Global recession fears grow as factory activity shrinks
reuters.com
reuters.com
It's also something that has an important role. Investors at some point need to decide which businesses are viable, which are not. Workers need to consider career changes. Corporate entities need to consider which projects are worthwhile. All those kinds of decisions are put to the test when not everything can be given a long horizon.
Finally, there is a twist this time. We've been running a financial experiment with few parallels over the last decade or so.
You should look at the severity and frequency of economic cycles around the world throughout history and I bet you'd reconsider this position. Often times they lead to the collapse of entire nations or worse, war.
Is that worth it to teach an overleveraged business a lesson? Remember, "businesses" don't make these decisions in a vacuum; they are run by and consist of people. People win and people lose in every cycle (just not always the same or most deserving groups).
There needs to be more and better control to avoid the "dumb banks" issue, but this problem seems to be a hard one. As in: we don't even have the basic science to solve this problem.
The Fed, on the other hand, is a classic central bank and it can print money to finance the federal deficit. I think you're misinterpreting the supposed "independence" of the fed - it remains a government institution that is largely independent operationally (https://en.wikipedia.org/wiki/Independent_agencies_of_the_Un...), but it's not a private institution. In other words, it's not independent the way a private bank is; it's independent the way FTC is.
Yes, because they tend to go straight down the tube because when you socialize gains and privatize losses people don't do more than the minimum they can get away with.
IMO, carried interest should be rewarded less than labor.
I mean really, if you're just sitting there drawing interest on great grandpa's labor's capital, why is that better than getting up and going to work everyday?
Bitcoin just misses the point of being a currency all together.
Dividing that cake is harder than you think. The whole point of working together is to get more than people can get individually, so how do you come up with a formula?
The general term for this is 'business cycle' [1]
A way more alarming indicator is the receding semiconductor spendings, both net and capital, for the last 3-4 years.
This means that not only stuff generally classified as "light industry goods" going down. It means that big players in the industry expect much more "inelastic goods" like server chips, telecom gear, and other businessy/enterprise stuff to also go down.
To a lot of people, it was clear that we are heading for "a long winter" in the industry for quite some time. People saw it as early as 2016.
Feels like manufacturers are edgy and don't want to get caught out.
In short term, there was a demand overshoot, but now their decision seem remarkably rational.
But there’s no reason to assume that it’s that. Much more likely it’s simply a normal recession where the purchasing power goes down.
Here is a repost of my post from December:
> Very true, I'd say a downgrade is the trend. I saw like 10+ people deciding to switch from "superphones" down to mid-range models, and even dumbphones for their new phones. People who had ultrabooks, often try Atom based notebooks and sufraces. The key deciding factor for such people, I think, is having a good screen and bearable ergonomics (no microscopic keyboards, or batteries.) The data I have access to tell that the "big screen, small CPU," is the category with the biggest year on year growth. Atom based 14 and 15 inchers are selling like hot cookies.
> As a person working in the industry, I can say that's a very visible trend. People switch their devices more due to battery and physical wear than actual need for more features.
> In that respect, things got very "Japanised" in respect that Japanese cellphone makers are often making new models every season with no real changes other than cosmetic.
> Japan is also the only developed market where "dumbphones" ever saw few upwards trends in last
Thinking of rich people in Asia only as those "nouveau riches" you see glitzing their wealth in London and Dubai is also a very Western-centric view.
You have to remember that "rich foreigner" population you see in the West is less than 1 percent of 1 percent of their home countries' populations, and those usually go apart even from their home country definition of "rich people class."
This is even more true for bigger emerging economies: in India and China, an even bigger portion of relatively rich people is completely content with staying at home, and not seeing a reason-d'etre in immigration to the West or imitating Western lifestyles.
I was recently on assignment in Kazakhstan, where I rented a room in possibly the most expensive coworking space in the country. All people around used mid-tier Taiwanese brands. And those were the people who drived LC200s or G-Wagons.
