cash. Whatever it loses in value to inflation should come back if I buy cheaper stocks during a market lull. Or so I tell myself.
"Sure, it seems like a strange time to be worried about recession. Unemployment is at an 18-year low, corporate investment is picking up steam, and consumer spending shows signs of rebounding."
Isn't that always the best time to be worried about recession?
While it's not a very accurate predictor, since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago.
Yep. "We're due" is my perspective on bear markets. We've had a bull for a long time now, and there's adequate macro factors that a tipoff into a bear is a fairly reasonable expectation.
In other words, it's quite time to make sure your holdings are prepared for a recession.
"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.
One explanation of the inflation of the public and private markets in the US is that the Chinese are in the middle of a massive debt bubble, anyone with cash there has nothing good to do with it, so they've been willing to invest in the US at almost any price.
That isn't a good explanation. China has extremely tight capital export controls in place, you can't easily get your money out of China to invest it into the US.
Beyond the annual $50,000 currency conversion limit they've put into place domestically, they've also made it an obnoxious and suspicious process to go through even if you attempt to convert the allowed $50k.
The US is far wealthier than China is anyway, and that's with 1/4 as many people. There is no need for Chinese capital to spur asset inflation in the US, the US has more than enough capital to do that on its own.
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.
> 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.
Sorry, could you flesh out the details here? You buy treasuries with a long maturity. What is expected to happen with them after that, and after how long?
> The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street.
> The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.
> Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones. The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise — which suggests traders are concerned about long-term growth — even as the economy shows plenty of vitality.
Historical correlations from before 2008 cannot be taken as predictive for the current environment.
Long term rates are low because the market expects that any economic weakness will be met with quantitative easing and that long term global interest rates will be negative.
The market is not predicting recession. It is predicting more interventionist economic policy to prevent recessions, which is a good prediction.
The Fed is reducing its budget sheet which will have a significant effect on the yield curve. Inviting comparisons between the yield curve now versus any other point in history is foolish. These are probably the same people who predicted a recession when Trump was elected, after Brexit, and at least once a month for the last decade
Pretty much every finance site - marketwatch, wsj, cnbc, bloomberg, zerohedge, etc along with the peter schiffs/etc clickbait it.
For some reason, nytimes paywalled clickbait is constantly spammed here.
The inverted yield curve. There are thousands of articles about the inverted yield curve. The death cross. The black swan event. All just voodoo clickbait nonsense.
Also, I love how the nytimes say "wall st is concerned" as if they knew what wall st was thinking and most importantly, they think that wall st is one entity. A lot of players make up wall st.
If any of these people at these news companies knew what wall st was thinking, they wouldn't be working at news companies making pathetic union salaries. They'd worked in finance and retire before they were 25.
Simply put, when the big players want there to be a recession, there will be a recession. Markets are human created and controlled by humans. It isn't a natural entity following the laws of nature.
The invisible hand of the market doesn't mean that the hand controlling the market doesn't exist. It just means that us mere peasants aren't allowed to see it.
I’m curious about a related question for people who have been around a bit (or are just generally knowledgeable). How should your average retirement investor react when reading about the market like this? I’ve been well-educated on staying the course, markets will dip etc. But I entered the market with some force at the depths of the last recession so it’s been very easy to take this advice. Now it feels like sitting on a railroad track waiting to get smooshed by an oncoming train because it’s “the right thing to do”.
There's not much question that a recession is coming. But when? And what form will it take?
The last recession was driven by a price collapse in housing. That was unusual. The next one is more likely to be driven by trade problems, which is more common historically. Also, the last few years have seen a lot of investment into stuff that's not paying off, and after a few years, that comes back to bite you.
[+] [-] throwaway5752|7 years ago|reply
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 balance sheet of the federal government (during a business cycle peak). Of course this is going to end terribly.
[+] [-] akhilcacharya|7 years ago|reply
It is basically guaranteed to do so unless the business cycle has stopped for good (unlikely). The question in my mind is who the scapegoat is going to be, and how much denial there's going to be if the real effects of slowing growth start becoming apparent.
[+] [-] shams93|7 years ago|reply
[+] [-] panarky|7 years ago|reply
Imagine what happens if the economy gets rekt.
We could be in for some dark and nonlinear times.
[+] [-] forapurpose|7 years ago|reply
I'll add the embrace of nationalism. Many of the leaders through WWI and WWII, including Churchill, put significant blame on nationalism for the wars, which is why they supported internationalism including the EU (or the beginnings of it at the time), UN, World Bank, IMF, etc.
Here's Churchill talking about it:
http://www.churchill-society-london.org.uk/astonish.html
If Europe were once united in the sharing of its common inheritance, there would be no limit to the happiness, to the prosperity and glory which its three or four hundred million people would enjoy. Yet it is from Europe that have sprung that series of frightful nationalistic quarrels, originated by the Teutonic nations, which we have seen even in this twentieth century and in our own lifetime, wreck the peace and mar the prospects of all mankind.
