Yield Curves Invert in U.S., U.K
bloomberg.com
bloomberg.com
You know, you need sell all these products to somebody... And when US consumer stops buying new iPhones (or what ever) combined with recession then situation is going be really really tough.
So this will be worse that 2008. Much worse. Back in 2008, China was growing and helping to ease the recession. I do not think China's economy will grow during this cycle.
What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what led to two back-to-back world wars https://www.dartmouth.edu/~dirwin/Eichengreen-IrwinJEH.pdf
That hasn't been exhausted even in the slightest.
The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy.
The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.
Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics.
The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
And, how does QE cause other players to lose their treasury holdings?
I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
The same arguments were made against the New Deal.
Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy.
> The same arguments were made against the New Deal.
Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.
If the money supply (times velocity) is X, and I print more money so that it's now 1.1X, if I spend the new 0.1X in a way that grows the economy by 10%, then printing the money wasn't inflationary. If I spend the 0.1X in ways that don't grow the economy, then it was inflationary.
No, inflation is either an increase in the money supply (according to classical, i.e., pre-Keynesian, economics) or an increase in the average price level, often qualified to be the average price level of "wage goods" (according to Keynesian economics).
The underlying argument behind "size of economy/money supply" is that if the economy is growing (more precisely, if the rate of economic activity is growing), then increasing the money supply will not increase the average price level. In fact, if for whatever reason (and Keynesians have no trouble coming up with plausible-sounding reasons) you want the average price level to remain basically the same, you should print more money as the rate of economic activity increases.
While these are true statements, they ignore the fact that printing more money is economically equivalent to a wealth transfer from whoever does not get the newly printed money to whoever does get it (which under our current system is banks and other financial institutions). In other words, it's the same economically as a tax on ordinary people whose proceeds go to rich bankers and financiers. But it's much more palatable politically, which is why it's our current system. (The old system, before the Federal Reserve and other central banks gained power, was that when governments got in financial trouble they had to explicitly go to rich bankers and financiers and ask for bailouts, which was politically unpalatable, not to mention a huge pain for the rich bankers and financiers since people would see that they were effectively profiting from the economic woes of others. So the rich bankers and financiers got together and sold the politicians a system of central banks where all of this could be done under the radar so the ordinary taxpayers wouldn't see it and wouldn't complain about it.)
> [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy
... is not a fully accurate statement?
> > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy
> ... is not a fully accurate statement?
If you are saying I should have added a qualifier "assuming the rate of economic activity stays constant", yes, that qualifier should be there (if we define "inflation" as "increase in the average price level"). But I don't agree that any qualifiers like whether or not the money gets spent "foolishly" or "unwisely" need to be there.
Also, our current measure of "rate of economic activity", GDP, is not independent of the money supply, because it measures "activity" in dollars. So the fact that US GDP is growing does not necessarily mean the real rate of economic activity is growing.
My point was that simply increasing the money supply may or may not result in objective inflation over modest timescales.
It certainly usually does, because foolish things are more politically popular than effective things. But it doesn't have to be so.
That's certainly how such policies were sold to the labor force, yes. But it's not what actually happened.
> We would not have our modern understanding of a middle class lifestyle had it not been for New Deal policy
To the extent that this is true, it means that our modern understanding of a middle class lifestyle is not what "middle class" meant at any previous time in human history. "Middle class" used to mean entrepreneurs--what today we would call small business owners. In other words, people who understood that the only way to make sure of the lifestyle they wanted was to manage their own business risks and not entrust them to anybody else.
Our modern understanding of "middle class" is what used to be called "wage slaves"--people who are content to let the leaders of the large organizations they work for take care of all the business risks, in exchange for a safe source of steady wages and benefits. But the leaders of the large corporations, unlike the "middle class" who worked for them, always understood that the steady wages and benefits were not "safe"--that as soon as the business realities changed (i.e., as soon as the huge new markets that opened up after WW II became saturated, which was happening by the mid-1960s to early 1970s), the large corporations would basically renege on all the promises they made to the labor force during the boom. Which is exactly what happened, and which amounted to whatever surplus value was in fact captured by labor being temporary. And the New Deal did absolutely nothing to prevent it.
If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro.
https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...
And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.
With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI.
Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.
Note: I understand that "yield curve inversion" does not mean "recession, depression, war" is inevitable or likely - only that these things are indicators at best. That said and understood...
Either our society is the dumbest there is (in aggregate - but possibly in general, too - with small pockets of intelligence, just not enough - and they are under constant attack) - or "someone" (not saying an individual or a group - or even planned for that matter) is wanting us to "go to war" - which if the past is any example, could very well be - or turn into - "the final war" (hah - who am I kidding - any survivors would probably battle each other with sticks and stones).
It's like were either really, really stupid in some regard - or there is this almost innate need by some portion of the species (or at least our American society) that desires and needs mass death and tragedy on a worldwide scale. If either is true, it points to a vast failing of our own making.
The sad thing? I can see it, others see it or have seen it; heck, those who were leaders and/or have been in "large-scale combat" have seen it up close and personal and don't want it.
This isn't a new observation at all; it is thousands of years old: "War is Hell" is a recent colloquial form of the message, and nobody (sane?) wants it.
So why, why, why do we keep doing it? Seriously - why?
I'm not expecting an answer; the possibilities and such are vast, likely rooted in various philosophical reasonings, etc - but seriously - all we have to do is...stop. Stop doing it. Stop being...dumb.
Education, even from an early age, does not seem to work - or at least, it doesn't seem to work on everyone. Many internalize the message, the idea, that "violence is bad" - and try their very best to avoid it. The "reptilian brain" keeps trying to reassert itself - but with some minor effort, we can avoid the issue mostly.
I'm not sure what its going to take for it to really stop. The Star Trek universe was built on the idea that humans had to first go through a massively devastating war before they would finally stop. Nice idea, but I think even that wouldn't be enough. We seem to be a species that constantly performs a "tragedy of the commons" experiment - and ultimately this need for "war" won't be won until only 0 to 1 humans are left. Even with only a single human around, I'm sure it would find a way to war...
Fortunately it looks like I was wrong, but it also looks that “liberal democracy” is on its way out in many former bastions of said democracy. I fear that a new nasty recession right now will throw us out directly into a war, we’re at the 1937-1938 moment when almost all of Europe had gone the wrong way in the previous decade (politically speaking).
> but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate.
Ten years ago I bet almost no-one was picturing the late-1980s anti-nuclear treaties going the way of the Dodo bird. Or a land war in Europe (Ukraine is indeed in Europe). Or German politicians being shot for their political beliefs. Or British politicians being shot for their political beliefs. Ten years ago I wasn't seeing US soldiers and their trucks almost every time I take the highway in order to visit my parents in the countryside (I live in an Eastern-European country and NATO member, a geo-political stone's thrown away from Russia). Ten years ago Russia wasn't testing a nuclear-fueled rocket.
Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it. Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again. The West has largely let it happen, and while I don't understand why, at this point it's hard to see why that would change. US troops have been in Europe for a long time. Whether you saw them more or less in the past, troop levels there haven't changed that much.
They haven't been in Romania, which is, like I said, a stone-throw away from Russia. And they started showing up after the start of the conflict in Ukraine.
> Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it.
That's not my understanding of it, at least not when it involves Russia (China is another story).
> Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again
Not sure how that follows. When you have nuclear weapons that you can launch from anywhere at anytime you are a super-power. The US and Russia are 100% military super-powers because they can basically annihilate each other at a moment's notice. I'd add China to the list, probably the UK and France too (not sure if France has nuclear submarines, though, too lazy to check right now). Even though Israel has nuclear weapons I don't treat it as a military super-power because of its lack of nuclear submarines or IBCMs. The same goes for Pakistan and India.
https://www.globalsecurity.org/military/facility/romania.htm
They have been, in fact.
Dates for WW2: 9/1/1939-9/2/1945
Dates for Great Depression: 10/29/1929 to 1939
What I was saying was the underlying currents in the economy and politics are similar to the ones that led to those 3 events separately, not necessarily in the causal order in which they happened.
The first industrial revolution was punctuated with the American civil war. The second industrial revolution was punctuated with the great depression and World War 2.
Just imagine what the digital revolution is going to be punctuated with.
We are in for a hell of a bumpy ride.
The recession will be weak, the recovery will be weak. The repeating behavior and stacking debt is resulting in lower dynamism in all regards. We've already seen all of this: Japan showed us exactly how it works, why (government debt), and how it cycles toward increased stagnation, perma low rates and low inflationary pressure.
The overly dramatic doom predictions are merely making the perceived easy call, and piggyback riding on what happened in 2008. A repeat, much less something worse, is not what we're going to see at all.
But other times it sounds like he's saying the real "big one" is still about to happen, rather than just another recession.
Where does he publish his stuff?
Big Debt Crisis is an interesting read if you have an interest in his economic outlook. Still a free pdf I see..
https://www.cnbc.com/2019/08/16/bridgewater-ray-dalio-on-pos...
The financial system is not in that same position this time and as for China, China's growth is largely kept to china itself and guarded jealously, China did little or nothing to ease the 2008 financial crisis for the west.
Serious question - how has that changed? It looks to me like since about 2009 banks have been trying very hard to get back to the same shenanigans they were pulling before 2008, and are mostly succeeding. They were given the message that, "Hey - you're too big to fail. Uncle Sam's got your back, and there will be no consequences for the people at the top. Do whatever you need to do!"
Also, like, Lehman Brothers collapsed in 2008, and Bear Stearns and Merrill Lynch both got sold at fire sale prices. Shareholders don’t want those risks, and even if managers are too insulated from financial consequences of a collapse they probably care about reputational risks as well.
What you're describing is just the normal stuff that happens in all recessions.
And as much as we had a long boom, we also had quite a long painful recovery from 2008, it wasn't the same as normal recovery which explains why it's been so long since the last recession.
What do you think about the carbon bubble?
Whaaaat, noooo, we don't have any of those...
Wells Fargo has already proven that the same rules that were in place in 2008 that allowed those that caused the collapse to escape unpunished are still there.
Assuming the current administration is in power, government assistance programs will be greatly cut leading to desperation on the part of the nations 40% that cannot afford a $400 emergency.