I had same feeling in Pakistan, where I met people making country's small, budding middle class. All of them successful young professionals, with nice cars, settled down families, and expensive houses in Bahria towns. None of them ever cared of not owning a 20th iPhone or a 5Ghz gaming PC. Most cared more about household appliances, and not having to obsess about specs of stuff they buy. They like practical, simple, well done stuff with some whiff of nice design taste added.
But the global smartphone market is quickly saturating, if it hasn’t already, and that is bound to affect numbers. Smartphone tech is also quickly nearing the flat end of the sigmoid curve, which naturally disincentivizes upgrading.
Mid-range phones now cost as much as previous "superphones". The iPhone launched at $499($615 after inflation) and the latest iPhone XS launched at $999.
Considering housing by itself is over 20% of spending, and that >60% of the of population has fixed spending (either own their house outright, have an existing mortgage, are under rent control, or are homeless and don't live in shelters) that only marginally increases in cost per year -- it is STARTLING to me that spending as a whole is growing by 5.3%. Spending on rent only grew by 3.3% and that is largely NOT fixed. Spending on housing grew by 10.4%!!! And almost 80% of that category is fixed!!! It's insane! That means, when people buy new houses, they are spending WAY more on housing than they were before. And it can't be more clear, really. 65% of home buyers are essentially "trading" homes -- that is selling their existing to buy another. If they make up the majority of purchasers, and prices are up 10.4% -- they're likely spending more on housing. A lot more!
I'm no economist, but that seems to have every indication of speculation to me.
Source:
To iterate on that point, if people decided not to buy the latest and greatest phone, you would assume that in a growing economy they'll use the new available income to buy something else.
What do we want them to do? Spend more to keep the economy going or save more so they dont live paycheck to paycheck? Seems like we cant have it both ways.
[1] https://www.magnifymoney.com/blog/news/average-american-savi...
If you're living and you have No money, then it really really sucks (at least in the current day, the way everything is made you can't do anything without money, can't even have a home and live in peace without money)
It also depends on what you do with that saving. If you keep it under your mattress than it's as a whole bad for the economy since money (and hence value) is taken out of circulation.
But even if you invest that money than it might not be good for the economy. In theory, if there is less consumption then there are less things that are being sold. That means companies make less profit, which in turn means investments yield less value. If enough consumption is reduced, saving could even result in negative value (I.E. you lose money).
In fact during a depression it is common for governments to artificially increase consumption to boost the economy (whether by public works or reducing interest rates).
Of course those are extremes. In reality less consumption could turn into a better and perhaps more equal economy or it could turn into a vicious cycle and a depression.
Historically speaking though, reduced consumption is usually a precursor to reduced economical growth and accompanies a depression and not the opposite.
Edit: why the downvotes? I am sincerely interested to read more about the necessity of growth or the lack of it.
Banks will only pay back a certain amount if they go bust - and it depends on the country how much that is.
Which savings? 60% of the US population has less than 1.000 $ in liquid savings per [1]. In Germany it's 33% per [2].
When the recession hits (not if but when) people are going to get fucked. The 2008 crisis wiped out what many people had and its aftermath left them unable to rebuild their savings, and social security institutions have been wrecked since neoliberalism took over - I certainly expect (food) riots once recession hits. The Yellow Vests in France are an example what a still relatively rich but angry population can do, and extrapolating from that reveals a not very nice future.
[1]: https://www.cbsnews.com/news/most-americans-couldnt-cover-a-...
[2]: https://www.focus.de/finanzen/news/finanzen_news_armut_in_de...
Secondly, the link you provided states “in the event of a catastrophe that stops the supply of food”.
Is a recession a food supply halting catastrophe?
Above posters said that 60% of Americans don't have meaningful savings. That would mean in the event that they can't afford food, more than half of America might start a revolt. (Of course depending on the size of the recession).
In a food supply halting catastrophe we’ve got problems, catastrophic problems.
A recession that hits any significant portion of the population will have political-will to find alternative outcomes, and probably won’t happen with the rapidity catastrophes are usually associated with. Eg. food aid, wealth redistribution, easy / no-interest credit, government jobs.
I’m not saying any and every political outcome won’t result in a catastrophe, but every food halting catastrophe is, by definition, a massive catastrophe.
