Everyone serious knew that a trade war would set a recession in motion, and that it would be a trade war the US would lose because of the directionality of the trade. The thought has always been that the president was using a high leverage negotiating strategy (see https://www.newyorker.com/news/news-desk/for-trump-diplomacy..., for example) to extract maximal concessions from PRC. But in the end, most of the people involving in mid and long range investment decisions thought that they could model him as a rational actor. What we are seeing is the investment community's realization this might not be true. You can look for many recent examples of shifts in investment activity (https://www.autoblog.com/2019/08/13/ford-gm-preparing-for-ec...).
And things will be worse because China is also heading into recession.
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.
The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. The leadership on either side of the 2008 transition was much better at every level. Also, 2008 was a balance sheet depression that was more tractable to fix with monetary approaches.
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
I know when major historical events happened, thanks. Sorry if I did not state my case clearly enough.
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.
Right, all three of these things were a direct result of the second industrial revolution, as was the rise of communism.
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.
Good connection. The world wars can also be perceived as points where humanity invented new, more “wholesale” ways of murdering ourselves. Their end is also punctuated with the creating of the atomic bomb. We’ve just started to uncover the ways to use the internet as a weapon and haven’t invented any real countervailing forces to it.
The great depression was after one of those wars. I think you can make a case that the global economic and social excesses of the 1920s led to a hard crash, the rise of aggressive ideological movements, and, eventually, the second world war. The first world war was something else entirely, the last gasp of the old "Concert of Europe" balance of power stuff. After the first world war, the world was a completely different place and different rules applied.
Back in 2008, just after the Lehman collapse had happened and when money-market funds had gone bellow 0 (I think in late October), I predicted that there was a very great chance to have a world war in the next decade because of that ongoing crisis.
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).
War with whom over what exactly? Maybe it's just a failure of imagination on my part, but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate.
> 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.
How do any of those meaningfully point to a war though? Again a war between whom?
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.
> 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.
Not on the actual highways and not me having to surpass US military convoys more than once. Yeah, pre-2014 I used to see US soldiers quite often at the Bucharest international airport, they were on or off their trips to either Iraq or Afghanistan (we’re talking mostly 2007-2010) but sure as hell there weren’t US soldiers in the actual Romanian crop fields, like in here [1] . But feel free to hit me with Internet links, while I’m talking about stuff happening a hour drive’s away from where I’m writing this comment. And if it matters those US soldiers shouldn’t have ended up in those grain fields, it was an error of communication. In any case, I told my parents that were they to see US armed vehicles in their field they should just let them pass, no reason to make a fuss.
> 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
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...
WW2 has transformed our civilization significantly: socially, technologically, etc. Maybe there's no rapid change without great shake. We tolerate our current system of things because it works short term, but it is no way eternal or stable, it will be changing, and it will adapt itself to new circumstances, like to lack of fresh water and other ecological disasters current system causes.
> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted.
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.
Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.
The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction.
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).
Treasury holdings are bonds denominated in USD. They are worth less relative to alternatives when the USD decreases versus those alternatives or yields rise (as you expect them to, in the event of inflation), just like any bond.
>The Fed would probably welcome inflation right now.
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.
> Inflation is a consequence of money spent foolishly
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.
The New Deal allowed labor to capture the majority of surplus value created by the rapid wartime industrialization of America. We would not have our modern understanding of a middle class lifestyle had it not been for New Deal policy and the blood of organized labor shortly before and during wartime.
> The New Deal allowed labor to capture the majority of surplus value created by the rapid wartime industrialization of America
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.
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.
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?
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.
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.
Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ
What can the chinese do exactly?
Sell all their USD treasuries? Sure, but what do they do with the money then?
The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.
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.
IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it.
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.
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.
It is very hard to speculate about future crises since often the causes are only obvious in hindsight...but...here I go speculating anyway :-)
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.
I'm not convinced financial institutions access to capital has anything to do with the current economic malaise. The federal rates had little impact on the recovery, their perpetuation at 0% didn't seem to produce meaningful small business creation, and all the major companies have been spending the better part of the last 5 years doing stock buybacks and avoiding expansion and investment at all costs.
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.
Seems like maybe it wasn't the best idea to use a "one time use" tool to battle the recession since we know they come on a more of less predictable basis over the long term...
> 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.
Don't forget the Europeans. The 'prudent' Germans of Deutsche Bank were in the thick of it too:
> 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:
> 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
An even larger amount of money was placed on bets on whether those mortgages were real, as opposed to the mortgages themselves.
There would be no "correction," as in revaluing what already exists - there would be a decline in economic productivity and efficiency. The problem isn't that the bank added one too many zeroes and corrected it, but that you broke your arm and now you're out of a job.
It certainly won't be worse than 2008. 2008 was a financial crisis, core parts of the banking system were suspect, nobody knew who they could trust or who was solvent and worse nobody had a clue how to solve it for a dangerously long period of time.
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.