Household debt, especially student loan debt is far above what it was when the 2008 recession hit making people even less prepared to handle a financial collapse. "Student loan debt hit $1.486 trillion, according to credit data from the New York Federal Reserve. By comparison, student loan at the height of the financial crisis was $611 billion and has been mostly rising since"
Assuming the ACA case makes it through the courts before the recession is over, health care will likely be stripped from millions of those worse equipped to handle it. Many of the homes that were affordable a decade ago have now been bought by mega renters and are rented out at high rates. People who lose their jobs will be unable to afford rents that are only increasing nation wide.
I think large companies and banks will weather it relatively well.
We will likely invade a middle eastern country to distract the proletariat.
https://www.marketwatch.com/story/us-consumer-debt-is-now-br...
I think something overlooked by many is that without the small cushion of having family to fall back on if everything went bad or a nest egg, many of today's entrepreneurs would not exist. Risk for those whom failure means living on the street is generally avoided, especially for people with kids. A UBI would allow them to try and compete or at least live life without waking up terrified every day.
That doesn't mean a recession can't be really bad, though. Particularly when our normal tools for handling recessions are constrained, like interest rates already being low.
We're also still dealing with the greater inequality effects from the 2008 debt monetization, which is partly (according to that model) responsible for the greater populism political effects of that (like Trump's election, who ran as a populist in 2016).
It can only get worse if there is something that was NOT present in 2008 will manifest itself.
In 2008, you had a major failure (within days) of Lehaman Brothers and some major financial institutions, all were a complete surprise.
A recession in china (controlled recession) might actually be a good thing overall.
I've heard that the US mostly sells stuff to itself, i.e., trade is a relatively small component of its GDP. I haven't looked into it, yet, though.
2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real. The correction involved resetting said books and taking a few banks and a trillion dollars of US taxpayer money along the way.
What is the correction this time? All it would really be is a run on confidence in global financial markets. This has happened many, many times (and did happen in 2008 but it was a response to the insolvency of banks). It happened in 2000, it happened in 1993, it happened in 1980, etc.
If its just a correction in overvalued stocks, futures, and a contraction in loans and interest rates thats just a normal recession. We're due to have one, they happen all the time, and since there shouldn't be an influx of millions of displaced / homeless suddenly because this isn't the result of mass foreclosures on defaulting home loans it shouldn't be as disruptive this time. A lot of theoretical stock value gets wiped out, some people lose a lot of money, and then you get to start the cycle over again with rates back under 1% and the DOW down a a few thousand points from its current cresting highs.
Firstly, I totally agree with you on 2008 - bank failure driven recessions are always worse than regular recessions, so 2008 already takes a lead.
However, there is another aspect -- the 2008 crisis was controlled by a combination of controlling interest rates and other QE measures. We're now still in ZIRP (zero interest rate policy) so one of our key tools for combating a crisis is gone (it is like being at the bottom of the hill and realizing you are already on low gear.)
Of course, we have other QE as well as fiscal tools, but lowering rates wont be one of them.
Dropping rates creates speculation of future economic growth that can make stocks go up and thus make the capital class happy their assets are accruing but it seems new business growth is fairly exclusively on the side of consumer demand pretty much this entire century. Increasing money supply isn't doing jack. If theres no money out there looking to buy goods and services you could be giving away money to banks with no meaningful economic benefit for it.
Europe has been in this kind of glut longer than the US has but its infecting the whole world - too few people have enough money to create the real demand that stimulates real economic growth. Theres only so many yachts a billionaire wants or so many summer homes a millionaire stakes. Wealth inequality is the driving force behind the slowdown and none of the forces that participate in shaping policy are aligned with the goal of fixing it.
An even larger amount of money was placed on bets on whether those mortgages were real, as opposed to the mortgages themselves.
Don't forget the Europeans. The 'prudent' Germans of Deutsche Bank were in the thick of it too:
* https://www.thelocal.de/20110415/34419
* https://www.reuters.com/article/us-deutschebank-suit-idUSBRE...
See also:
* https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subp...
Good book on how things went down and my who is Crashed:
Incredible book. Tooze's interviews and lectures on the subject can only scratch the surface of what the book covers, but they are worth a listen too. I can recommend his appearance on the podcast Talking Politics:
https://www.talkingpoliticspodcast.com/blog/2018/113-crashed
Took them a while to see what everyone else can see in plain daylight...
Automotive, luxury, finance, etc... None of these benefit from recessions.
These people need to sell you, that you will have a job tomorrow.
Kudos from his base, enhances his "tough guy" image, helps his 2020 campaign.
But I don't think it's that simple, he's clearly a coin operated guy so which coin is operating him to escalate this trade war?
His base really can't put 2 and 2 together. You seem to think it's obvious that tariffs will cause prices to rise, but you seriously underestimate just how stupid these people are.
If you really think the average voter is competent at economic matters, I have a bridge to sell you...
https://www.npr.org/sections/thetwo-way/2014/02/14/277058739...
> 1 In 4 Americans Thinks The Sun Goes Around The Earth, Survey Says
i.e. about as much as voted for each of Trump/Clinton in the last election (which also taught us, amongst other things, that surveys are not to be trusted...)
I don't think they are stupid. But they are gullible and have been brainwashed. Their world view has been warped into something that just is not based in reality anymore ("invasions", "climate change doesn't exist", etc). This is not unlike what happens to people who get suckered into joining a cult...
So when Trump keeps saying that "China pays for the tariffs" - which is an obvious and outright lie because American consumers pay for them, it is a straight up tax on consumption - his base believes it. And somehow they don't - won't - put 2 and 2 together and connect the rising prices with the tariffs, because that would invalidate their worldview.
Isn't that just another way of saying someone is stupid? I'd say a serious lack of critical thinking skills qualifies as "stupidity".
Kinda reminds me of the people who say that they aren't susceptible to advertisement.
Many of the individuals supporting the trade war and tariffs know that it's causing them problems, but as far as they're concerned it's worth it to stop China from "screwing them over" or "taking advantage of them". This is not, in fact, an unusual thing- people are are frequently willing to take some personal pain to punish what they believe is wrongdoing or failure to adhere to social norms.
I happen to be on the side that believes the tariffs and trade war are doing more harm than good, but labeling those who disagree as stupid is exactly the sort of thing that leads to resentment, failure to communicate, and polarization, none of which are valuable.
There's even a term for this in economics, called Animosity, which leads to economic imbalance: https://en.wikipedia.org/wiki/Economic_discrimination#Animos...
A country exists with a racial divide, let's say blue/green.
A blue person abuses a green person.
The green person does not fight back, and takes the abuse, knowing they are powerless in the society.
A different blue person, blue person #2, attacks the original blue person. This puts bp#2 at legal and physical risk, even though they were never under any threat of subjugation or abuse from the original attacker.
Blue person #2 would be said to have acted in a form of reciprocal altruism for the green person. This type of behavior is often seen, even in situations where BP#2 has little or nothing to personally gain, was never at any risk, and could potentially receive large negative consequences personally for their actions.
Clearly blue person #2 was also acting in a manner of animosity, that (more generalized) could or not be considered discrimination, economic or otherwise.
I would even go as far to say, it might be a case of them believing that they are taking short-term losses to come out ahead of this in the long-term. Whether it will turn out this way in reality, we will see, but that line of thinking actually does make sense.
I respect Krugman as an economist but not as a political pundit, he needs to dig harder than resorting to the age old "don't ascribe to malice what can be explained by stupidity". There is already some simple logic (trade war = tough = re elected) behind the decision, I just believe there is more to the story that we don't see.
Comparing him to insane kings from the 18th century just gets people to chuckle and move on, sweeping deeper critical thought under the rug.
To call him stupid or mad ends any line of further inquiry into why he does the things he does, and that to my mind is very, very dangerous.
He's sane/rational. He has motives for most of his actions from what I've observerd. I'm asking what the motive is behind his initiation and escalation of the trade war with China.
I'm not arguing that it's an intelligent thing to do, or that Trump is intelligent. I'm asking what his motive is. If he was irrational I would concede that perhaps there is no motive because he's disconnected from reality.
If this were true, he wouldn't be POTUS.
At best, you could say he was "elected according to the rules, procedures and processes of our democratic republic form of government, as defined by our Constitution".
That would be a fairly true statement.
It would also probably be a true statement to say that our Electoral College failed us in their primary purpose, which should be to assure that the POTUS which is elected nominally will serve the interest of all constituents, and not just some of them.
POTUS #43 could be said to have served all the citizens of the USA, even if they didn't agree with his policies; the same certainly cannot be said of this POTUS, not IMHO.
What, exactly, should "democratically elected" mean if not that exact sentence?
So now you keep saying he's stupid, and doesn't know what he's doing. I'll just keep reminding myself that he managed to get himself elected.
I don't consider him ignorant and dumb because I don't like aspects of his persona. I consider him ignorant and dumb because every time he opens his mouth or types something on twitter - what comes out is generally ignorant and dumb, assuming it is composed of actual words.
Misspellings are one thing - if that were the extent of things, I could probably just chuckle, even if I vehemently disagreed otherwise. It's more than that. It's often a stumbling incoherency to the messages, almost as if he's speaking in some form of "stream of consciousness" - just saying whatever is coming to his mind - and it is composed of very simplistic words and phrasing, at best.
Worse - he's been shown to literally lie within a single sentence or paragraph (most of the time, it takes him hours or days to go from one "truth" to something 180 degrees opposite). He either doesn't know he does it (bad enough), or he has two independent personalities warring inside his mind (worse), or he knows and just doesn't give a f--k (worst, imho) - for all we know, it could be the trifecta.
None of this points to him being a leader of or for anyone or anything, let alone somebody who should have his person anywhere near our nuclear arsenal.
---
Something else that is interesting - and I know its completely anecdotal and probably not really true.
But - it has often been noted that being POTUS tends (or seems to) age a person. They go in looking spry and hale, and exit - well, chastened, and visibly older. Even after only a single term.
Should Trump make it through his term (possible) - and/or should he get another term (I atheist pray not - but who really knows?) - note how he looks afterwards. Right now, he doesn't really look any different than when he started. Maybe that's bias on my part, but I really don't think being POTUS has changed him in the "usual manner" that we have seen of past POTUS's.
This itself should be a concern, if there is any truth to the concept. It either means he's not actually doing the incredibly hard and difficult work of being POTUS, or the usual stress of being POTUS - all the concerns for the welfare of the citizens and the country, and more - do not and have not meant anything to him; ie - he doesn't care, and that hasn't translated to stress that would affect bodily changes. Or - he's a sociopath who revels in the issues, and wants more. Any of these possibilities should be worrisome to the electorate.