You may have a wider point though: just in time manufacturing / delivery in the food industry means probably most of the world is a few meals away from panic.
It can very easily turn into one, look at what is happening in Venezuela or in Russia. Or what may happen with Britain and the Brexit, with the additional difficulty there that warehouses have been replaced by trucks which means that food supply is endangered in case of unplanned border controls.
I'd argue Venezuela has experienced a cascade of poor choices well beyond your average general decline in economic activity.
Do you really believe Britain is on the brink of a Brexit induced food supply halting catastrophe? I'd seriously like to believe trade relations are strong and that selling in to a 60+ million population market is a strong incentive to keep trade relations well lubricated.
Nigel Farage and his Brexit Party won the EU elections in the UK. People are talking openly about "hard Brexit", and some day the EU is going to have enough and give the UK the boot in the arse. No way the UK is going to be remotely prepared - it simply won't be possible to prepare for a hard Brexit with weeks, maybe months of border chaos. There simply is not enough warehouse capacity.
Depending on the country this will not save you. You can have it in N banks, and still get back up to a fixed X amount, because the amount is per person, not per account.
And this assumes people have "savings".
Most people outside of the 10% echo chamber live paycheck to paycheck.
https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-i...
https://money.cnn.com/2018/05/22/pf/emergency-expenses-house...
https://www.bankrate.com/banking/savings/financial-security-...
Economical growth is not necessarily growth in consumption of resources. It is also a measure of getting more out of less.
I'm sorry, but nothing of what you say follows.
Yes, I would say the innovation in Japan has died out since the bubble.
Might as well say the same things for a country that still heavily relies on fossil fuels, still doesn't have high speed rail, still has shitty internet speeds, has crumbling roads and infrastructure, and still uses these horrible air-conditioning units, and wooden (!!!) houses, not to mention their mobile internet situation...
The beurocracy is insane. My guess is that the government crept in lots of it because it helps to keep the public servants employed. If you look in to the post office or local government ward office, there is always a whole army of office workers sending away faxes and stamping them, then stapling some papers. (They still use these weird stamps to sign their documents btw)
And yes, Japanese still use faxes, drive old taxis and generally you'll see a lot of antiqued technology that still works, but I think that's kind of charming. I especially enjoy seeing some of the old narrow guagae trains still chugging along the country side from time to time (in stark contrast to the shinkansen). Also exiting to see laser disks / VCRs / minidisks when visiting Japanese houses. Just the other day I seen an automated piano controlled by a device which seemed to be reading the data from a 3.5 inch floppy! Sometimes I can spot the odd CRT display still happily flickering, including the old vintage arcade games... The bowling alley down the block still uses what seems to be a DOS based system to manage their displays & business. Visiting a hospital is sometimes like visiting a museum... Oh, btw, got to fly in a Boeing 767 on a domestic route a few months ago, that was a pleasant surprise as I haven't been on one in years!
I've been to Mississippi, Alabama, South Dakota, Michigan, and lots of other states, and it's probably much worse there.
There was plenty of innovation, new methods, product launches and new companies during the great Depression, even in the peak year of decline, and in all countries affected.
GDP and GDP growth is a decidedly modern invention anyway.
The Great Depression would have been a better example to use because even real GDP declined drastically.
That's not a problem. We already have too much shit for the good of the planet and for the good of our sanity. We should focus on quality, not innovation of more gadgetry.
Considering diseases for example, we could save hundreds of millions with spreading existing drugs and techniques, and give many years or longevity to billions with access to water and food and vaccines, etc, than what we'll "might" do with some (diminishing returns) cutting edge drug research.
We know how to cure lots of diseases people all over the world suffer from, and we don't do it. It takes a lot of hypocrisy to say we need more "growth" and "innovation" to help them.
Also, you can't stop human curiosity and the drive to improve and compete. There has always been progress in arts, science and technology throughout history, no matter what political or theological system reigned at that time.
I find the world worse than 30 years ago, so I'm doubtful about this "true progress". Our progress is just moving along without a clear goal.
