If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it wouldn't work. As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly.
There have been ways of predicting market movements in the past that, kept secret by their discoverers, were later turned into trading empires before they stopped working. But there are no ways of predicting future market movements that both (A) work and (B) are on the front page of Hacker News.
1. There already is an incredibly accurate predictor of recessions: the 10 year vs 2 year yield ratio.
2. The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” It has nothing to do with the stock market.
>As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly.
The dilemma you propose relies upon a conflation of a prediction's accuracy with the prediction's adoption on a universal scale.
You can see the flaw in that logic in this exchange here. Your prediction on how a market would behave given a perfect predictor, if accurate, has not garnered my belief, so the universality of it's adoption has failed regardless of its validity.
> If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it wouldn't work. As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly.
You're equating the behavior of the stock market with a recession, when they're not the same thing. The stock market is correlated, yes, and people talk about it because it can be a leading indicator of the BLS data, but it's not how we define a recession. You can have negative GDP growth with a rise in the stock market, and you can have a dip in the stock market along with positive GDP growth.
Part of me wonders if we are talking ourselves into a recession, the market is definitely spooked about how China's growth slowdown affects the global economy but in terms of wages and unemployment the US economy still has a long ways to go. For instance African American unemployment is at record lows but still around 6%. Many people are working gig economy jobs and part time and would love a full time opportunity. Growth (discounting tax cuts) is low but stable, so is wages.. so is inflation.
If anything is going to trigger a recession I would put my money on corporate debt, so many companies are loaded with debt that will rear it's ugly head the moment any slowdown in growth is on the horizon. That will trigger lower spending, job cuts, and other means that would bring us into recession.
> This matters to investors because, although bear markets are only fair predictors of recessions (seven of 13 postwar bear markets were followed by economic downturns)
Roughly the same predictive power as flipping a coin isn't what I'd call a "fair predictor".
The yield inversion predictor is 100% over the past 40 years with no false positives. The only problem with yield inversion is that it may be 2-years or 3-years early. (2005 yield inversion was followed up by recession in 2007).
Here is a graph of 10-year minus 2-year, a yield inversion is whenever the graph dips below 0%.
The yield inversion predictor is incredibly powerful.
----------
EDIT: Part of the reason for yield inversions to happen is that a large number of people are buying long-term bonds, because they think a bear market will exist. Its better to hold onto a 10-year bond through a recession, because short-term rates will drop during a recession.
We don't quite have a 10-year inversion yet, but we have a 7-year inversion. 5-year yields less than 1-year at the moment. So investors prefer making less money on a 5-year (to guarantee a stable interest rate), rather than 1-year.
That means a large number of people are predicting a recession.
Say there are ten "events" that have had recessions follow them (or not). Each of these events happened 10 times.
For the first type of a event, a recession happened just once afterwards.
For the second type of event, a recession happened twice.
For the third type of event, a recession happened three times
The third, a recession happened three times.
The fourth, a recession happened four out of ten times.
The fifth, a recession happened five times.
Etc...
This has very little to do with flipping a coin, and much more to do with deciding the right time to pay attention.
Half a chance of getting hit by a car is not the same as "flipping a coin."
Generally, throughout the past hundred years or so, there has been much less than a 50% chance to enter a recession. I don't know the numbers, but for any given year, it could be 10%. If there is now a 50% chance, isn't that a 5 fold increase in risk?
50% is 50% better than 0%. If you knew there was a 50% chance you'd die on your way to work today, you'd probably call off work. If you know there's a 50% chance a recession is coming, as an investor, you take similar precautions.
"The U.S. Is Getting Closer to a Recession, Data Show"
Of course the U.S. is - every day we are one day closer to the next recession. It's that nobody knows when that day is. A lot can happen between now and "that day".
But maybe this time we'll be able to prevent it! ;-)
The media loves to point fingers at specific individuals/organizations that are ostensibly responsible for each recession, but there's no known way to completely dampen the oscillations without deep-sixing the economy.
A google search of past failed predictions of recession shows people ,including experts with PHDs, are generally not good at this. In hindsight they can explain why the economy went into recession but are hopeless at predicting when
These articles on the “coming down turn” are written in such a way that they seem so matter of fact.
The article basically says that they had people study past recessions and therefore the markers are there, but things in the real world don’t work like this at all. They say that the tax cuts extended the bull run for two years but now it’s over, as if they are 100% sure.