And Krugman’s articles of late seem not be rooted in logical, rationale thought but rather leading with ideology and emotions.
> First, look at the whole piece. It was a thing for the Times magazine's 100th anniversary, written as if by someone looking back from 2098, so the point was to be fun and provocative, not to engage in careful forecasting; I mean, there are lines in there about St. Petersburg having more skyscrapers than New York, which was not a prediction, just a thought-provoker.
* https://www.businessinsider.com/paul-krugman-responds-to-int...
That was the year Apple was still on the ropes (Microsoft's investment was in 1997), Google was just kicked off by a $100K cheque by Bechtolsheim, Amazon was four years old, and Facebook didn't even exist.
Give it a rest, it's been over twenty years:
> I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes.
* https://www.snopes.com/fact-check/paul-krugman-internets-eff...
How wise were you when you were twenty years younger than you are now? Sheesh.
Assertive alpha signaling and mammalian dominance gestures tell the parts of our brain that haven't changed since we were small tree rats that "this person knows what they're talking about, trust them, follow them." These parts of the brain are primitive and emotional and can easily override the rational mind. This is why charisma tends to beat substance even with audiences that really do know better.
Trump is assertiveness and dominance gestures and nothing else. There is no "there" there. He has no special understanding, no strategy other than "assert dominance" which all he knows how to do, and no plan.
Our only salvation in this is that many of the leaders of other nations are similarly empty.
Exactly, and this is why the Democrats keep losing elections. They just can't wrap their heads around this simple fact that you stated here. They keep thinking that if they pick candidates who can go on at length about policy, that voters will love this and not care about charisma, so they pick the most uncharismatic candidates they can find. Obama proved the DNC wrong when he "stole" the nomination from Hillary in the 2008 primaries, and showed that a candidate with a lot of charisma was what was needed to win the election.
[1] https://www.bloomberg.com/news/articles/2017-10-25/under-tru...
[2] https://time.com/5651345/rusal-investment-braidy-kentucky/
[3] https://www.scmp.com/news/china/diplomacy/article/3013549/ru...
People wonder where all this wealth inequality is coming from when it's as plain as day. The inequality is coming from the fact that large companies are taking jobs that were performed domestically, and shipping them overseas where there are less regulations and cheaper labor. They then sell that same good at the same price to the domestic consumer who no longer has that job. Do that with enough industries and only the people who actually own the company stand to come out on top. That is why the middle class is shrinking.
seems like there's a risk of:
higher labor and materials costs leading to higher prices, leading to lower sales, leading to reduced revenue, leading to workforce reductions, leading to lower sales, leading to reduced revenue, leading to workforce reductions...
ie a basic recession spiral.
One of those is outright IP theft. One especially egregious form of that is by OEM manufacturers in China getting specs from foreign firms in the US and Europe then manufacturing knockoffs under their own brand name on the same lines as the ones they're making under contract. China has agreed to curtail this in their industries. Another form of outright IP theft is paying industrial spies to go to other countries and leak government and corporate documents back to China in an elaborate espionage system.
Another practice which China has already announced it is ending (and may have ended without the trade war eventually anyway) is forcing foreign companies to form foreign/domestic partnerships with Chinese companies in exchange for access to manufacture or sell goods in China. Often this involved cross-licensing agreements for IP, meaning companies like AMD had to license their patents and copyrights to Chinese companies or but shut out of the market.
Stop stealing our intellectual property
Stop forcing technology transfers
Stop hacking our computers and steal our trade secrets
Stop dumping into our markets and putting our companies out of business
Stop their state-owned enterprises from heavy subsidies
Stop the fentanyl
Stop the currency manipulation
[0] https://www.foxbusiness.com/economy/trumps-china-tariffs-not...
Currency control comes with being a sovereign nation. Our government and the Federal Reserve in the US issue more or less new money into the economy and raise or lower interest rates to control the strength of the US dollar all the time.
I'm not sure dumping is a real problem for most products. Ones that are dumped are often cheaper in the first place because of the other problems, because it's easy to sell cheap when you didn't pay for research, development, design, or industrial engineering for the product. Other dumped products are often such low quality that they could be driven out of the market with consumer rights laws and lemon laws.
The rest I can agree are real issues.
> I'm not sure we can blame our fentanyl problems on China any more than our cocaine problems on Colombia or our heroin problems on Mexico.
The scale of the operations suggest that the state is involved. It used to be the case that actual clandestine labs would produce a kilogram or drum of illicit substances here and there, which is what happens in some Canadian labs. However, we're regularly intercepting unprecedented amounts of fentanyl analogues from China.
There's literally no where else in the world where both the manufacturing ability and severe lack of accountability both exist to produce novel fentanyl analogues in excess.
Also, China is selling thousands of doses of fentanyl to individual American kids online, so there's that, too.
I lived in Missouri before we had to sign for psuedoephedrine. Trust me when I say busting a lab here and there doesn't stop production. Reports I've read say you can invest $4,000 to easily make a kilo of fentanyl and after cutting and distribution it's worth $1,500,000 ( such as https://www.gangsterismout.com/p/fentanyl-w18.html ). Carfentanyl is supposed to be basically as easy to make and about 100x as powerful. This leads me to believe no state sponsorship is required to quickly ramp up production. If you can sell a $4k investment for over a hundred million dollars, you can ramp up quite quickly for your next several thousand kilos.
Countries don't only impose import tariffs when trade wars get really ugly, either. Imagine all of OPEC hitting the US with export tariffs in their countries. Or imagine Mexico, Germany, Japan, and South Korea charging export tariffs on their car manufacturing for exports to the US. A 10% or 20% export tariff costs the consumer the same as an import tariff of the same amount, but the money goes to the exporting country's government, which if they want they can use to subsidize the industry being taxed. The target country can't credibly accuse you of dumping if you're intentionally charging them more than everyone else.
The US does a lot of outsourcing of parts and subassemblies. Then US companies import those to make into other products or assemble them into more complex systems. Those import costs go up under tariffs, and much of the demand goes down for the finished product when there are tit-for-tat tariffs to sell those overseas. Meanwhile if some country neither party is in a trade war with starts buying the parts and doing the final assembly, they can undercut US manufacturers' prices because they have lower taxes in place on those products.
It would take years to move all the vertical supply chains into the US and to do so would be extremely expensive. The low-cost labor from overseas would likely be replaced with factories with a much higher level of automation to keep the costs down. That's going to provide more professional jobs and highly skilled technical jobs and fewer low-skilled and trades jobs than people might like to imagine. All the while, the resources to build those new factories is higher from the tariffs unless we're building it all with domestic parts. There is no training program in place of which I'm aware to teach coal miners and steel mill workers to assemble things like motherboards and flat panel displays, either, which means the labor costs for those things is much higher than just the wages if those jobs aren't automated away.
Whose thought? The people who didn't know that trump was an incompetent nutjob?
Those who were fooled, were fooled because they chose to be.
If he could have been richer by not being bankrupt then that would indicate competence to me.
Also daddy gave him $435 million IIRC. If everyone on HN had got that I suspect most of us would have done better.
In general, I agree with you.
There's a good Planet Money podcast on it as well: https://www.npr.org/2019/05/22/725893104/episode-914-trump-a...
It is also why the Trump family has preemptively sued Deutsche bank in an attempt to seal records and obstruct any investigation.
I imagine he will get rich even if U.S. goes through a bankrupcy.
Much of what he has left was gotten by repeatedly breaking the law, and somehow only ending up with civil liability instead of criminal convictions.
Now he is actively wrecking the US economy and has somehow bullied the GOP into going along with it.
He made money by burning other people and companies, but he came out quite well from it.
* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
Bogle started Vanguard in 1975:
"If you want to be a Millionaire, start with a billion dollars and launch a new airline." -- https://en.wikiquote.org/wiki/Richard_Branson
If you start with a lot you can deplete much of it before you have only a little.
> ... usually, every investment property should be owned by a separate limited liability company that owns only one property and that is not engaged in any other business activity. The reason is simple: to maximize asset protection.
https://www.keytlaw.com/azllclaw/asset-protection/how-many-l...
And you really shouldn't go throwing around spurious accusations like that without any evidence.
So which is it? He started 500 businesses, or he has a few businesses that are made up of multiple properties.
I have friends with a few dozen rental properties, all in separate LLCs. I wouldn't say they "started 50 businesses".
So with your wording you should say Trump owned 500 properties and 6 of them lost money. And like any real estate investor, when the properties lost money, Trump gave those 6 properties to the creditors.
But I think my wording is more accurate. Your friend's rental properties may not be individual businesses, but Trump Tower or the Taj Mahal are.
The vast majority of his businesses have no customers, and no regular income. They aren't intended to make a profit--they're intended to protect an asset from the bankruptcy of his real businesses. There was never any chance that they would need to go bankrupt, so he gets no credit for them not going bankrupt.
Where do you get this? Is this just more BS with no evidence, like the money laundering accusation?
I haven't seen a complete list, but even Wikipedia has a list with a lot of businesses:
https://en.wikipedia.org/wiki/The_Trump_Organization
> they're intended to protect an asset from the bankruptcy of his real businesses
Even if you were right about Trump's businesses, corporations don't work like that. The stock can be taken in bankruptcy so they don't protect assets inside the corp from bankruptcy of the holder. They only protect assets outside the corp from bankruptcy of the corp.
The public at large does not know how much Trump is worth because he won't disclose much of anything.
See how this level of discussion of not just demanding a citation, but then limiting what citations you accept to an extremely small set of documents isn't constructive?
It's a reasonable question, but 1 minute googling got this report https://www.buzzfeednews.com/article/kendalltaggart/here-are... with 3 of them viz.
The Trump Taj Mahal Casino
Trump’s Plaza
The Trump Castle
What evidence in your view, other than his his tax returns and financial statements, is there to show his wealth? Because that's fundamentally what's being requested. I don't think those exact documents are needed if there are good alternatives. Suggest some alternatives.
>What evidence in your view, other than his his tax returns and financial statements, is there to show his wealth?
You really think that you need tax returns to prove he is currently wealthy? Is that a consistent standard you apply to everyone? When someone says that Bill Gates is rich, do you request the same level of documentation before you believe it? Are you doubting the relevance of other indicators of wealth such as lifestyle and property holdings?