>Also, you can't stop human curiosity and the drive to improve and compete.
You can cut off the economic motives for those things, which turn them from a human thing into an inhuman cut-throat compulsion.
So far this is true for the US, but Japan shows this might not always be the case.
The societal benefit of "infinite growth" is fully utilising the workforce. If an innovation reduces the number of people needed in a job we can try to grow a different part of the economy to use those people. Unless we can think of a different way to utilise people (eg universal basic income, negative income tax, free stuff for everyone, or something) growth is a useful mechanism to regulate society to an extent.
In the current model of capitalism, yes there is a systemic need for continuous growth - one might say, for VC-style turbo capitalism, there is in fact an even worse need for exponential growth.
"(...) Beginning in the 1970s, economic growth slowed and the income gap widened. Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly. The concentration of income at the very top of the distribution rose to levels last seen 90 years ago".[1]
[1]: https://www.cbpp.org/research/poverty-and-inequality/a-guide...
If we want to get enough food, shelter, and medicine for the population of the world to just not be in the brink of starvation, homelessness and death from simple diseases, we need more economic growth.
The economic output of a society is independent of the wealth distribution mechanisms. We wouldn’t magically gain all of the output we needed by just switching to socialism.
A simple example is a workforce building houses without tools and a workforce building houses with tools. The latter will have more economic output than the former and will be better for society overall, regardless of what share of the profits the workers get.
Yeah, but this is very different from saying growth is only necessary because of uneven wealth.
Not necessarily, not only is growth not bound to income disparity; once people's basic needs are meet (health care, minimum living benefits while out of job), the disparity is no longer a humanitarian issue.
More yet, what today goes to middle class in most developed and developing countries used to be the best upper class could get. There is a lot that can be done, of course, but the general state of humanity is on an upwards trend with economy.
- Neal Stephenson, Snow Crash
While it does to some degree, it's rather debunked as I understand it.
At the current rate 9$/hr on average for Africa would mean a massive increase in standard of living, so you could achieve the same goal you imply by better distribution of wealth without growth (though that has it's own problems).
What I'm trying to say is that continuous growth isn't necessary to improve standard of living.
Besides history has shown us that growth isn't continuous, rather it's cyclic with a general upward trend.
But in a system that presupposes "continuous growth" for sustaining itself, and all its structures have been built with that assumption, fear of recession is totally rational.
For most of time, up to the 20th century, growth was not an expected part of economic activity. Neither expected or required. GDP didn't even get dreamed up until the 1930s, and its inventor warned against it being used as a measure of the success of a nation.
Of course it was soon used as a measure of success, comparison and an easy concept for headlines and politicians. So the irrational belief that infinite growth on a finite planet was not only possible but desirable and necessary became the modern religion. :)
Not if you rely on selling labor for the income necessary to acquire the needs of daily survival, it isn't.
For zero growth or negative growth world a lot would have to change significantly. From presonal choices to government policies.
The global population is growing, correct?
So there should be at least some minimal growth to keep up with population growth, no?
Otherwise, if there is zero economic growth but a growing population, doesn't that imply increasing poverty?
As a side note, this inverted age pyramid aligns partially with a unbalanced power distribution as old people outvote younger generations and their interests by a wide margin.
However the reality is that recessions mean a lot of suffering and uncertainty for a sizeable chunk of the population. Pretending this isn't the case is extremely bizarre.
I sometimes feel conflicted about bad economic news-- a lot of my reading materials suggest this is 'good', because it's an opportunity to buy distressed assets and make more money. Then I think about the cost to others, and I realize I'd rather not make the money and let others have an easier time of it.
People don't have to die for their lives to be miserable.
(And people on HN don't have to be so literal or pedantic, especially when analogies are used...)
Have you considered that people might not want to lose their jobs in a contraction?
https://www.businessinsider.com/study-recessions-unemploymen...
ROTFL. Good luck with that mate. Show me how this is going to work. The Nobel prize in economics is yours for sure!
https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...
I wonder if this is how economic reporting has always been. I wonder if it's just click-bait feeding off of fear in readers' lizard brains.