Just my opinion but I think it will be worse than 2008 for normal people. Companies that are cash rich due to the tax cuts will use the recession as an excuse to execute deep labor cuts and boost their stock price. There is no longer a reason for executives to even pretend to care about employees as the one time bonus / stock buy backs after the tax cuts proved.
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.
We need Andrew Yang, or somebody else to pick up the UBI idea, now. There's no time to slow play this and do a bunch of studies. We have enough data, somebody just needs to do it.
I agree, I think we are reaching a tipping point where the economy so favors those with established wealth and corporations that UBI is going to become a necessity. It does not have to be a lot of money, just enough to provide people with a small cushion so they can take small risks to better themselves or afford the basics.
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.
> core parts of the banking system were suspect, nobody knew who they could trust
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!"
The incentives still aren’t great, it’s true. But a lot of things are better. The Volcker rule discourages investment banks from making big directional bets with shareholder money, and the Fed stress tests force them to regularly consider and mitigate downside risks. Both of these things are gameable but at the same time have real effects.
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.
The structural deficits in the US economy are financed - at low rates, at least - by trade deficits and currency surpluses with our trade partners. Recent tax policy changes have drastically increased the size of the US budget deficit. This was probably going to come to a head at some point anyway for a lot of reasons, but I disagree with you this won't be as bad as 2008.
I'm in the "worse than 2008" camp, mostly due to the reasons the OP gives. Another consideration is that our current expansion has been a very long one, and the longer an expansion goes on, the more fraudulent cruft accumulates, the cruft beings things like assets not marked to actual market value, money-losing businesses subsidized in various ways, and sometimes outright Madoff-like fraud. This cruft appears financially viable from the outside but collapses when stressed, and nobody really knows how much of it is out there.
There isn't anything like the housing bubble right now. There's nothing that really allows people who shouldn't be able to borrow lots of money to borrow lots of money like housing did last time.
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.
There's the looming student debt crisis, which is absolutely allowing lots of people to borrow money they shouldn't be able to get. People are graduating college well into six figures of debt with nearly worthless degrees that pay little more than minimum wage. Even worse, the government guarantees that debt is not dischargeable in bankruptcy, leaving no way out for the underwater borrowers.
The student loan thing is more of a big weight dragging on the middle class. It’s not like anything is going to implode — the debt isn’t dischargeable. Instead, it’s just going to drag on and on for decades, preventing the lower classes from building wealth or having kids. (In many ways, that’s a lot worse)
I used to think VCs and startups were the next bubble, but the ridiculous investments seemed to be rarer these days. (though I still think many so called unicorns are overvalued)
Ray Dalio's model asserts that 2008 was the end of a 75-100 year cycle - the collapse and then reflation of the long term debt cycle. And that the upcoming recession (whenever it happens) is more about short-term debt cycles, that happen every 8-10 years.
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).
much worse than 2008 how? Global debt markets nearly collapsed and the single largest investment of american consumers crashed. You are making a really bold claim there and it looks like cheap catastrophizing.
If you read Ray Dalio, he seems think think the next recession will be a "debt supercycle" which could be worse than 2008. (this could be him plugging his hedge fund, but he's semi retired, and really has no more money needed to make personally) Note also that recessions have been growing longer each cycle. IMHO it's related to the bottom 99% having been getting paid smaller and smaller portions of wealth, and so a base resiliency of economies become weaker each cycle.
It's hard to follow his reasoning sometimes. Sometimes it seems like he's saying that we already went through the debt supercycle, or the end of the long-term debt cycle and we've already gone through the reflation period.
But other times it sounds like he's saying the real "big one" is still about to happen, rather than just another recession.
I haven't ever seen anything from him that says we've gone through it already - he cagey about exactly when (and that's the correct view imo) the next big recession hits, but I see him trying to lay groundwork to allow a few paradigm shifts in how governments have to take on new financial tools if we want to stay stable - e.g. helicopter money. You could get his "Big Debt Crisis" book (I got the free pdf on rollout), that lays out the case in detail with data.
I don't think he saw 2008 as the end as much as it was the start of the end game - the debts have definitely come to any sort of deleveraging beautiful or ugly, and certainly no resolution of the fundamental inequality the Dalio was identifying as a root concern.
I think the next recession will be modest compared to 2008, comparatively shallow in all regards (including job losses). The recovery is going to involve drawn-out weak economic performance, elaborate growth stagnation, that will frustrate central banks as they attempt to stimulate and reinflate. We'll see aggressive front-run Fed & global central bank action. As opposed to 2007-2009, which frequently saw the Fed running from behind to catch up to a very severe implosion. The Fed regularly utilizing QE programs the last time around was quite novel. This time it'll be used very early on and aggressively as a normalized tool of fighting a recession (for better or worse).
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.
I get your general sentiment. I'm just not sure why everyone keeps using the iPhone example. China's value-add part in the iPhone building process is about 1%. Having iPhone built with China's manufacturing efficiency is a lot more about Apple's bottom line (as demonstrated by its ability to lobby Trump to delay the tariffs until after the holiday sales) than China.