> The public at large does not know how much Trump is worth
So this is about HOW MUCH he is worth. Hence the request for docs quantifying it.
Then I say
> Suggest some alternatives
And you just snowjob with questions in return. I asked a question. Please answer it by stating what publicly available docs will show trump's wealth.
> Are you doubting the relevance of other indicators of wealth such as lifestyle and property holdings?
Irrelevant.
We want to know how much so as to judge his competency at business. Please answer, what public documents will show his wealth.
Also why are you so willing to assume he is a competent businessman without actual, audited financial evidence to back up his claims?
If.
Did Trump ever put more effort into anything in his campaign and Presidency than he put into preventing his tax returns from getting out?
If you want to claim he isn't as rich as he claims, then then I'm not disputing that at all (I haven't a clue), but to claim he isn't rich does not align with existing evidence without fiddling with how we define rich and poor in ways we don't otherwise fiddle with such definitions.
Having, say $300 million sounds like a lot. But if you inherited $700 million (as Trump likely did), having only $300 left today is a catastrophic failure.
Other tools he's used include hiring undocumented immigrants for construction and then not paying them and refusing to pay contractors that worked on his buildings. He maintains his wealth by making deals and then refusing to pay when the bill comes. The bankruptcies are just a part of this pattern of behaviour.
Mark Cuban speculated that he wasn't a billionaire, and maybe not even a 500-millionaire. He talked big and pushed the brand, because that's all he had.
His main claim to fame, nearest I can tell, is a mix of poorly run real estate, reality TV, schlepping shit tier steaks, and his online university that got sued out of existence.
Put another way, if I were given $100M by my dad back in the 40+ years ago, and managed to grow it to, say, $500M by today, that would be nice, but I wouldn't consider myself "good with money". And it looks like the real figure for Trump may be north of $400M[0], which makes even $1B -- if he has that today -- look not all that impressive.
We're talking about the US President here, someone we should feel comfortable with influencing/managing the fate of trillions of dollars. Trump is not that guy.
[0] https://www.nytimes.com/interactive/2018/10/02/us/politics/d...
2) His wealth was not created by himself, at any rate. He lied and said he inherited a small loan of a million, when in fact it was at least 2 orders of magnitude more than that. His father was the real smart businessman and his career has largely been failure upon failure.
3) He basically did win the lottery of being born to a wealthy father and squandered it all. How much did he squander is very hard to say when he himself covers up the details.
So yes, he is incompetent with money and business. He is competent with power, intimidation, and getting his way. That may have worked in the small pond of the 2016 election, but that is about the only place the man's been successful.
Because money laundering is illegal?
And no, those six bankruptcies were not strategic, they were failures to operate a business. One bankruptcy is strategic, two a coincidence, six a signal of incompetence. The sheer number of shell corps he's founded and thousands of civil court cases points to exploiting investors through shady practices.
Example: Business 1 buys a $1M piece of equipment with 30% down and 70% credit. After a couple years, and knowing that Business 1 is not that profitable anyway, the machine is sold to Business 2 for $150k, even though it's probably worth $700k still.
Business 2 makes $550k profit on the books. Business 1 files bankruptcy. The creditor loses their $250k outstanding loan. If the same owners own both businesses, they come out massively ahead.
Rinse / repeat with dozens (or hundreds) of businesses, some automated workflows and depreciation tables, credit line hacking, etc.
An established real estate family will have plenty of room to shuffle assets and credit lines around in a favorable way within those limits... for a generation or two.
He did not create 515 for-profit businesses.
I think it's more correct to say that people are realizing that the old order under the president is gradually eroding and its moderating effects are weakening, which adds compounding risks (directly in the trade war stuff but also hidden ones that may be lurking as that erratic behavior starts more directly impacting all aspects of US policy).
Instead of using "Deep State", it might be better to say "Agency Directors", if you wanted to use neutral language. "Deep State" is loaded. Of course, its more popular these days to value-signal which side of an argument you're on, rather than appearing neutral...
In any effect, the people who use the word "Deep State" wish to imply that government workers have their own agendas. In my experience however, government workers overwhelmingly just want to do a good job with the task they've been assigned (much like any other human who are tasked with a job).
It’s a pipeline and someone has their hands on the valves.
For instance, in Washington DC there is certainly a pipeline from public to private to high level to lobbying to etc., but I think what the +parent posters is referring to encompasses the scientists at the EPA and the USDA, the doctors and nurses and managers at the VA, etc etc. They tend to get a job there after a bit of moving around and then stay 40 years. There is no trading out to private sector -- they generally get a gov't job because of a combined desire for altruism and good benefits and stability -- and the vast majority would never even be offered, much less accept, a lobbying position.
Source: family in such positions, who just want to examine and regulate the wastewater output of cheese factories in the heartland and go home after a good day's work. Said member was forced out of their job recently due to politics -- not "business-friendly" enough.
Now you’re replying to me about high-level HR decisions biasing the processes of government agencies. I don’t think there is anything to elaborate?
I think the OPs point was “deep state” has a deliberate, highly charged, negative connotation.
Don’t conflate the horrible reality of racism with the historical origin of a racial insult. The OP is merely using it as an example to illustrate how terms acquire meaning through time and social norms. Not excuse their existence.
My point is that words have meaning based on who uses the word. The N-word is used by racists and is now avoided by polite society (unless you wish to explicitly label yourself a racist)
"Deep State" is used by conspiracy theorists who wish to destroy government workers and their positions. Its a phrase that should be avoided unless you wish to paint yourself a conspiracy theorist.
Similarly, any unelected bureaucrat working in the executive branch that pursues their personal agenda or tries to slow progress on the plans of the duly elected executive is de facto going against said will of the people.
That is cognitive dissonance of the highest order.
The trade war is one such blunder that no responsible and informed person thought would do any good long term but was spun as a hard core negotiation tactic. Tariffs are import taxes charged mostly to residents and businesses in the home country or passed to the consumer by the importing firm. This short term harms everyone but could be the straw that pushes a close deal to be ratified. Unfortunately, we didn't have a close deal beyond the TPP and this wasn't a cooperative negotiation but one of necessity framed as USA vs China.
It was never a smart move and was recommended against by nearly all experts or those with experience in the matter and we have reached the logical conclusion of such policies to find that there is no deep state outside of conspiracy forums and our economic outlook and foreign policy is a dumpster fire as Trump is not rational but likely narcissistic and mislead or misinformed by his staff to ignore reality such as the looming economic crisis.
If you're a civil servant in a department, you've worked there for years, you know why things are done the way they are, you know the pitfalls and the edge cases, you know the stake holders etc, etc, etc.
Some politician gets elected on a pledge to, eg, change the side of the road people drive on. Simple right? Set a date for next month as the switch over date, send a letter telling everyone, simple.
Except lane markings need changing, signs need changing, and most of those aren't directly under your control. Insurers are up in arms because all the cars are set up for driving on one side of the road. Some disability group is sueing because a proper safety study wasn't done, engineers can't guarantee that going on the off ramps and off the on ramps is safe, because they were never designed for that and theres 10000 other assumptions that were made on the basis of driving on one side of the road that are now invalidated, and its your job to point that out to your new boss.
Someone who is part of the supposed DC government told me straight up that he is a lunatic.
Dismissing it as a thing and calling it plain ole bureaucracy is quite a naive worldview.
You're right - I was responding to an imagined position in an unrelated / irrelevant political context, whereas a more careful reading makes it clear what we're discussing here is the moderating effects of bureaucracy.
My apologies for adding noise instead of considering contributions more carefully!
Yes, the US president is an economic imbecile, but $50 billion dollars in tariffs is a drop in the ocean of the $100 trillion global bond market.
This is a much, much bigger deal than US politics or a US trade war.
Interest rates are negative on $15 trillion worth of debt. All German government bonds have negative rates, all the way out to 30 years.
Policymakers don't like to say the word "deflation" out loud, because even talking about it could make it happen.
But when the economy softens, and central banks have no more ammunition left to stimulate the economy, deflation could be the terrifying result.
Negative long-term rates are what you would expect in a deflationary economy. And, yes, you can have a deflationary economy even while some prices are increasing.
5 U.S. Code § 2101. Civil service; armed forces; uniformed services
Or "the normative power of the factual".
The deep state AKA someone watched Yes, Minister and wrote an American adaptation.
Especially if you observe inertia and radical changes by the White House ending up moderated. That's by design and it's in the Constitution... and it's called "checks and balances".
As Rick Wilson says... "Everything Trump Touches Dies".
I expect the US to lose the trade war simply because China will have the fortitude to outlast it, but why would the direction of trade favor China in the trade war? Shouldn't China have more to lose due to being a net exporter?
I also agree that in reality China has more ability to withstand pain and the US will blink first if it comes down to it.
well, not just the US. China also loses, the whole world economy basically goes down too.
That's more optimistic than 'let's assume spherical cow in vacuum'
> In that regard, the Financial Times noted on June 1 that “the [yield curve] has ‘inverted’ before every US recession in 50 years.” (Note, however, that this is different from saying every inversion has been followed by a recession.)
https://www.oaktreecapital.com/docs/default-source/memos/thi...
"It only rains on my birthday. It's raining today - it must be my birthday."
At least I'm not aware of any inversions of the 10-2 bond yield curve in the last 50 years that was not followed by a recession, however minor.
You didn't come to the number 10 - 2 independently. It was cherry-picked to fit the narrative.
When the yield between the 10-year and 2-year US treasury inverts, a recession is months away.
This chart, showing the difference between the yield (or spread), shows recessions in grey:
https://journal.firsttuesday.us/using-the-yield-spread-to-fo...
Notice how even getting close to zero spread can sometimes be followed by a recession. But a negative spread always does.
Point to consider is the effect of Quantitative Easing (QE). Here, the Fed buys long-term treasuries such as 10-years. This makes long-term rates appear lower than they would otherwise be.
The Fed only slightly unwound this policy, meaning it still holds most of the long-term bonds it bought to fix the 2008/2009 crisis.
The net effect is that the Fed could be triggering an early recession warning here.
Regardless, combining this leading indicator with others such as transportation weakness, manufacturing slowdowns, and other economies tipping into recession (despite the loosest central bank policies in modern memory) leads to only one conclusion.
Prepare for the inevitable recession. It's not different this time.