From the outside, /most/ of the worries really do seem legit this time. I'm young, so I don't know what other times were like. But at the least -- the worries aren't fake news.
Taper tantrum seemed real. The European Banking Crisis -- I'm still not sure how nothing happened there, especially with Italy. China has really been the backbone for global growth since 2008, and Kyle Bass is making a pretty convincing argument that at least some of that has been an illusion.
I know I hear over and over again that this is "the most reluctant bull market in history". I'm sure every time is different. But I'm wondering if one of the things that really is different is how much uncertainty has been at the core of this market. There are very few people this time that believe everything is rosey.
From speculation, while there are tons of factors that may be giving this business cycle legs, I think one that's not spoken of enough is that many business may be a bit less cyclical today. Thanks to the cloud, companies can scale up and down on a whim rather than slowly build up an excess of hardware and staff to maintain them. Even industrial companies like rail car manufacturers have gotten smarter by leasing factories on short term and using temporary labor.
From my non-expert view, most of macro econ is practically religion anyways, and their predictions are basically non-falsifiable. Even so, I'm sure some informed folks have been thinking about these very issues, I just have no idea who. Would love any pointers.
Those news stop some times. I'm not experienced enough to be sure that every stop is a bad news, but it does certainly look like so, and older people seem to agree.
That said, I don't believe in the efficient market hypothesis, so I think people who claim that you can't time the market at all are either wrong or lying.
It is enough to miss few good days or few bad days over years to make a tremendous impact on the final result.
https://www.fool.com/investing/2019/04/11/what-happens-when-...
Think of it like this, imagine you had an hour to build a rock paper scissors AI going up against entire teams of people building RPS AIs for many years. If you build an AI that just returns rand() every single time, you're guaranteed to win about 1/3rd of the time, if you attempt to code anything even slightly more sophisticated, you're likely to get murdered by the other participants. You would have to build something exceedingly beyond your capabilities complex to even get back up to that 1/3rd performance figure.
Same with Passive/Active investment. Either you are 100% Passive or you have to be incredibly, incredibly Active to even match the performance of being Passive, there isn't a middle ground.
At which point an investor's strategy is below rounding error of optimization algoritms of more sophisticated investors? Or their costs of carry?
Purely theoretical conclusion then is that markets had been perfectly priced ahead over all time horizones.
I don't see how this is a problem - you don't have to capture all of the value, you just have to do much better than you would have by just holding the shares as the market bottoms out. Even the more sophisticated investors are small-fry when the whole market is considered.
That's something you might think will happen, but you have no idea as you cannot predict the future.
Also, the market can still go up in a recession, war or whatever.
In doing so you lower your average buying price and have cash on hand if you need it.
Better to stay in the market and keep rebalancing your portfolio. That way your 100% invested at the bottom.
Wasn't the crash timed with the FED tightening moves?
Most of the indicators have been flashing red for some time though, so I think the coming recession is no surprise.
https://www.businessinsider.com/isaac-newton-lost-a-fortune-...
You have to understand that if indeed people could in general know that the market was going to crash, then people would have already sold, and the impending crash would already have been priced in.
It follows from that, that the current price essentially is our collective best guess at what the future will bring, including any expectations of recessions. Selling beyond that point means you're seeing something that nobody else does, which either makes you a genius (or lucky), or wrong, and the odds are typically not in your favour.
You can find articles on recession indicators flaring up every month for the past decade. Suppose we had no sense of time, and just a sense of the daily weather to track the seasons. A few warm days in a row may indicate summer has landed, or it's just a normal fluctuation, a few weird days as winter turns to spring. And vice versa with cold days. There'll always be some indicators which may signal something bigger, and it could be just noise, or it could be truly indicative. You don't really know until after the fact. And if you could predict it, then it's likely everyone else could, too, and it'd have already been priced in so trying to time the market tends not to work.
This simplifies things a bit, but unless you're close to retirement (at which point you should reduce your exposure to volatile asset classes like stocks anyway), time in the market beats timing the market. There's lots of interesting articles on this like https://awealthofcommonsense.com/2014/02/worlds-worst-market...)