It isn't about the iPhone though, but rather it is used as a generic example of the type of product built in China that is exported internationally. Being involved in that sector, there have been cracks forming ever since the first round of tariffs were implemented. None of my Chinese vendors are particularly busy, and I'm getting more cold messages than ever from vendors in China. My vendors outside of China are all talking about how they are growing. I was visiting a manufacturer in SEA at the end of May and they had at least 3 or 4 containers full of machines they had just received to open up a new section of factory.
and that it would be a trade war the US would lose because of the directionality of the trade
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?
Yeah China definitely has more to lose. The US will win if it goes on for long enough, but it's like chopping off your hand in order to chop off another guy's arm. You're technically winning, but you're also inflicting enormous pain on yourself.
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.
Not that I'm confident or knowledgable enough to put money on any of this, but I believe it's assumed that the US has a privileged position in the world because of its relative stability (the US infrastructure wasn't ravaged during the World Wars) and has the world's Reserve Currency. If things were more "equatable" the US would have a less privileged position. That also means any losses will be difficult or impossible to get back.
Regardless of the man himself, historically the "deep state" (for lack of a better phrase) has so much inertia that radical changes (even if desired) by the White House end up moderated.
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).
I think the rational definition of Deep State is just the government “lifers” who stay in significant spheres of influence for most of their career. I.e. key defense, intelligence, financial, etc positions.
The problem is that "Deep State" is a loaded term. You could very well argue that the N-word is a historically accurate (and Latin) way to describe African Americans.
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).
Why is it offensive. What is the word for the color black in Spanish? Does the color black have a negative connotation? Or did racist cultural attitudes turn what was a neutral term in to a highly charged weapon of oppression.
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.
The N word is simply the Latin word for black. It was probably used a lot by Latin, and maybe medieval age scholars to describe lots of things in a non-racist way. The issue is that MODERN racists have decided that the N-word is an insult to a subset of the community. As such, the N-word has become an insult.
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.
So you don’t have to play ball in order to be cycled from public sector to private sector to high level government positions along with the attendant corporate lobbying to Congress on approving various government positions?
It’s a pipeline and someone has their hands on the valves.
I don't quite understand what you're trying to say. Could you elaborate?
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.
It has a totally different meaning, but one that makes it much more common ('no but', iirc), so I had quite a surprise arriving at a Mandarin lesson one day!
It's a term meant to slander professionals and imply that we should constantly rotate in the current political favorites into positions for which they are not qualified.
What exactly are you asserting? I get that you're reiterating the Trump talking point about "Deep State" nonsense, but the majority of people in this nation have voted for Democratic candidates in the last several elections, including both 2016 and 2018. If anything, the electoral college and gerrymandering are what dampen the will of the people.
The outcome of the electoral college is de facto the will of the people.
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.
So let’s get what you’re saying: the will of the people is reflected in the person who got less votes winning, because of archaic rules created by ancient oligarchs?
That is cognitive dissonance of the highest order.
agree or disagree with the actual existence, but this definition ignores politically active people in politically important and politically connected non-governmental institutions e.g. media, finance, think tanks, unions, etc, which i think is implied by at least some when using this term..
"Deep state" is a conspiracy theorist level term for some underground, underhanded Hoover/FBI style group that doesn't exist or is really just career officials, most of whom have left the administration especially the state department. This has left a massive shortage in expertise and qualified or cleared workers slowing down how the government can handle ongoing processes/projects and new issues like the many foreign policy blunders and embarrassments Trump and his often unqualified appointees have made.
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.
hell, or even just good ole 'institutionalism'. "Deep state" sure does imply conspiracies afoot, and it's hardly such a thing. really it's just plain ole bureaucracy
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.
Humans are susceptible to narratives and trends. Even if the total dollar amount is low if every business cuts spending by 10% “just to be careful in case things get bad” because they here a narrative that the trade war will reduce demand...their collective action will create a recession.
Bureaucracy does moderate the effects of political leaders in exactly the ways the markets expected. It's extreme to ascribe a "worldview," no less a "naive" one, and it's a failure to appreciate context that you'd cite Bill Moyers' usage of the term when most people here know we're talking about Breitbart's usage. They each describe very different processes, institutional actors, etc., and yes, Breitbart's usage is often coterminous with the administrative state. Bureaucracy.
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!
There is no such thing in the Constitution. “The executive Power shall be vested in a President of the United States of America.“ Contrast France’s Constitution, where there is a President (Title II) separate from the Government (Title III). To the extent there is a civil service trying to be independent of the President, “deep stars” is a colorful but not altogether inaccurate term.
"For the purpose of this title—
(1) the “civil service” consists of all appointive positions in the executive, judicial, and legislative branches of the Government of the United States, except positions in the uniformed services;"
That statute uses the term only as a descriptor for employment-related statutory provisions. It obviously cannot create an executive-branch "civil service" independent and autonomous from the President, when the Constitution expressly vests all executive power in the office of the President.
I imagine that what they meant to refer to is what we remember as "the bureaucracy" (the system of career policy-makers), but that term now has the connotations of inefficiency etc.