Edit: one way to play this as an investor is to buy long-term treasuries. The idea being that as interest rates fall, the value of these assets increases (bond prices move inversely with interest rates). Go as long out on the yield curve as you can. Then when the Fed inevitably rides to the rescue, begin to unwind and capture the capital gains. Or not. Instead, just continue to receive above-market rate interest payments. There's risk here because there's no way to know how low long-term rates will fall before reversing course (and eroding any capital gains you might have picked up).
When actors are aware of the risks and exposures, they can sometimes inadvertently move the goal post further into the future due to their actions. In this case, the movements made by Central Banks and others may have led to the longest continuous economic growth in US history.
I would argue that the government's decision to delay the $150b tarifs was in part to delay the upcoming recession to help support retail & manufacturing numbers in the end of year sales.
I agree there is an inevitable recession, it is now a matter of how low it will get, how quick it can bounce back, its ramifications to the world, how it may impact your life and the strategy you intend to have to hedge the risks.
>Notice how even getting close to zero spread can sometimes be followed by a recession. But a negative spread always does.
Everything since the last recession is, on some timescale, followed by a recession. So, technically, you'll be correct. But so were the people saying this in each of the years since 2008. If you don't have an upper bound on this, it's unfalsifiable and, when taken as advice, can't be used for any concrete actions.
If investors were as certain as you, a recession would be happening now.
The only way this would not turn into recession is if the tariff's are withdrawn or fed lowers the rate even further or with quantitative easing. Any of these would prolong the recession
Last 10 years people bought a lot more ETFs so it is not like someone will call their broker screaming "SELL SELL SELL". Online brokers are a thing now but you have much more data visible in online interfaces. Like fees for selling all your stuff "RIGHT NOW". With more information easily available and people understanding what ETFs are, there is a huge stabilizing element in stock market.
Games and internet goods are now real, not like 2008 or at the time of .com bust. Though those things are still virtual in essence but they affect real life much more than earlier. So even if there is manufacturing slowdown, no one has numbers on how much people are spending on virtual stuff. Sales of books, movies, software went really up, because delivery mechanisms of today were not there 10 years ago.
People who knew technology like me 10 years ago did not had money to spend it on virtual stuff. People who grew up playing computer games are now in their 40ies or 30ies. Now they have money and can spend it on stuff that previous gen was seeing as stupid.
That said virtual goods market still has plenty of potential to grow. There are multiple jobs to fill for filtering and creating content. There was no such thing as "influencer" or full time youtuber 10 years ago. In the end, no there is no artificial intelligence or algorithm that can filter original content or create one.
Manufactured good you can sell once, virtual good you can create once and sell to everyone.
Your faith in people remaining rational when their 'returns' are displayed as -5/10/15/20% is adorable. :)
It will be interesting to see what happens with the rise of index fund popularity during the next downturn. The best thing most people saving for retirement can do is simply not log into their account, and continue to squirrel away a little every month automatically.
This kind of condescending garbage does not belong on HN. It's poison that needs to be kept away from this site. Please stop the know-it-all, 20-something, rhetoric.
> Prepare for the inevitable recession. It's not different this time.
This point is tautological. Of course there will eventually be a recession. No one can say when.
There are different factors in every cycle. The QE period is essentially unprecedented. The rise of tech stocks in the last 20 years is a once-in-a-century type structural change in the economy.
It's fair to say the market is currently closer to the top than the bottom and above the historical mean and a reversion to mean is inevitable but whether the current mode goes on for days, months or even years is anyone's guess.
[1] https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yi...
As pointed out in the article you linked, what happened in late 2018 was a small section (3-5 year treasuries) inverted. When people talk about yield curve being a harbinger of recession, they're usually talking about the 2-10 year spread, which is what the parent post referred to.
You may argue "things are different this time", but you shouldn't be comparing apples to oranges.
There are somewhat different ways to measure it, and by some metrics, it merely "touched" the zero line instead of went below. Bloomberg may have been using a dramatic flair.
Also, when it does drop below zero, the actual recession was roughly 12 to 18 months later. Thus, that occurrence, even if interpreted as an inversion, is not (yet) inconsistent with past patterns.
My understanding is that this inversion (the 2 year/10 year) is generally regarded as the most reliable indicator of recession. The media has really latched onto the yield curve this time around though, so any inversions have been getting reported as the indicator that a recession will start soon, which isn't really right.
For example, the article you linked from December 2018 was about 3 year and 5 year yields inverting, which tends to happen about 2.5-3 years ahead of a recession. Then the 3 month/10 year spread inverted at the end of May 2019, which tends to predate recession by about 12-18 months. Now the 2 year 10 year is inverted, which tends to happen about 18-24 months before a recession.
So what's happening is a pretty good indication that a recession is likely to occur closer and closer to the present, with each inversion providing another data point about the timeframe. It's just that the media's overhyping of every individual inversion is giving you the sense that these inversions don't tell us anything particularly interesting, when history shows the opposite to be true.
I am not saying a recession ISN'T imminent - but to declare affirmatively due to a technical indicator that one IS in an environment which has differences from the past is equally egregious. This yield inversion is based on sentiment, not fundamentals (yet).
Also, suggesting folks buy long-term treasuries is literally following what the market is doing right now. Suppose the trade deal is fixed tomorrow and governments add surprise stimulus in the coming months. (by the way, you have a crystal ball as much as I do) If recession fears go away in a few months, those long term treasuries would lose value on the principal and you could very much experience capital losses (if you sell).
Also:
> Then when the Fed inevitably rides to the rescue, begin to unwind and capture the capital gains.
Are you suggesting you can time the market like this? There is abundant literature which says people can't. How are you able to?
Do you really believe that's going to happen? The "cold war" with China is heating up.
>governments add surprise stimulus in the coming months
What happens to interest rates?
>If recession fears go away in a few months
What do you mean by "recession fears"? People are examining the data and seeing the global economy slowing down; it isn't arbitrary, it's data driven, with the caveat that no indicator is perfect.
>*those long term treasuries would lose value on the principal and you could very much experience capital losses (if you sell).
Yes, investing has risk. But I find it odd you criticize using simple indicators, then state that if recession fears subside, treasuries will lose value. The value of bonds fluctuates with interest rates, not "recession fears". We can very easily have a bull market with falling rates. It's happened before.
Do not imply a recession is possible, the Silicon Valley elite have not yet fully cashed out.
Cool, so have you bought puts on SPY? What terms did you go with / how much did you buy?
If by "months" you mean nearly two years.
"The last inversion of this part of the yield curve was in December 2005, two years before a recession brought on by the financial crisis hit."
"A recession occurs, on average, 22 months following such an inversion, according to Credit Suisse."
https://www.cnbc.com/2019/08/13/us-bonds-yield-curve-at-flat...
> Prepare for the inevitable recession. It's not different this time.
Just once can someone put their money where their mouth is? If you are going to say that with such certainty, I expect that you have pulled your money from the market. Perhaps you have even bought a few puts.
It's not just that. The reason yield curve inversions tend to imply recessions is that it's an indication people are taking their money out of stocks and putting it into long-term treasuries. But China just announced a round of currency devaluation. With what's happening in Hong Kong on top of that, it makes people want to dump assets denominated in Chinese currency in favor of ones (like treasuries) denominated in other currencies like USD and GBP. So you get low supply and high demand and what happens? Low long-term bond yields.
Consider that recessions are typically caused by something. A decade ago it was the housing crisis, in the 1990s it was the dot com bust, in the 1980s it was savings and loan, in the 1970s it was the oil crisis, etc.
So what's the cause supposed to be? It can't be a trade war with China. Some tariffs on a few hundred billion in imports is tens of billions of dollars, which is a rounding error against a $20T economy.
There is also too much debt sloshing around which something has to be done about at some point (probably printing a lot of money), but that's been true for years and nothing about it is likely to change overnight one way or the other.
So what's the thing that's supposed to be causing this? Because without that it looks a lot like a misleading indicator.
I personally don't think this is necessarily the inversion that is going to be predictive of a recession because the inversion is occurring at the long end (the 10/30 years spiking as opposed to the 3 month/2 year selling off). I think the short end is far more important than the long end because the short end tells you about monetary conditions in the economy. If the short end yields start moving up, that means that it's going to become more expensive to borrow money so spending and capex contracts, which is what can bring on a recession. Even that depends on the degree to which monetary conditions deteriorate.
Why are long bonds spiking? Because other central banks around the world are even more dovish than the US Fed, so money that is looking for long-term safe haven investments is coming aggressively into US long bonds.
Take a look at three month commercial paper rates, which are actually in a major downtrend (not surprising given Fed policy): https://ycharts.com/indicators/3_month_aa_financial_commerci...
Three month commercial paper rates represent the cost at which businesses are currently borrowing for short-term expenses on the open market. That cost is going down, too. I take that to mean monetary conditions are very good in the sense that there is no shortage of money floating around the economy looking for a return. Without some major fundamental change in economic conditions I don't see how equities can be expected to drop a whole lot from here. I think this is a blow off the top for rates that is going to be short-lived, especially if other central banks start tightening policy which nobody seems to consider a possibility. But if inflation starts creeping up, then they will likely start raising rates or keeping them where they are. Ironically, when central banks raise rates that is usually an extremely bearish indicator. It's a bit puzzling to me that everyone seems convinced that lower rates are bearish.
Also, I can't think of a time when literally everyone focused on a single indicator at the same time, used said indicator as a predictive tool, and were proven correct. That's just not how markets work. People get scared and excited at the worst times tactically.
We may go into a slump because everyone is expecting a splump to happen because it’s been 10 or so years of a bull run. But I don’t see a full-on recession without a large bubble bursting somewhere in the economy, causing a panic.
In the parlance of company finances, GDP is like revenue and wealth is the valuation representing the present value of all future profits. So, it seems fine to me that the present value of future profits of the US is 5x the current revenue.
I'm seeking to understand where this analogy may break down. Thanks :)
People are in loads of debt, more regular americans invest in the stock market, driving prices higher, all we need is a spark to get the fire going. Could come in the form of china and Hong Kong, could be the collapse of Deutsche bank, or very high valued startups failing, or something completely unforseen. Theres a lot of uncertainty right now, and any big event could crash it all.
On top of that, the number of companies has been getting smaller and smaller, and the companies left are getting bigger and bigger. If anything, there is more systemic risk than before, and hence even more incentive for bailouts.