...
What is this sovereign remedy?
It is to re-create the European Family, or as much of it as we can, and provide it with a structure under which it can dwell in peace, in safety and in freedom.
We must build a kind of United States of Europe.
...
And why should there not be a European group which could give a sense of enlarged patriotism and common citizenship to the distracted peoples of this turbulent and mighty continent and why should it not take its rightful place with other great groupings in shaping the destinies of men?
[+] [-] cal5k|7 years ago|reply
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.
[+] [-] Nokinside|7 years ago|reply
[+] [-] Latteland|7 years ago|reply
[+] [-] simonsarris|7 years ago|reply
> 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 materially different from the 1950's-before.
For all we know, the 2020's+ will repeat the past (in a way) and usher in a paradigm different from the 1960's! No more recessions every 5-10 years.
So:
* Maybe from now on there will be a recession every 20 years
* Or Fed manipulation will get "so good" that we won't have large recessions
* Or capital's other options for returns (real estate, emerging markets, etc) will look bad-ish for the next 10 years and continue to prop up the stock market because its the only good outlet for extra cash for a decade or three
I could see any of these being plausible. I think leaning on the past is a bit of a mistake. Personally, I think the third one is quite possibly the case. Other non-stock-market options simply do not look as attractive as they used to, relatively.
The future will look very different from the past, as Thiel says.
[+] [-] zukzuk|7 years ago|reply
A nice, 500 page overview: https://press.princeton.edu/titles/8973.html
[+] [-] Bartweiss|7 years ago|reply
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.
[+] [-] AboutTheWhisles|7 years ago|reply
It is no stretch to say that there has been a new paradigm that started in the late 60s as the Vietnam war extracted a heavy monetary toll.
https://fred.stlouisfed.org/series/AMBNS
The current monetary system is only a few decades old.
[+] [-] jpao79|7 years ago|reply
1.) The internet and computing has increased the flow of information. Investments in data mining and data science by the Fed lets it make better decisions and test stuff iteratively and react to changes faster. Companies can also track inventory in a more controlled manner and not build too much too fast. Employees can find prevailing wage information easier to find better, more productive jobs. Home buyers can see how overvalued their houses are relative to other cities.
The internet and computing is enabling a much higher control loop (a.k.a. a steeper gradient descent toward optimal economic output based on the production needs for the current population).
2.) Steady reduction in the reliance on oil and gas. Much of the crazy inflation in past cycles was due to oil and gas shortages.
Would love to get opinions and more cases for why its different.
[+] [-] alexpetralia|7 years ago|reply
[+] [-] samsonradu|7 years ago|reply
Here's a talk I found interesting regarding growth and the future of the economy: https://www.youtube.com/watch?v=KKLDevYyE9I&index=13&t=0s&li...
One relevant part I liked regarding the Madoff scandal:
Obviously, you were like how could these people be so stupid to give this person all this money? Didn't they read the details? ... But one of the reasons it happened, psychologically, was because people thought 8-10% with 0 risk was perfectly normal. That's why nobody asked any questions.
[+] [-] imbokodo|7 years ago|reply
And if capital flows into the stock market, not to keep pace with growth or to expropriate the standard rate of profit, but simply because it has nowhere else to go, then the natural outcome of this is overproduction. Which leads to a falling rate of profit. Which eventually means falling stock prices, as earnings and market cap are always linked over the long term (even for Amazon.com, which will have to start showing a profit when it moves from #8 to #2 on the Fortune 500 list).
[+] [-] AnimalMuppet|7 years ago|reply
Let's say bonds are yielding 10%. Here's a stock that has a dividend of $1/year. What should the price be? $10 (assuming the company is not growing), because that's the price you would pay to get the same return in bonds. (Note that the bond market is twice as big as the stock market, so it defines the "normal" rate of return.)
Now bonds drop to 2.5% rate of return. Now the same stock is worth $40.
It's not just that the stock market is the only good outlet for extra cash. It's that the low rate of return in other markets raises the price of stocks until the risk-adjusted yield rates match.
[+] [-] peterwwillis|7 years ago|reply
[+] [-] RangerScience|7 years ago|reply
Although faster cycles might also mean faster adaptation, soooo.
[+] [-] ameister14|7 years ago|reply
David Kelly from JPMorgan and Bullard, the head of the Fed Reserve of St. Louis, say the yield curve going inverted doesn't mean that much because it's being manipulated by the Fed - that means it's broken as a measuring tool (still should be watched, though)
[+] [-] Analemma_|7 years ago|reply
[+] [-] tjr225|7 years ago|reply
[+] [-] throwaway5752|7 years ago|reply
edit: I worked through both the dot-com and mortgage-backed security fraud crises. They were terrible.