As Bill Clinton famously told us, US politics are largely anchored in the economy. Public perception of the state of the economy is going to be very much in focus through November of next year.
Certainly not big capital spending whatsoever in next year. Risky time indeed.
Not everything needs to have complicated side-effects.
Australia certainly deserves what it gets (my home country) given its attitude towards debt and housing, but I think the contagion is real.
A China 'slowdown' will probably not hurt the US, in fact, it may give the US leverage.
A China 'crash' will surely have emotional contagion among investors, which of course matters, because if they pull the plug on activities it'll translate into real world effects ...
But the 'material' contagion of a Chinese crash ... it's harder to predict.
I suggest that the issue is far more likely to be damaging as a 'trigger' to a bubble burst or something else, rather than materially damaging in and of itself.
Again, it could burst some kind of bubble and start a recession, but a China slowdown itself is not enough.
If the problem was with chinese real-estate, yes, the risk for contagion was minimal.
The only way that the economy "grows" indefinitely is if it regularly dips, and that is exactly how it has been working since WWII, with dips/recessions at 1975, 1982, 1991 and 2009.
It's surreal watching our major parties both trying to claim credit for the global economic climate.
It will badly hurt the largest economies in the world, which all depend on trade. If we're lucky it won't lead to global war.
We all have our local bubbles to contend with. In the US there are tariff taxes that affect the world but are a US thing. Then, in the UK, there is the joy of Brexit. You would not guess there was a problem if you were to be out and about in the UK this last weekend, however, read the papers and you will see stories about how that there is no inward investment, auto manufacturing is kaput and the High Street is losing many shops. Speak to some people and these indicators can be seen as unimportant, after all, isn't everyone buying online these days so the High Street demise is more of a shift to other fulfilment means, with no net loss involved? It can all be handwaved away.
With the example of Brexit the predicament can be blamed on Brexit and is therefore not part of a global recession, even if the frozen UK economy contributes to the big, global picture.
I am sure that in every market there is some local whataboutism, an ability to blame a local recession on silly politicians, a business scandal or some other local factor. In this way we could all walk into a global recession without anyone seeing it, thinking it was just us that was feeling a bit skint.
There are always people thinking we are on the verge of some mega crash. Personally I have been expecting the housing bubble to collapse for many decades but it has not happened. I have given up on that one now. I once worked in weather forecasting and, if you listened to me, then you would always have expected rain (I didn't understand low-lying clouds too well). Because of this tendency and bias that we all have it can be hard to make sense of media pundits and their forecasts of the economy. We also only listen to those that we are inclined to agree with.
There are always some indicators that are fact oriented and helpful, I think factory activity in Asia is one.
What I am surprised at is that there isn't a good indicator based on internet search activity. For instance, with the housing market in northern climes there is what the mortgage industry says for PR and then there is reality. Sales of flooring products, and by proxy, internet searches for flooring products may be a better indicator. Nobody fetishes over getting new carpets or laminate floors, people don't overly window shop for it, they just buy that stuff when they move home or have money to upgrade their existing dwelling. It is a purchase that can be easily put off. I need a 'basket' of these indicators and some Google Trends 'fu' to see the wood for the trees.
For this one point, Google Trends (formerly known as Zeitgeist) is available: https://trends.google.com/trends/?geo=US
But, I'll caveat that it is AN INDICATOR, and not the only indicator...And in fact, not even sure if search activity is a good enough signal to use as an input...Or at least not in isolation. Putting my digital adversarial hat on, if i had even meager resources to organize a bot farm to cleverly submit tons of searches in one direction or another, i think that would sufficiently skew your input signal right there. Just sayin'.
The trade conflict between China and the United States escalated last month when Trump raised tariffs on some Chinese imports to 25% from 10% and threatened levies on all Chinese goods.
If that were to happen, and China were to retaliate, “we could end up in a (global) recession in three quarters”, said Chetan Ahya, global head of economics at Morgan Stanley.
It strikes me as quite a precise predication. Though of course, that does not mean it is correct.