Fidelity who, I guess, sponsored the study should follow its own advice that they give their customers “Past performance does not guarantee future results”.
Therefore I just feel these people are shorting the market and trying to move things in their preferred direction.
However, in reality no one knows what will happen next and no Model can tell us. There are so many variables at play right now in our modern economy and saying that there will be a recession in the future is like saying everyone has to die at some point.
Hitting close to home, I wonder which software companies would survive and where would VCs be willing to invest during a recession?
During the dot com bust in 2000, my local job market for developers full of just regular companies writing internal apps wasn’t affected at all. The company I worked for in the bill pay industry, kept humming along.
During the 2008 recession things were a lot crazier until 2011. The investors weren’t willing to invest in our pivot from writing software for ruggedized Windows Mobile/Windows CE devices for large companies to smart phones.
I would think that companies working in the health care industry would still be attractive.
Software-wise it really seems like it depends on how bad things really get. SaaS spend might actually be relatively sticky if sales across the board decline but there aren't widespread business failures on the idea that it's replaced internal infrastructure required to run the business.
FWIW, my girlfriend recently interviewed with two of the FAANG companies, and both said they are planning for a doubling of headcount within ~2-5 years.
Over the past year or so, each of my friends from a broad swath of industries say their company is going through layoffs. Almost across the board, everything from marketing to engineering.
"Professional forecasters see economic growth easing to 2.4 percent in 2019." "The unemployment rate is forecast to average 3.6 percent in the fourth quarter of 2019, down slightly from four quarters earlier." : https://www.stlouisfed.org/publications/regional-economist/f...
Unemployment is very low and we are adding jobs. I usually get 2-3 recruiters/week contacting me. However you do some seem some layoff stories too. I am wondering where these jobs are going.
> in June the economy will celebrate a decade of recovery from the Great Recession
Or the US already suffered a mild recession in 2015 and the recent higher growth is a bounce out of that.
S&P 500 corporate profits contracted for four straight quarters from mid 2015 to mid 2016. Sales contracted for six straight quarters.[1]
From July 2015, to November 2016, manufacturing employment contracted slightly (essentially was flat). Manufacturing employment has exploded higher since that month.
The U6 unemployment rate was stuck between 10% and 9.6% between Sept 2015 and Oct 2016.
The civilian labor force participation rate for 25-54 year olds (the single most important participation rate), was fairly stable from January 2013 until mid 2015 (after finding a new general floor post great recession), and then suddenly plunked to a new post great recession low of 80.5% in July 2015. It has been setting higher lows and higher highs ever since that drop.
Consumer confidence, which had been rising persistently for years post great recession, stopped going up and then declined from early 2015 through early 2016.
The S&P 500 index was near a peak in May 2015 at around 2134, then proceeded to go nowhere for a year to ~June 20 2016 when it was at 2032. During that weak year, it hit a low of around 1810 (~15% decline).
The small business confidence index tanked from the first quarter of 2015, until early to mid 2016.
The markit US manufacturing PMI began tanking from a high in mid 2014, until it bottomed out in the second quarter of 2016.
The consumer price index had been rising for years post great recession, stopped rising in mid 2014, flattened out until Oct 2014, plunked lower until Jun 2015, then proceeded to go nowhere for another nine months. In net the consumer price index went no higher from Jun 2014 until Mar 2016. The price index then resumed climbing after Mar 2016. That ~20 month dead spot was the longest post great recession.
In 3Q15 GDP growth dropped dramatically from the prior five quarters, to 1% (3Q14 was 4.9% by comparison). 4Q15 GDP growth dropped further to 0.4% (4Q14 was 1.9%). 1Q16 was 1.5% (1Q15 was 3.3%).
If you've got 1% and 0.4% quarterly growth back to back, with a near zero fed rate, what you've got is a recession.
There are countless more data points that indicate the US suffered a mild recession at some point over that year.
I really dont think that lack of growth of the quantity of goods produced for a few quarters is really so big of a deal
This is how recession and depression are defined, when gdp simply isnt growing a fraction of a percent quarter over quarter. Is this really a proxy to give insight into everything effecting the general population? The words recession and depression are loaded with so much more than what they actually track, I think just saying them slows down the business spending and lending facilities more than the actual trend of printing slightly lower gdp numbers per quarter.