It's accurate. The Federal government in theory answers to the President or at least Congress. But the comment was discussing people in the government who work directly and quietly against government policy, to 'moderate' it. The notion of civil servants found many layers down the hierarchy who have their own agenda and ignore orders from the top is the notion of the deep state.
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.
I think what people have (I hope) learned in the past few years is that intertia is based on all participants respecting basic norms of political interaction. But if you let a participant in who doesn't respect those and has no concern for consequences, things can change very quickly for the worse.
When you finally fire (or force out by constructive dismissal) the last person stopping you from driving off the cliff, those precious seconds of freefall are not quite long enough to formulate a viable cliff-bottom recovery plan.
I have always wondered if the "deep state" is just effectively a synonym for the US Constitution. Everyone working in the government has sworn an oath to the Constitution, not to Trump. Any perception of coordinated efforts unaligned with Trump could just be effects due to the masses in the government operating according to the Constitution.
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".
Trade is one area where the president can act independently and assertively regardless of any 'deep state' (if such a thing even exists). So this trade war was initiated by Trump and his inner circle of advisors. The trade war is not the only thing impacting the yield curve inversion, but it is a real factor.
Nicely put, but a real drunken master doesn't get repeatedly decked. Look at trump's financial record, that should have been quite enough (6 bankruptcies was it?)
Those who were fooled, were fooled because they chose to be.
Why should the number of bankruptcies matter if the person is still rich? It shows that they are using it as a tool, which might inform us we need to consider how bankruptcies work, but that doesn't make someone incompetent. If you want to see someone who is incompetent with money, look at lottery winners who within 5 years end up worse than before they won.
1) There's little proof he was rich when he was running for President, he may well have been indebted to foreign powers at the time. The "under audit" story is clearly BS, what was he hiding?
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.
Is he still rich? The fact that he still hasn't released his taxes raises a lot of questions.
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.
He was all but done for before The Apprentice success. That allowed him to parlay his name into a few successful licensing agreements, which salvaged what would have otherwise been a complete collapse.
I mean, 500 million is still pretty damn rich in my books. Sure he inherited it all, and has poorly managed the rest, but he is still rich by any normal person's metrics.
Not sure why you're being downvoted, because you are correct. The president's repeated bankruptcies and inability to get a bank loan forced him to get funding from Russian oligarchs through Deutsche bank's private equity arm: https://www.wsj.com/articles/banks-give-documents-possibly-l...
How rich is he really? There is a lot of evidence that he has a long history of inflating his wealth and achievements. Combine this with his refusal to disclose financial info and I think that provides plenty of reason to doubt his current claims.
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.
He didn’t “get” rich. He was born rich. He would have much more money today if he had passively invested it. The man is a managerial train wreck that’s been consistently burning untold wealth for 30+ years.
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.
"Somehow bullied" = the GOP is terrified of going against him, because his rabid base will drum anyone out of office who can be shown to be anti-Trump. After all, politicians' jobs are dependent on them getting elected.
I agree with you that passive investment would have got the same gains, but it's much easier to see in hindsight, it was not that easy to see beforehand.
He made money by burning other people and companies, but he came out quite well from it.
"Known", yes, though probably not widely so. As I understand it, passive investing was generally considered a bad or at least risky idea at the time Vanguard was created.
It takes $100 and thirty minutes to start a business so that metric is useless. If anything, that many shell corps is suspect for money laundering, not business prowess.
Money laundering? Creating a corporation or LLC for each property is standard practice in the real estate business.
> ... 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.
You can't have it both ways; those 6 bankruptcies are just properties too.
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.
Trump Tower and Taj Mahal are real businesses. But most of trumps "businesses" aren't. They are just shell companies to hold assets.
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.
> 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.
Assuming Trump still is fairly rich (even if it's a much smaller rich than Trump would like to project), the fact remains that he is just not a very good businessman, and that he has held onto whatever money he does have in spite of his business acumen, not because of it.
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.
If you want to play that game, then citation needed that he went bankrupt and I only take his tax returns and financial statements.
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?
You missed the part where I was (sarcastically) demanding the proof in a specific form that I know the reader doesn't have. It is one thing to say [citation needed]. It is quite another to say [citiation needed and by that I mean his tax returns and financial statements].
Here's the original question "The public at large does not know how much Trump is worth because he won't disclose much of anything"
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.
You are quoting only half of the post, particularly the half I wasn't responding to. Try quoting the other half. Also my claim is that he is rich, not some exact measure or level of wealth.
>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?
Even if he is a lot poorer than he claims, he is still rich compared to what we normally consider rich vs poor. I'm not sure why we would suddenly change the baseline in this particular case.
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.
The whole thread follows from a comment that the number of bankruptcies doesn't matter if he's rich. The point is not that he's rich. It's whether he's increased or decreased the fortune he was given. If he's given $413 million and now has less than that, he's not a good business man. Since we are blocked from all his finances, we don't know where he stands now, but the multiple bankruptcies and NYTimes investigation suggests he's not accumulated wealth more than spent it.
https://www.nytimes.com/2018/10/02/us/politics/donald-trump-...