[+] [-] fokinsean|7 years ago|reply
[+] [-] mhuffman|7 years ago|reply
[1] https://www.youtube.com/watch?v=PHe0bXAIuk0
[+] [-] Bromskloss|7 years ago|reply
[+] [-] debt|7 years ago|reply
Investors will mistake the loud pop caused by the bursting crypto bubble for gunshots. They'll jump for cover, becoming scared of tech, but as they do they'll then mistake another loud sound, this time a kaboom, of the AI hype cycle exploding. With it will go chatbots, self-driving cars and voice-powered assistants.
Then there's a rupture and a glow then a mushroom cloud appears on the horizon. People are unsure of what happened. Was that Facebook? Amazon?
Either way, this will tear a hole through the spacetime fabric of tech itself thus causing a black hole of fear; Google and Apple will hold on for dear life as everything around them gets sucked in.
At first a few Bird scooters fly past into the black hole of fear, Uber/Lyft sail by and explode in mid-air as they're sucked in, Zenefits instantly is ripped apart and evaporates creating a sort of Aurora Borealis surrounding the massive hole.
Somehow the blackhole of fear eventually closes and everything in midair tumbles back to sanity. Google/Apple regain their footing and observe the destruction around them.
The only thing left will be a few broken Lime scooters, a robotic arm that makes burgers and shitload of defense contracts.
[+] [-] dlandis|7 years ago|reply
> So if long-term rates were pushed lower by central bank bond buying, and now short-term rates are being pushed higher as the Fed tightens its monetary policy, the yield curve has nowhere to go but flatter.
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.
[+] [-] zeveb|7 years ago|reply
Worse, there's a corollary that even trying to move your funds into lower-risk vehicles now can still lead to long-term losses vice keeping them in higher-risk investments now and moving them later (e.g. in a month, or a year, or two years).
I honestly don't know what to do with my money. Right now I'm basically keeping everything where it is: not selling stocks, bonds or real estate, but not buying much either. But leaving my cash as cash has its own cost.
[+] [-] mnctvanj|7 years ago|reply
[+] [-] Apocryphon|7 years ago|reply
Isn't that always the best time to be worried about recession?
[+] [-] peterwwillis|7 years ago|reply
[+] [-] unknown|7 years ago|reply
[deleted]
[+] [-] pnathan|7 years ago|reply
In other words, it's quite time to make sure your holdings are prepared for a recession.
[+] [-] AznHisoka|7 years ago|reply
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.
[+] [-] jakecrouch|7 years ago|reply
[+] [-] adventured|7 years ago|reply
Beyond the annual $50,000 currency conversion limit they've put into place domestically, they've also made it an obnoxious and suspicious process to go through even if you attempt to convert the allowed $50k.
The US is far wealthier than China is anyway, and that's with 1/4 as many people. There is no need for Chinese capital to spur asset inflation in the US, the US has more than enough capital to do that on its own.
[+] [-] apo|7 years ago|reply
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.
[+] [-] Bromskloss|7 years ago|reply
> 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.
Sorry, could you flesh out the details here? You buy treasuries with a long maturity. What is expected to happen with them after that, and after how long?
[+] [-] ronnier|7 years ago|reply
> The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.
> Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones. The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise — which suggests traders are concerned about long-term growth — even as the economy shows plenty of vitality.
[+] [-] saas_co_de|7 years ago|reply
Long term rates are low because the market expects that any economic weakness will be met with quantitative easing and that long term global interest rates will be negative.
The market is not predicting recession. It is predicting more interventionist economic policy to prevent recessions, which is a good prediction.
[+] [-] signa11|7 years ago|reply
[+] [-] frockington|7 years ago|reply
[+] [-] madballneek|7 years ago|reply
#golong
[+] [-] solotronics|7 years ago|reply
[+] [-] cityhomesteader|7 years ago|reply
For some reason, nytimes paywalled clickbait is constantly spammed here.
The inverted yield curve. There are thousands of articles about the inverted yield curve. The death cross. The black swan event. All just voodoo clickbait nonsense.
Also, I love how the nytimes say "wall st is concerned" as if they knew what wall st was thinking and most importantly, they think that wall st is one entity. A lot of players make up wall st.
If any of these people at these news companies knew what wall st was thinking, they wouldn't be working at news companies making pathetic union salaries. They'd worked in finance and retire before they were 25.
Simply put, when the big players want there to be a recession, there will be a recession. Markets are human created and controlled by humans. It isn't a natural entity following the laws of nature.
The invisible hand of the market doesn't mean that the hand controlling the market doesn't exist. It just means that us mere peasants aren't allowed to see it.
[+] [-] awinder|7 years ago|reply
[+] [-] yosito|7 years ago|reply
[+] [-] Animats|7 years ago|reply
The last recession was driven by a price collapse in housing. That was unusual. The next one is more likely to be driven by trade problems, which is more common historically. Also, the last few years have seen a lot of investment into stuff that's not paying off, and after a few years, that comes back to bite you.
[+] [-] unknown|7 years ago|reply
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