I'm from Europe and I remember very well the 2008 financial crisis. The corrupt banks in America and their massive bailout waved over the ocean and crashed the markets here in Europe, then I was pretty young and I could hardly understand how the housing loans there can lower my salary here. It's funny how naturalized the language is, as if markets are some natural force that goes up or down independent of people's will. Living under capitalism at it's best.
[+] [-] Symmetry|7 years ago|reply
There have been ways of predicting market movements in the past that, kept secret by their discoverers, were later turned into trading empires before they stopped working. But there are no ways of predicting future market movements that both (A) work and (B) are on the front page of Hacker News.
[+] [-] fbonetti|7 years ago|reply
2. The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” It has nothing to do with the stock market.
[+] [-] elif|7 years ago|reply
The dilemma you propose relies upon a conflation of a prediction's accuracy with the prediction's adoption on a universal scale.
You can see the flaw in that logic in this exchange here. Your prediction on how a market would behave given a perfect predictor, if accurate, has not garnered my belief, so the universality of it's adoption has failed regardless of its validity.
[+] [-] checkyoursudo|7 years ago|reply
[+] [-] chimeracoder|7 years ago|reply
You're equating the behavior of the stock market with a recession, when they're not the same thing. The stock market is correlated, yes, and people talk about it because it can be a leading indicator of the BLS data, but it's not how we define a recession. You can have negative GDP growth with a rise in the stock market, and you can have a dip in the stock market along with positive GDP growth.
[+] [-] 40acres|7 years ago|reply
If anything is going to trigger a recession I would put my money on corporate debt, so many companies are loaded with debt that will rear it's ugly head the moment any slowdown in growth is on the horizon. That will trigger lower spending, job cuts, and other means that would bring us into recession.
[+] [-] TheLuddite|7 years ago|reply
[+] [-] the_watcher|7 years ago|reply
Roughly the same predictive power as flipping a coin isn't what I'd call a "fair predictor".
[+] [-] dragontamer|7 years ago|reply
Here is a graph of 10-year minus 2-year, a yield inversion is whenever the graph dips below 0%.
https://fred.stlouisfed.org/series/T10Y2Y
The yield inversion predictor is incredibly powerful.
----------
EDIT: Part of the reason for yield inversions to happen is that a large number of people are buying long-term bonds, because they think a bear market will exist. Its better to hold onto a 10-year bond through a recession, because short-term rates will drop during a recession.
We don't quite have a 10-year inversion yet, but we have a 7-year inversion. 5-year yields less than 1-year at the moment. So investors prefer making less money on a 5-year (to guarantee a stable interest rate), rather than 1-year.
That means a large number of people are predicting a recession.
[+] [-] JacobJans|7 years ago|reply
Say there are ten "events" that have had recessions follow them (or not). Each of these events happened 10 times.
For the first type of a event, a recession happened just once afterwards.
For the second type of event, a recession happened twice.
For the third type of event, a recession happened three times
The third, a recession happened three times.
The fourth, a recession happened four out of ten times.
The fifth, a recession happened five times.
Etc...
This has very little to do with flipping a coin, and much more to do with deciding the right time to pay attention.
Half a chance of getting hit by a car is not the same as "flipping a coin."
Generally, throughout the past hundred years or so, there has been much less than a 50% chance to enter a recession. I don't know the numbers, but for any given year, it could be 10%. If there is now a 50% chance, isn't that a 5 fold increase in risk?
[+] [-] onlyrealcuzzo|7 years ago|reply
[+] [-] nemo44x|7 years ago|reply
Of course the U.S. is - every day we are one day closer to the next recession. It's that nobody knows when that day is. A lot can happen between now and "that day".
[+] [-] cal5k|7 years ago|reply
The media loves to point fingers at specific individuals/organizations that are ostensibly responsible for each recession, but there's no known way to completely dampen the oscillations without deep-sixing the economy.
[+] [-] paulpauper|7 years ago|reply
[+] [-] lbacaj|7 years ago|reply
The article basically says that they had people study past recessions and therefore the markers are there, but things in the real world don’t work like this at all. They say that the tax cuts extended the bull run for two years but now it’s over, as if they are 100% sure.
Fidelity who, I guess, sponsored the study should follow its own advice that they give their customers “Past performance does not guarantee future results”.
Therefore I just feel these people are shorting the market and trying to move things in their preferred direction.