Whether or not he is rich tells you little unless you subtract out the effect of all of his inherited wealth.
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.
Only as a last ditch attempt to preserve some business assets and wipe out debt, after exhausting all other options to raise cash, improve sales, refinance, issue equity, restructure, or other normal business operations to keep the company operating.
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.
One strategy might be to start with a number of business entities; move "troubled assets" of all entities into a single entity and have that entity declare bankruptcy.
You have multiple businesses, and sell assets between them... then bankrupt the lame ones.
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.
Can't the bankruptcy trustees come after the owner when they see that the machine was sold far below value? They do something similar in personal bankruptcy.
Yeah but there are limits. If I'm about to go bankrupt and I sell my $700k house to my brother for $150k, the trustee isn't going to let me get away with that.
Those limits are dynamic based on connections / how many white shoe lawyers you are willing to fund.
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.
Trump has created 515 businesses and only 11 of them failed. That's a 98.64% success rate. He has a better track record than Elon Musk by an order of magnitude.
Ah, now nwalker85's comment makes more sense although it is patently false. A more accurate assessment is that Trump has been associated with 515 business entities. The vast majority of those entities are shell corporations or LLCs meant to (as the name implies) limit liability.
How many of those are real businesses? If all the company does is hold a single asset, such as a private plane, or only has other Trump org companies as customers then it isn't a real business. I'll bet most of those companies exist solely to limit liability or for tax reasons.
WRT making billions of dollars, clearly he didn't. WRT getting elected, he got 3mil fewer votes than his opponent, so you can thank the dysfunction of the EC. WRT to the votes he did get, it's pretty obvious- people dumber than he is, who are apparently blind to seeing his completely obvious con artist act and voting for him, that's how. By completely obvious I mean, the-sky-is-blue, 1+1=2 obvious.
That's how obvious it is that he's a bullshitter and a useful idiot for a lot of shitty people, and has no idea how anything works, and basically has the intellect and integrity of a first grader. Downvote me all you want everyone, but that's the truth. Every downvote I will take with great, great pride. If you voted for him, you're even dumber (or more selfish, if you think of him as your own useful idiot) than he is.
I have had a lifelong problem with constantly doubting my own perceptions about things, and always thinking that I can never be 100% certain about anything, and being hypervigilant about my own potential sources of bias and irrationality and unreliable information, but multiple years into this thing I have no choice but to admit that everything I wrote above is just plain true. It's not rocket science, it's not brain surgery, it's not even grade school arithmetic. It's OBVIOUS, and if someone doesn't see it after all these years they either don't pay attention or are as bad or worse than he is. Or they're literally children who are just that sheltered and naive about other people and the world and how it works.
You might want to consider the idea that people who disagree with you politically might in fact not be dumb, but just have views that differ from yours.
Philosophical question - why is that important to know? What added value is discovered by realizing your opponent's conclusion is not based off of bad facts or faulty reasoning, but different values?
Practical answer - how you engage is radically different.
My math prof likened it to the axiomatic frameworks: if a person has bad facts or faulty reasoning, but your core axioms (values) are similar, you are more likely to come to a point of mutual agreement or at least understanding.
If your values (axioms) are radically different, chances are your entire frameworks are different and possibly incompatible. You'll be talking past each other, discussing methods while in fact your goals and assumptions are completely different.
Philosophical answer - depends on your philosophy and how you feel about philosophical zombie - i.e. is it only outward results or internal causes that make a difference to you.
Thanks. I'm also toying with the idea that it means that realizing it's about values could possibly engender greater respect for the other's conclusions. Because at least then the person isn't "wrong".
Although maybe that's only true if you find their values tolerable. Otherwise I suppose the advantage is in knowing you'll have to start strategizing if the conclusions from their values are incompatible with yours.
Either way it does seem valuable to know the other person's complete reasoning, just trying to quantify as many reasons why as possible.
That is interesting, how does understanding your opponents beliefs make you more fully able to understand your own beliefs? I would think it possible to fully understand one's own argument about something, without understanding all possible counterarguments.
I think the part after your slash is a different case than them having correct facts and reasoning, just with different values. In your after-slash case they are "wrong". You're looking at how to have them accept facts and correct their reasoning.
The first part is interesting, but ultimately, if their conclusions were based only on facts and reasoning, their conclusions would only be limited to the area of facts, "is" statements. They would not be able to derive ought/should statements. (If you believe in Hume's Guillotine.)
Not the OP, but while I'll agree with your sentiment in general, it's a bit straw man argument in this particular case.
I'm generally of liberal persuasion. I did not agree with almost anything that our Canadian previous conservative prime minister did... but I respected him. I thought he was intelligent, effective, and thoughtful. I didn't like that he was effective and productive about things I disagreed with, but I'd shake his hand and I can imagine having a thoughtful conversation and learning something, even if my mind may or may not be changed.