As far as I can tell, the day the US stops bailing out equities, I imagine it will be in a weakened state where the USD no longer has reserve currency status, and there might be bigger problems to worry about than a recession. Until then, total stock market ETFs should do at least as well as inflation.
everyone _should_ have stock; what reasonable investment plan doesn't have stock?
you might as well hyperventilate about everyone having drawers full of socks.
[1]https://money.cnn.com/2007/02/26/news/economy/greenspan/inde... [2]https://thinkprogress.org/alan-greenspan-warns-of-coming-rec... [3]http://www.marketoracle.co.uk/Article297.html
That is, the main thing banks do is borrow short-term (demand deposits, 2-year CD) and lend long-term (5 year car loan, 30 year fixed mortgage.) Conventionally long-term interest rates are more than short-term interest rates so you can make money this way.
With an inverted yield curve you can't make money that way.
Since banks are important to the flow of capital in the economy, something that hurts the banks can hurt the wider economy.
As someone who has seen this before, things are looking ominous: The stock market drop of late 2018 reminded me of the stock market drop we had in 2000, about a year before everything fell apart. The yield curve inversion doesn’t look good, nor does the problems with the German economy. Uber posting a multi-billion dollar loss and Tesla having a hard time getting income remind me of the very same issues during the dot-com bubble, where highly valued companies weren’t actually earning money. Moviepass’s debacle reminds me of Webvan; a company which tried to get VC by having a business model which was hemorrhaging money.
I hope I am wrong, but I predict a tech sector crash in late 2019 or early-to-mid 2020.
Many great colleagues left tech at that point to become Realtors, landscapers, accountants. This is not to say that we are destined to relive exactly the same fate, but it's good to remember that rapid change is always a possibility.
Markets have corrections, if your company is providing something of value I'm sure things will be okay.
From July:
Real GDP grew above market expectations in the second quarter of 2019, according to the advance estimate released this morning from the Bureau of Economic Analysis (BEA). Growth was particularly strong in real consumer spending, which rose 4.3 percent at an annual rate in the second quarter of 2019. This increase is notably higher than the 2.5 percent pace set in the preceding four quarters.
https://www.whitehouse.gov/articles/strong-consumer-spending...
Also, if the unemployment numbers continue at record lows, I would expect consumer spending to remain positive. A lot of the market instability has been due to the shaky trade stuff going on with China.
I think what's a bigger risk these days is just how much tech talent if off-shored to other parts of the world, even at fast growing startups. Serious risk for engineers, likely in the Valley, where I don't know if you remember all of the billboards going from having ads on them, to pretty much being blank for several years.
I would actually argue that this recession is hugely policy based and we should worry that The Donald in charge of these systems will lead to more instability. It isn't tech being over valued that will bring the system down.
I'm not sure software will stop eating the world in a recession, the almost religious belief that more software will make your business better is something everyone has bought into. There might not be any other jobs however.
It's probably too early to roll this out, but for those who didn't live through 2008, I present Sequoia Capital's "RIP Good Times" deck from that period:
https://www.dropbox.com/s/2m3d0s0n2q8a23z/RIP%20Good%20times...
It will also push automation to happen much faster meaning an even bigger underclass of people.
And finally you will still be able to raise shedloads of money (if your business is good) but it will cost you more of your business. Poor you.
Housing prices near tech hubs will also pop. Here in Seattle, housing prices are propped up by tech-couple mortgages with high stock-based compensation - which will suffer even at companies with healthy fundamentals. SFO housing is further inflated by IPO speculation.
E.g. most recently, banks and leveraged junk mortgages
As you noted though, the biggest tech companies today aren't really externally dependent. They generate substantial cash flow, have relatively modest debt loads (better than heavier industry!), and don't have easy substitutes.
The strongest case I could make for a tech crash: retail activity substantially slows and/or freezes (Apple & Amazon), advertising follows suit as advertising budgets plummet (Google & Facebook)
But it's hard to see that happening with any rapidity in the US with unemployment where it is.
(I can't see a strategic corporate debt crisis as long as the Fed keeps rates low?)
And yes, the big tech companies would certainly see revenues hit hard by such a scenario - but the big tech companies have plenty of cash to weather the storm.
That's fundamentally different from firms that accrued a lot of cheap debt, but have an ability to service it even under conservative revenue models.
If I have 10%+ profit margins and could increase my revenue with additional capital, why wouldn't I sell as many bonds as the market will eat, at current prices?
Provided I'm not expanding in financially risky ways (e.g. opening new stores or other delayed-revenue choices), there's not much consequence even if the music stops playing.
Which is why you saw Ford and GM announce they're hording enough cash for multiple years of downturn.
My gut feeling is that they constituted a larger portion of the market back then, but I've never seen a direct comparison.
For one thing, BLS stats say that computer programming has grown from 528k to 1666k from 1999 - 2018 (the broad category of Computer and Mathematical Operations went from 2620k to 4384k). For another, just looking at the largest company only works if the distribution is similar.
Still, it is relevant that Uber is so big.
Another relationship that has been mentioned before is that of mobile games and google and facebook advertising services. A recession and/or anti-lootbox legislation could harm mobile games, which would reduce ad spend on platforms like facebook/google.
Plenty of articles have been written about it 2-3 years ago. We all have short term memory and are forgetting this. Every major tech publication predicted a crash in the startup economy. It never came about.
None of this related to the macro environment we are at. Trade wars wreak havoc on the sentiment of business than the actual supply chains themselves. Which is what seems to be happening now.
The reason why tech has done so well in the past 10 years is partially due to luck. While investment dollars continued to pile up post-2008, tech was one industry who had recently shown really impressive returns. As such, that's where the dollars flowed.
My concern is what happens when a few of those unicorns fail (e.g. Uber)? If sentiment shifts enough, you might see tech suddenly become the ugly duckling. Companies that in reality are doing reasonably well will be painted with the same brush.
When people start to see Uber failing and other unicorns struggling, it just become a self-fulfilling prophecy - "I knew a recession was coming". People get risk adverse, company's stop hiring and it spreads to the economy as a whole.
If uber just keeps the lights on, they will not maintain their stronghold on ridesharing, let alone be the last to market for the next generation of mobility that will replace their current product. Even Facebook goes out of fashion - that's why they bought Instagram and WhatsApp.
Uber and Lyft lose money because they’re over-hiring talent and they’re consolidating their monopolies via marketing/market share wars. When the bubble pops, people are going to stick to MS and Apple - they’re not going to jump to Amiga or BeOS.
For Airbnb, it's a bit harder to say. More people will probably try to airbnb their places out, which will bring average costs down but increase the supply a lot. Demand may also increase as people unfortunately may turn to short term housing due to being in financially precarious situations. Since it's theorized that the American dollar will strengthen in the recession, this could also boost Airbnb's presence in international markets
Wework will probably gain too. More unemployment probably means more people trying to work out of weworks in startups or as freelancers. For the buildings they rent from non-executives, they could see a lower rent which would also help profitability.
So in summary I think the sharing economy is actually going to do ok. What do people do when they're unemployed? They try to make ends meet, and that means participating in the sharing economy
Personally, my ridesharing use is a mix of relatively inelastic demand and elastic demand. Inelastically I am almost always going to use ridesharing to get to/from the airport, go places in other cities where I don't have a car and public transportation is too complex to figure out. I will usually use ridesharing if it is significantly faster and only $10 or so more expensive compared to public transportation that I can figure out. The only thing I would really reduce is using ridesharing to go out drinking - but if that becomes significantly cheaper, maybe not
Auto loan defaults are at a high, as is student and household debt (higher than 2007). Those auto loans are often bundled almost exactly like junk mortgages in 2007 leading to a similar investment risk. More americans live paycheck to paycheck than ever before possibly increasing the number needing support should unemployment jump back up to 12%, where it was when Obama took over in 2009. It won't be as bad but the federal government under Trump/GOP has cut taxes and drastically pumped up the deficit putting us in a worse position to weather a recession of any length. Cuts to social programs will also extend a recession or at least increase it's effects as people will still need food and affordable housing. The number on social security will increase while less will be employed to pay in and as SS was used as a piggy bank for GOP spending decades ago that system could go from failing in a few decades to gone.
It could be 6-12 months of job losses and stock market falls like the .com bubble but it could quickly complicate as the government may be slow or unable to respond in traditional ways due to lack of funding, lack of staffing (an existing issue in the current admin), lack of experience of the current staffing, and continued conservative/GOP attacks on social programs and minority groups most likely to be hit hard by any recession.
It's like Jenga. In 2007 a core lower block was pulled and a lot of pieces went with it but we had the leverage federally to hold some in place or put back others like auto manufacturers. This time, the piece may be much higher up but automakers are already suffering under tariffs and the federal government won't have the funding capacity or push by the GOP led government to react in time and, like midwest farmers, that could be the end of an era for some industries.
GDP and energy seemed to be correlated so far, as if our growth is directly or indirectly fueled by the cheap labor of machines and automation.
Gas and electricity production reached a peak which can only go down in a finite world. With a constrained energy supply, GDP should go down. At least that's what happened so far since the 1800s.
Germany and UK entered recession the last quarter.
One common mistake in economic growth modeling is thinking only in terms of bulk. We are far richer than bronze age herdsmen but very few of us have tens of thousands of livestock.
In a crash, I'd expect the VC money to become more cautious... for a bit. But that can be a good thing, too, because it means you aren't competing with garbage companies that are always operating at a loss.
Given the popularization, any chance of an increased observer effect? In either direction, I mean, positive or negative.
It's completely legitimate to question whether this increase in publicity for this one metric might be causing it to be less useful.
It's the professional investors & monetary policy makers who really matter here, as they are the ones performing economic analysis on what rates should be.
It does seem like the term had similar amount of web search traffic in late-2005 across all categories, compared to now. I didn't expect that at all. However, "News Search" only goes back to January 2008, so it's difficult to tell if 2005 also had similar news coverage. But the graph since 2008 definitely shows a massive increase:
https://trends.google.com/trends/explore?date=all_2008&geo=U...
So I think I might be mostly wrong. (Of course, this wouldn't mean there's no observer effect... just that it would be at least partially baked-into our current understanding of how it works.)
Edit: Hm. This seems to change a lot depending on the specific term used. "Yield curve inversion" makes it sound like people only started searching for this term in the last few years, and not really back in 2005. But changing it to "Yield curve inverted" shows the 2005 spike again.
So now I'm just discounting Google Trends as a source, either way.
Sorry.
I actually appreciated the response because it made me rethink my assumptions. But I also appreciate this note.