However, in reality no one knows what will happen next and no Model can tell us. There are so many variables at play right now in our modern economy and saying that there will be a recession in the future is like saying everyone has to die at some point.
[+] [-] scarface74|7 years ago|reply
During the dot com bust in 2000, my local job market for developers full of just regular companies writing internal apps wasn’t affected at all. The company I worked for in the bill pay industry, kept humming along.
During the 2008 recession things were a lot crazier until 2011. The investors weren’t willing to invest in our pivot from writing software for ruggedized Windows Mobile/Windows CE devices for large companies to smart phones.
I would think that companies working in the health care industry would still be attractive.
[+] [-] whatok|7 years ago|reply
[+] [-] anongraddebt|7 years ago|reply
[+] [-] AndrewKemendo|7 years ago|reply
Over the past year or so, each of my friends from a broad swath of industries say their company is going through layoffs. Almost across the board, everything from marketing to engineering.
[+] [-] rfinney|7 years ago|reply
"Professional forecasters see economic growth easing to 2.4 percent in 2019." "The unemployment rate is forecast to average 3.6 percent in the fourth quarter of 2019, down slightly from four quarters earlier." : https://www.stlouisfed.org/publications/regional-economist/f...
Not a recession.
[+] [-] harryVic|7 years ago|reply
[+] [-] samfisher83|7 years ago|reply
[+] [-] mlrtime|7 years ago|reply
[+] [-] adventured|7 years ago|reply
Or the US already suffered a mild recession in 2015 and the recent higher growth is a bounce out of that.
S&P 500 corporate profits contracted for four straight quarters from mid 2015 to mid 2016. Sales contracted for six straight quarters.[1]
From July 2015, to November 2016, manufacturing employment contracted slightly (essentially was flat). Manufacturing employment has exploded higher since that month.
The U6 unemployment rate was stuck between 10% and 9.6% between Sept 2015 and Oct 2016.
The civilian labor force participation rate for 25-54 year olds (the single most important participation rate), was fairly stable from January 2013 until mid 2015 (after finding a new general floor post great recession), and then suddenly plunked to a new post great recession low of 80.5% in July 2015. It has been setting higher lows and higher highs ever since that drop.
Consumer confidence, which had been rising persistently for years post great recession, stopped going up and then declined from early 2015 through early 2016.
The S&P 500 index was near a peak in May 2015 at around 2134, then proceeded to go nowhere for a year to ~June 20 2016 when it was at 2032. During that weak year, it hit a low of around 1810 (~15% decline).
The small business confidence index tanked from the first quarter of 2015, until early to mid 2016.
The markit US manufacturing PMI began tanking from a high in mid 2014, until it bottomed out in the second quarter of 2016.
The consumer price index had been rising for years post great recession, stopped rising in mid 2014, flattened out until Oct 2014, plunked lower until Jun 2015, then proceeded to go nowhere for another nine months. In net the consumer price index went no higher from Jun 2014 until Mar 2016. The price index then resumed climbing after Mar 2016. That ~20 month dead spot was the longest post great recession.
In 3Q15 GDP growth dropped dramatically from the prior five quarters, to 1% (3Q14 was 4.9% by comparison). 4Q15 GDP growth dropped further to 0.4% (4Q14 was 1.9%). 1Q16 was 1.5% (1Q15 was 3.3%).
If you've got 1% and 0.4% quarterly growth back to back, with a near zero fed rate, what you've got is a recession.
There are countless more data points that indicate the US suffered a mild recession at some point over that year.
[1] https://www.wsj.com/articles/corporate-profits-set-to-shrink...
[+] [-] AnimalMuppet|7 years ago|reply
No. If you've got two quarters back to back with negative growth, then you've got a recession. That's literally the definition.
[+] [-] buboard|7 years ago|reply
[+] [-] nevir|7 years ago|reply
[+] [-] gammateam|7 years ago|reply
This is how recession and depression are defined, when gdp simply isnt growing a fraction of a percent quarter over quarter. Is this really a proxy to give insight into everything effecting the general population? The words recession and depression are loaded with so much more than what they actually track, I think just saying them slows down the business spending and lending facilities more than the actual trend of printing slightly lower gdp numbers per quarter.
[+] [-] SqwRock|7 years ago|reply
[+] [-] dazc|7 years ago|reply