On the other hand, in theory, I "agree" with many of the things Michael Moore for example is fighting for. But I do not respect him, and I cannot watch more than 2 minutes of his programs before wanting to yell at the TV. Certainly, I wouldn't elect him. He is a propagandist, he cherry picks data, and presents a skewed picture. Ann Coulter or Glenn Beck or Michael Moore or Al Franken (the pundit; he may or may not have been more honest as a politician, but his prior books were awful) - it's not a matter of how much I agree with them, but that I find them all fundamentally dishonest.
Which brings us to Trump - my biggest concern is not that I disagree with him (which I do). It's that I have no respect for his mental faculties, honesty, abilities, consistency, beliefs, values, thoughtfulness, or any of the characteristics some of us believe a head of state should have. Further, I think not only is he doing a disfavour for those who disagree with him, I think he's doing a disfavour for those who agree with him / voted for him.
At the end of the day, I may disagree with somebody about what's the best colour to paint the room; I may disagree with somebody on what the best way to fix a education system is, or even what its goals should be; I may disagree on budget priorities, on a country's role in the world, and so on. There's fascinating discussion, debate and learning to be had with people of opposing opinions.
But if somebody wants to buy a bridge somebody's selling them, enroll in a cult, or jump out of an airplane without a parachute thinking it'll end well for them, dunno... I don't think it's in the "difference of opinion" category :|
WRT to the votes he did get, it's pretty obvious- people dumber than he is, who are apparently blind to seeing his completely obvious con artist act and voting for him, that's how.
> it's pretty obvious- people dumber than he is, who are apparently blind to seeing his completely obvious con artist act and voting for him, that's how.
Bay area engineer here. Did Google for a few years, did a B2B startup, acquired by FANG, now lead a team of 30. Good relationships with family and physically fit.
I've noticed that that a few acquaintances with the same trend... they like to take risks and optimize locally rather than globally. Not dumb but just narrow focused like most of us in technical areas.
> he got 3mil fewer votes than his opponent, so you can thank the dysfunction of the EC
Why is the electoral college dysfunctional when it goes against the popular vote, even though it's designed to be able to do so? This has happened several times before without issue.
Not all Trump voters are "people dumber than he is". That's a ridiculous generalization and little more than morally-superior posturing. People are much more complicated with their choices then you may believe.
TL;DR : Trump is a 'mixed bag' but for right wingers the cost-benefit analysis surpassed that of Hillary Clinton, even though there were heavy costs.
I'm not sure we should be delving into politics on hacker news. But if it's okay for the goose, allow the gander to retort.
I hear you expressing your frustration and believe me I am fully aware that many Americans are very frustrated. Especially people on the left who have suffered a series of depressing defeats. On an emotional level, I'm worried and empathetic.
I think you are correctly recognizing certain behavioral characteristics of Trump that are unpleasant and possibly harmful such as lies, bragging, and narcissistic behavior. Many (probably most) people on the right who voted for him also see those characteristics. They are as you say "completely obvious." It is not that people on the right are "blind." So the question is why did they vote for him anyway? Why wouldn't these characteristics rule him out?
Your conclusion is that they are (if not blind) dumb. That might be true for some people, but it cannot possibly explain it for everybody. Take myself for example. I have had my IQ tested three times, and the lowest value was 147. I would say that objectively speaking I am not dumb. I must qualify this with the fact that I was a child all three times so there was a correction factor involved which would not apply now, so my IQ is probably lower today. I hate to put this paragraph in because it sounds like bragging, but I need evidence to demonstrate my point.
Here is part of the answer to the mystery we are presented with:
1) Trump did in fact do very well in business, contrary to various articles that argue he would have done better in the S&P500.
Their calculations are off because they don't value his business as a going concern, did not apply top tax rates to the
dividends, and often picked the market bottom which is unfair as nobody can time the market. The methodology was flawed
because it is a sector comparison (stocks to real estate). The conclusion is flawed because it presumes being on par with
the S&P500 is what "any idiot could do in an index fund" but the proper conclusion is "being on par with the very best
companies" because it's not sharing in someone else's created wealth, it's actually creating the wealth.
EDIT: I forgot to add, they completely ignored expenses.
2) Trump's lies are mostly inconsequential bragging. Everyone can see through them. Successful deception would actually be
damaging, but unsuccessful "first grader stuff" isn't damaging because we can all see through it. We know full well why
he lies in most cases (narcissism or negotiation, in both cases we are okay with it). Also, we like that he just says what
he thinks openly rather than being careful with his words which makes us suspicious of dececptions that we might not be able
to detect.
3) He has openly promised things that right-wingers want and have been pounding the table about for generations. And we believed
he was serious about it and wouldn't let politics or being politically correctness get in the way. We were right, he didn't.
He just storms ahead damn-the-torpedoes, ignoring the news, ignoring the 'game'. Most republicans would have restrained
themselves based on political chicanery. Right-wingers love it and left wingers hate it because he is "unmitigated."
I'm going to stop there because I don't want to write a diatribe.