Aside from that, I'm not sure how you're so confident that there is no observer effect. Markets, particularly in the short term, are influenced by human perception and emotion. It is plausible to me that, in particular, the stock market could dip because everyone observes the yield curve inversion, gets nervous about a coming recession, and then moves money out of the market in fear of it. This could happen even if a recession does not, and I don't find it impossible that such a move could help contribute to an actual recession. Again, human perception is an enormous component of markets, and perception is influenced by emotion.
Stock markets aren't the same as the economy as a whole, but stock market bubbles boost the economy when irrational exuberance increases the total apparent wealth. And when enough people decide that it's peaking, it does, and the same process works in reverse, causing a recession.
So yeah, it's a self-fulfilling prophecy, but that doesn't mean there's a way to avoid it. The market prices are already high; they must eventually revert to something closer to a true valuation. But since that time is determined almost entirely by consensus, nobody knows when. Indicators like this one are a sign that people are changing their minds, but it's been that way for a while. They're just indicators of public perception, and the public takes them into account, too.
I'm really curious how the index funds will behave in the upcoming recession, afaik that was one of their main mantras and selling points, so to speak, i.e. that the market only goes up (or a certain part of the market, the most important part of the market) and that you'd be a fool not riding the wave by investing in said index funds which were in turn investing in that part of the market "assured" to always go up.
In other words, what will people do when they'll see their index funds go down 10 or 20% yoy? Will they take their money out of said index funds? Will they wait for the next uptick?
The selling point is that investing (as opposed to trading) is a long-term method of increasing wealth. And, historically over any reasonably long period of time, broad index funds grow (between dividends and selling price) more than inflation, and do so without requiring the individual investor to "bet right" on individual companies, or to time when they buy and sell.
Of course, some people panic when index funds see massive drops (which are often much worse than 20%) and sell when the price is much lower. They lock in the losses thinking they can perfectly time the "low point" and buy back in at just the right moment. (A few are right. Most are not!)
Investing does include personal tolerances for risk, an ability to be patient, etc so you have to figure that out for yourself. But the most successful investment plans are a combination of diversification and sticking to your plan through the bad times as well as the good.
You shouldn't be reacting to the market (as a long-term investor.) You should have a solid plan in place. If you have a firm asset allocation of 80% stocks and 20% bonds with a line item in your investment policy statement that says "Re-balance when there is 5% or greater drift" then you wait until you cross that drift threshold, sell and buy what you need to get back to your target asset allocation, and you go on with your daily life.
You can beat the market if you take more risk and it works out for you.
I’m beating the market right now, I’m up 33% this year still in my portfolio even with all the bullshit that’s happened. And recently, I’ve dumped all the extra margin I was holding so now I’m holding 100% equity in my stocks and paying no interest.
Beating this market since 2010. That’s why my net worth is well above a million with little to no effort.
I took a risk yes, but it’s not greater than the risk of building a startup and trying to make it successful which people seem to have no problem doing around here.
But seriously, there are always outliers who got lucky. For every one that gambles on a dark horse, there are 1000 who lost that way. And the winner is always, always certain that they knew what they were doing and luck wasn't involved.
Is that true? It sounds like you took on debt to finance your trading. Do most startup founders personally take on debt?
> that doesn't mean there's a way to avoid it
I don't think this is strictly true, though. As you said, "Stock markets aren't the same as the economy as a whole". The financial part of our current economy seems to have an outsized perception/participation rate. If the rules of the game changed to reduce the appeal of financial activity, there might be less second- and third-order "betting on bets (on bets)" and less of the self-fulfilling prophecy you're talking about.
This may not be feasible in the world we live in: it would take a very different political climate, and of course there would be knock-on effects for society. But imagine that we turned our income tax rationale inside-out and policy shifted so that wages had very very low rates and investment income very high rates. Note I'm not advocating this, just offering it as a "what if".
UK economy shrinks : https://metro.co.uk/2019/08/09/pound-plummets-uk-economy-shr...
https://www.reuters.com/article/us-usa-trade-europe-autos/tr...
Gross exports represent 46% of EU GDP, up from 39% in 2008.
For China, gross exports are 20% of GDP, down from 33% in 2008.
For the US, gross exports are 12% of GDP, the same as in 2008.
A trade war is a nightmare for the EU. It's amazing they've stayed above water this long with 46% of GDP dependent on exports. They'll get economically thrashed if it keeps getting worse.
Or, in economists' terms: Germany's and China's goods are complementary more than competitive.
Question is; what's a normal personal investor to do? Knowing that expectations are baked into the price and timing the market is a fools errand, what can normal people do to shield themselves?
I've been 90/10 asset allocation since entering the workforce (2013) and it's been amazing for me. I obviously plan to continue to contribute to my funds but at what point would a rebalance or choosing a different fund be wise? A majority of my fund holdings are in tech, healthcare and banking/finance.
If you go to the homepage of the st louis fed and search popular series, this is the first that shows up.
The mind boggles.
But... what if they're right?
Interest rates have been low for a decade. That's pretty unprecedented. What if they're going to stay low for another few decades? Maybe they're actually acting rationally... if they're right that this is going to continue for a long time.
This scares me, because I fear that we're just putting ourselves in a worse and worse position for when things get tighter. But what if it really is different this time? What if they never do get tighter?
I'm really on the fence about it, I know I've lost a lot to opportunity cost and inflation and I regret holding out, but given recent news, it's hard for not to want to keep waiting... just a little longer...
But... the US does feel heated up, so who knows?
I am prepared to "lose" nearly 7 figures of net worth in the near future. But that's the "cost" I'm willing to incur so that I am able to stay in the markets for the long run.
Also, setting a fixed date will probably help you come to terms with it psychologically.
There's no shame in holding cash when value is low. People like Buffett are known for doing it. There are no called strikes in investing, so don't swing at mediocre pitches. But when value is high, you'd better swing for the fences, because that doesn't happen all that often.
https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10...
Example:
75% short term treasuries; 8.33% S&P 500 3x; 8.33% long term treasuries 3x; 8.33% gold 3x
E.g:
75% SCHO; 8.33% UPRO; 8.33% TMF; 8.33% UGLD
Rebalance quarterly. Steer clear from the advice in the thread to buy volatility (XIV).
Good luck.
Not all investment vehicles have a "lifecycle" fund but its intent is to be appropriately conservative for a target date. As the date grows closer, the fund gets more conservative in order to lessen the risk of sudden swings right before you retire.
I don't recommend day-trading, or liquidating all your investments, or anything like that. However, if there's a professionally managed fund with the specific goal of being stable along the timeframe of 11 years, I'm gonna take it.
Hmm. Isn't that known to be impossible?
Several strategies like keeping a fixed ratio of stocks to bond are effectively timing the market. You pull money out of stocks when they go up, and put money into them when they go down.
Personally, I am less interested in absolutely maximizing my returns as I am maximizing the likelihood of reaching a return threshold.
Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.
As to changing asset ratios, it likely reduces maximum returns. But, wealth has diminishing marginal utility. I can save a little more to make up for a small loss in returns for a few years, it’s much harder to make up for a 50% market dip.
Rebalancing is really taking money out of whatever the better investment was and putting it into what was the worse investment. Consider what would happen if you rebalance an asset like a stock that’s slowly going to 0. Over time your portfolio also hits ~zero even if everything else was going well.
Sure, for a sufficiently diversified investment like the S&P 500 it’s unlikely to hit zero. But the question stands why take money out of the better investment for 50+ years? You could be moving from 10% returns to 2% returns. The theory is about timing the market, you get better returns investing after ups than downs.
PS: Though better may in fact relate to stability more than absolute percentages.
Not exactly a compelling argument since you could've made a risk-free return via savings accounts (Wealthfront currently has 2.3%, which I'm sure has been higher in the past).
[1] Nov 1999 one year prior to crash, to Nov 2012 https://dqydj.com/sp-500-return-calculator/
I was wrong.
I agree that being more conservative is probably necessary, however I think other than specific investments and... burying your cash might be the "conservative" options. Bonds were those, and no longer are now.
This is the greatest bull market in bonds of all time and they are starting to behave like cheap deep in-the-money options contracts, which decline slightly in value over time due to theta (time value). Options are fun.
a negative yielding bond - or a bond going towards negative yield - decreases in value one way while gaining in a value another way, the more it gains in value the deeper the negative yield goes.
If interest rates drop even more, the value of bonds go up.
Right now, a 1.68% 10-year bond looks like it sucks. But next year, a 1.68% 9-year bond will beat the pants off of a 1.3% 10-year.
You can sell a 1.68% 9-year bond for a lot more money when everyone else only has 1.3% 10-year bonds. If the 10-year drops to 1%, you'll make even more money. A falling interest rate market benefits those who buy bonds, especially if no one knows where the bottom is.
Earlier this year I opened up an IRA with them and I put $100 in a 3.680% APY 40 months CD. I did this because they were matching the first $100 on new IRAs, so I deposited $100 and they deposited $100.
[1] https://www.navyfederal.org/products-services/checking-savin...
Yes. That's what an inverted yield curve means. Liquid funds are "more expensive" than long-term funds. That's why things are inverted right now.
The long-term expectation (over the course of the next 10 years) is that savings accounts will drop. That's why people are willing to "only" be paid 1.6% for a 10-year, because its better to be paid 1.6% for 10 years... rather than 2.25% for this year (and then only 0.5% for the next 9 years).
In essence: the bankers are taking the opposite bet you're making. When the bankers are making a move, you probably should think about the future of money... bankers probably know more than you and I do.
EDIT: > Why would anyone buy a less-flexible product that pays less?
Because they have a pessimistic view of the next 5 to 10 years. When big-money starts to make these pessimistic bets, its a recession indicator.
It seems like if you already have high yield bonds, the value will continue to rise, as people exhaust other low yield options... however isn't this total value capped by the yield+face value? I don't really know how bond pricing works, but if you bottom out the yeild, or anticipated yeild... you should only be able to make the face value back or someone is buying negative yields.
EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.
EDITEDIT: Also assumes you are not going to be eaten by inflation, which could push you into negative yeilds.
[1] https://www.investopedia.com/terms/i/invertedyieldcurve.asp [2] https://qz.com/1647791/12-trillion-of-negative-yielding-bond...
1. Bond prices are primarily determined by auction.
2. If a big bank (and the US Fed is one of the biggest banks) decides to make a move, smaller banks, and the general market, will shift the prices of bonds.
> EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.
No. Its 1.68% per year over 10 years. Bond pricing is standardized upon APY (its a "notational standard": bonds all have their own terms. But you can always math-out an effective APY given any bond structure). US Treasury Bonds physically have a coupon (every year, or maybe twice a year, they give a $$ amount), and a principle (at the end of the term, you get $$ back).
Anything less than 1-year only has principle (and is commonly called a "Bill"). So you get different APYs by shifting the price of the bill. Ex: You may buy a $1000 (principle) 1-year Bill for $980, effectively earning 2.04% APY in this hypothetical example.
In any case: the reason why a 1.68% 1-year is better than a 1.68% 10-year is because you only lock up the money for 1-year (in the case of the 1-year bond). So normally, a short-term bond gives a lower APY.
The yield curve is inverting because buyers with serious money are buying medium-term cash instruments in defiance of naive valuation logic that the short-term cash instruments are more competitively priced.
This suggests that they see something in the near future, big enough that they are throwing the easily calculated "Net Present Value with usual assumptions" out the window when they make their purchasing decisions. Since bond buying and selling is usually done on a pure NPV basis this is a big deal and a good signal that it is time to avoid anything that might be risky until we find out what the big thing is.
Hence, buy government bonds as the single most conservative option. NPV might be partially irrelevant.
Personally I'm sitting tight, but that's because I'm a long term investor not a day trader.
I haven't touched it since but now with yield curve warnings popping up, I'm starting to think I should.
The key problem with timing the market is it's easy to miss out on the recovery. Most people get back in once the recovery is obvious and the big gains have already happened.
During 2008 I tried to put my money where my mouth was and not touch my investments. My portfolio went down by 35% (several hundreds of thousands). But I was in at the bottom. However, it recovered in less than 2 years and is now up about 250%, mainly because I was fully invested during all the big gains.
If there is advice (e.g. Buy/Sell when X happens) and there is statistical proof it's a good indicator, then large companies with multibillion portfolios would act on that evidence. At which time their behavior would "correct" for the indicator. At which point there is no value to the layman.
Some opportunities can't scale to multiple billions in size, which means they persist as available inefficiencies.
So broadly speaking, yes. But specifically, maybe.
Additionally, one of the reasons bonds and yields work they way they do (per my understanding) is that all buyers aren't free. Institutional buyers (e.g. banks) are required by regulation to consider ratings.
So they have to park their large amounts of money somewhere, and they have a limited number of legal choices.
Also, if your timeframe is long-term, information in print is relevant, since a stock frequently trades in a region for months or years. In fact, there is a whole school of investing, value investing, that looks for companies the market is undervaluing. Generally they do this by looking at information in print but seeing it with more wisdom than the short-termers. (Problem is, wisdom is difficult to get.) But for short-term trading, I think Bloomberg would invite you to subscribe to the terminal. "Before it's here it's on the terminal" I think they say.
So if that's reliably actionable, why aren't billion-dollar investors shorting market indices right now?
1. What's the lag time? Inversions in the past have had rather large lag times before recessions actually began (most recently they've been 24 months, 13 months, and 19 months for 2s10s). Inverted yield curves signal anticipation of future rate cuts or long-term rates staying the same or whatever (depends on the shape, obviously), but if you're of the view that global yields are just going to stay low for the foreseeable future (an increasingly common view, I make no claim as to my agreement with it) then sure the US and UK need to adjust down and get flatter. Why is there not a recognition of a new normal going on here? It's not like money is outrageously expensive or developed economies have been running hot (as historically inversions have indicated). We've had a decade of reasonably good growth in the US and UK with very low rates and the assumption was that long-term rates would be ~3-4%. Maybe money will just always be relatively cheaper now with long-term targets around 2-3%.
2. How expensive is money? In the past when inversions have occurred the Fed Funds rate has been significantly above inflation (sometimes by hundreds of bps), making money outright expensive. Money right now is relatively expensive (compared to the past 10 years, post GFC), but historically we're still talking about money being very cheap. I'm a bit of a relativist, but I think you need to make a distinction between money that is outright expensive and money that isn't (as is currently the case).
3. Where's high yield going? Over the past month a bit up. But this is after we've seem high yield spreads compress in to historically tight levels. Cov-Lite offerings are still being printed and snatched up despite the inversion of 3ms10s we've seen for a few months now.
4. Is there an issue in our financial systems plumbing? In my view, yes. The yield curve has been inverted for foreign-buyers (over 2016-2018 a very important buyer of treasuries) because they don't fund around the 3m point, but rather on (OIS + Libor-OIS spread + XCCY of the relevant currency). If you're a Japanese life insurer or European pension fund you can't take FX risk (FX markets are volatile!) so you need to swap back into your local currency.
These hedging costs got to a point last October where you're facing significantly negative yields (practically speaking) for foreign buyers so they buy their local negative yielding debt instead (as it's a relatively better investment). Because US auctions can't fail - primary dealers need to act as a back stop - you've had firms like JPM and BofA taking on huge amounts of treasuries. This has really clogged the o/n repo market and is beginning to distort bank balance sheets. They can't keep absorbing the amount of issuance the Treasury is pumping out with these trillion-dollar deficits. There's also an issue of bill-issuance notional amounts and banks trying to elongate their duration which is dampening down the 10yr.
The Fed needs to cut rates further - in my view - to steepen out the yield curve to get foreign buyers coming back in. It'll probably need to be at least 75-100bps from here to get meaningful purchases. The Fed has really pushed themselves into a tight spot from a pluming perspective.
5. Yields down, prices up. If you bought the 100yr Austrian bond you'd get negative yields, yes. Also if you bought the bond a few years ago you would have outperformed equities on an absolute basis. So, like, negative yields aren't great, but asset appreciation from a sovereign bond with no default risk going into more negative territory is good if you're a fast money player (the bond price is nearly $200 now!). In fact, it's even good for a pension fund who has no intention of holding to maturity.
I haven't heard about this. Any public reading material?
"The FRBNY also expects primary dealers to demonstrate their continued commitment to the market for Treasury securities by bidding meaningfully in all Treasury auctions. If a dealer fails to bid meaningfully in an auction, the FRBNY typically contacts that dealer to remind it of its so-called "underwriting" responsibilities."[1]
[1] https://www.treasury.gov/resource-center/fin-mkts/Documents/...
I found this graphic: https://fingfx.thomsonreuters.com/gfx/mkt/12/4001/3971/U.S.%...
linked from this article: https://wkzo.com/news/articles/2019/jul/30/us-seen-ramping-u...
Funny thing is, given the recent trend in treasury yields, these banks are making good money on their holdings.
Companies exploit this relationship now by destroying their balance sheets and using buybacks to boost their relative market caps vs other companies to capture more passive investment money flow.
There’s a good argument (elsewhere) that because vanguard of we’ve entered a pseudo communist market system.
Buying back shares doesn't increase your market cap, it increases the value of each individual stock since they now own a larger percentage share of future earnings.
> to capture more passive investment money flow.
It has no real effect because index funds will actually have to sell stock from companies who do buybacks in order to decrease their share of the company back to normal proportional levels.
Every new dollar put into index funds gets invested proportionally in each company to the market cap of SP 500. Microsoft gets bid nearly 4.5c on every dollar. The top 10 stocks combined get 25c on every dollar.
Really? The money that can be made in finance results in billions of dollars of wages and you think the PHDs they can hire with that money cannot properly evaluate the effect of stock buybacks in their valuation models?
> Every new dollar put into index funds gets invested proportionally in each company to the market cap of SP 500. Microsoft gets bid nearly 4.5c on every dollar. The top 10 stocks combined get 25c on every dollar.
What's your point?
Our best bet now is that the universe will expand forever, and the expansion will accelerate. We've yet to determine if the acceleration will accelerate (Big Rip scenario), but it's a possibility.
Its basically digital gold where the value is expecting other people in the future to really want it by thinking its valuable, and a global recession is exactly the time when something like that becomes more valuable.
When this doesn't happen, what becomes of the handwringing and the doomsaying? Do we just forget the errors and self-interested lies, and treat the people disingenuously emoting over this nothing, like good people?
Serious question.
But, more realistically, yeah, people will just forget all the bad predictions.
On a more serious note, the graph displayed in the article is a timeseries of the difference between two points on the curve. The actual curve looks something like this:
https://en.wikipedia.org/wiki/Yield_curve#/media/File:Yield_...
Yield curves are bootstrapped from known bond yields at liquidly-traded tenors (1Y, 2Y, 5Y, 10Y, and short-dated). Those are the heavy black dots in the image. Outside of those tenors the 'true' rate is anyone's guess: you're basically interpolating. Whether that interpolation is continuous is up to you!
A curve is a pretty normal way to visualize a bunch of Cartesian points at once.
We could stave off the coming recession if we had another Dotcom-type bubble, but market corrections are inevitable so it would just be a delay.
Recessions aren't some magical part of economies that are required to happen every so often. As freddie_mercury pointed out yesterday [0], Australia, has gone 27 years without a recession, Japan had no recession from 1961-1993 (32 years), and the Netherlands had no recession from 1981-2008 (27 years).
>Recessions aren't some magical part of economies that are required to happen every so often
Correct, but they do seem to be some magical part of America's economy that is required to happen as often as bubbles happen. They're not regular and you can't set your watch to them, but as sure as there is expansion, there will be contraction. And the bigger the expansion, the bigger the contraction.
https://www.reuters.com/article/us-usa-economy-watchlist-gra...
8 months ago - https://news.ycombinator.com/item?id=18593407
4 months ago - https://news.ycombinator.com/item?id=19463225
4 months ago - https://news.ycombinator.com/item?id=19491763
8 days ago - https://news.ycombinator.com/item?id=20615403
The 2-10 year is the actual news. When the 3-month / 10-year starts to invert, its basically inevitable that the 2-10 year indicator will trip eventually.
The 2-10 year invert doesn't happen instantaneously. It slowly moves into place. Yeah, we could see the signs for months.
That kind of stark contrast ("privatized gains and socialized losses") is easy to grasp, and much more likely to create public outrage regardless of where people sat on the political spectrum.
Since then, there's been so much misinformation and polarization around things like climate change, international trade, unionization, public services, tax cuts, the deficit etc., that even if the markets fall, there will be plenty of blame for political parties to heap on each other, while the working classes and middle classes bear the brunt of the recession, as they always have.