> Take myself for example. I have had my IQ tested three times, and the lowest value was 147. I would say that objectively speaking I am not dumb. I must qualify this with the fact that I was a child all three times so there was a correction factor involved which would not apply now, so my IQ is probably lower today.
What you say is a great explanation, and makes sense, but then you go on about IQ as if it means something?
Thanks for the first part of your comment. I assume you are arguing that being "dumb" is not coorelated with IQ because IQ isn't meaningful. If so, I politely disagree but I'm not motivated to take on that argument.
My question is what is the point of the trade war. What does trump get from initiating/escalating it, or who is directing him to do it. Seems to be a net negative for all sectors of the economy.
I’m no fan of the President, but Paul Krugman’s rants have gone from heated to just bizarre at this point. Shows that even Noble laureate’s aren’t immune from going off the rails.
Do you think it's more likely that a Nobel laureate has gone off the rails, or that they are using the same skills and knowledge that got them a Nobel to analyze the current situation?
Besides the batting average comment, he said that in 1998 for a particular reason:
> 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.
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.
Krugman has looked like an arrogant idiot at times. There's a video of him talking about cryptocurrencies. I've no problem with people thinking crypto is silly, but he was spouting opinions while clearly not having any idea what a cryptocurrency was.
Come on this guy is the president of the US people need to stop calling him ignorant and dumb just because they don't like aspects of his persona (racist/greedy/cunning/divisive). He is surrounded by aides and business people giving him information and trying to forward their own agendas. He's not just sitting there thinking "wouldn't it be fun to start a trade war to look tough".
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.
We don't live in medieval times. Trump is not a good human being, I don't like him one bit, but he's sane (I would go as far as to call him cunning) and democratically elected.
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.
You're splitting hairs and I'm not sure what your point is.
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.
I think it is a power play. He likes to feel powerful, and he thinks of it as a negotiating tactic. He is a bully and likes to try and push people around. I honestly don't think he much considers the ramifications going forward on a global scale. It is more of a personal slight: "The Chinese are really screwing us over, I'll show them!"
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.
> 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".
What, exactly, should "democratically elected" mean if not that exact sentence?
> Come on this guy is the president of the US people need to stop calling him ignorant and dumb just because they don't like aspects of his persona (racist/greedy/cunning/divisive).
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.
You don’t think the men who have been President haven’t been through stressful situations before their time in office? Bush, Governor of Texas, Clinton, Governor of Arkansas, Bush, World War 2 Veteran and Director of the CIA, Reagan, Governor of California, Carter, Governor of Georgia. Despite those experiences, all to a T came out of office looking worse for wear.
I've heard that argument but it's wrecking parts of the ag sector, hurting manufacturing (big parts of his base), and will probably push all consumer prices up. I guess if his base can't put 2 and 2 together that prices are rising due to his tariffs it almost makes sense.
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?
>I guess if his base can't put 2 and 2 together that prices are rising due to his tariffs it almost makes sense.
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.
They're not stupid, for the most part. They just have a different set of priorities.
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.
>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 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.
"Having a different set of priorities" is just another way of saying someone is stupid or irrational. This base is supporting someone who is not acting in their best interests, because yes, their best interests are not a priority.
I have heard the term reciprocal altruism to also cover events such as the following scenario:
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.
If your explanation requires assuming that both very powerful politicians and their supports, constituting tens of millions of people, are all incompetent, then perhaps you need to consider an explanation that doesn't require such assumptions.
I'm not assuming the politicians are incompetent. Usually, they aren't, they're just working towards different goals then their constituents or what they promised them.
If you really think the average voter is competent at economic matters, I have a bridge to sell you...
> 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...)
> 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.
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.
All the money in the world will not help you if you have no secure homeland for your children and grandchildren. You can not have security when the means of production of a state is located outside of the control the citizens of that state. Tariffs are a small step towards re-establishing local control over the means of production.
No country in the world is self-sufficient; that's why we invented something called "trade" thousands of years ago. There's plenty of countries (small ones) that make almost nothing, and rely on a few key industries to hold up the economy, while getting the rest through trade.
Everyone is susceptible to brainwashing. It's also called "indoctrination". Smarter people (or people with better critical thinking skills) are less susceptible. But no one is immune; if people hear the same thing over and over again, eventually it'll influence them.
Maybe his coin? The real estate markets crashed. Now, I don't want to blame the real estate markets, because I always made a lot of money in bad markets. I love bad markets. You can do very well in a bad market
I would have guessed that it's an attempt to make other US-friendly countries (Vietnam, Phillipines, India, etc) relatively more attractive as places to set up factories, to move that manufacturing base out of China and reduce their geopolitical influence.
The other--more suspicious and dismissed as conspiratorial--benefactor of of this trade war Russia and the bolstering of Russian industries. America is importing a lot of Russian steel [1] and aluminum [2], and Russia is been ready to fill the food gap for China that they used to get from the US [3].
It seems to be aimed at bringing about a wealth transfer from the investor and management classes to the working classes - if global supply chains are forced to shorten, the value of unskilled labour locally will go up even if the economy as a whole loses.
There are two things China has been doing for years that the WTO hasn't put an end to. The stated goals of the trade war include stopping those, which I can - as anything but a fan of anything to do with Trump - actually agree need to stop. I'm far from certain the scale and breadth of tariffs involved are necessary to stop them, but I agree those two practices need to stop.
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.
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.
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 vast majority of fentanyl on the US black market is synthesized in 'clandestine' labs in China and shipped directly from there to dealers in the US via the post.
I'm not sure how a trade war on legal goods with one current producer of an untracked import addresses the demand for the drug or the domestic dealers. Buyers change suppliers all the time. And you're not putting a tariff on what's shipped clandestinely from clandestine labs.
China has been dragging its feet for years when it comes to banning fentanyl analogues when in the past they were quick to literally execute their citizens for manufacturing legal highs a decade ago.
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.
Well, at that scale tariffs on other things could be used as a cudgel to encourage enforcement on the Chinese facilities by China, sure. There would still be some fentanyl available, and opioid users are fairly flexible with the specific opioids they use. Heroin, oxycontin, hydrocodone, codeine, and such tend to come from elsewhere. As one lab in China shuts down, another in China could pop up. Or in Nigeria, or in Pakistan, or in Venezuela.
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.
One of the things he campaigned on in 2016 was bringing manufacturing jobs back to the US for low-skilled workers. I can see that being a third thing this could possibly help.
It's possible, but tariffs against only China won't do much of that. There are loads of countries with relatively low wages that already supply things to US markets. India, Vietnam, Bangladesh, Pakistan, Mexico, Malaysia, Indonesia, and Thailand from the top of my head produce lots of things in US stores. Much of it is lower tech stuff like produce or textiles, but the shipping and investment pathways are already there. A threat of general tariffs on some goods might do more for that, but that would involve Taiwan, South Korea, Japan, and Europe for electronics, appliances, and automobiles.
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.
The tariffs include raw materials. What happens to the existing manufacturers that can no longer make a profit because the steel and aluminum that they've been buying costs more now?
These are good points. Not sure why Trump would care about the first one, but could see how enough businesspeople were leaning on him to get the second point done. This seems like the most likely explanation to me as well (opening China to further foreign investment by accelerating the country's slowdown in growth).
I see at least three things: it was his election promise, he preempts the imminent cyclic recession, he gains leverage on federal reserve and transnational corps. Agriculture problem seems to be preceding the trade war. For instance the soybeans sales to China are down because the protein content is down in the US soybeans.
That's a very simplistic view of economics. The US is the world's largest market for just about everything. It creates enough wealth domestically that its citizens can afford to buy from other countries without bankrupting themselves or the nation. Read up on GDP, fractional banking, stock issuance, sovereign debt, oil as a commodity, and reserve currency.
Tariff money is supposed to subsidize the industries harmed by the tariff. There is an inequality in goods in which the US has a major advantage. To put it simply, it's much easier for us to grow soy than it is for China to replicate our technology. Furthermore, the Chinese economy is not doing nearly as well as the US which means we are in a position of power at the moment. It is extremely important that the US minimizes its trade deficit even if it's a dose of medicine for the consumer that they don't initially like. They will like it when jobs move back to the US or even Mexico that were once overseas.
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.
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...
An efficient market prevents any sort of death spiral. The objective of a tariff, just like the objective of regulation, is to encourage/discourage a certain practice but that doesn't mean there aren't ways around them if they become overly burdensome. For example, when environmental regulations become too burdensome, outsource the job to a place where those regulations aren't present. This is why environmental laws can easily put American companies at an extreme disadvantage and should be carefully considered. A lot of the higher costs you are worried about are self-inflicted because of all the ridiculous overhead required to run a business now a days.
You are making the error people always make with personalities like Trump.
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.
>This is why charisma tends to beat substance even when the audience really ought to know better.
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.
This has been known for hundreds of years- "Gorgias" even asserts that an ignorant person who speaks well will always beat an uncharismatic expert in popularity.
I wonder how the investors will model Matteo Salvini’s actions once he grabs full power in Italy. Afaik he had proposed a practically speaking parallel currency to the Euro a couple of months ago, which if it were to become true would practically kill the European currency. Italy is also too big to fail for the UE and they have one of the largest debs in the developed world (compared to GDP), not exactly the same as Japan’s but pretty consistent nonetheless.
I think his thought is to force an economic downturn in 2019 and then release the tension going into 2020 to have a smooth economy once the elections are due
USA has a huge trade deficit with China. Chinese economy is much more dependent on the USA buying their goods than the other way around. They've already devalued their currency in order to stay competitive to American buyers, so in a sense they are directly paying for the tariffs.
I doubt the trade war has anything to do with that. That United States has been growing above potential for a long time, and that Europe has been unable to grow for many years, and that China has exhausted it's growth engines, have very little to do with threats of tariffs on a few electronics and grains.
A very useful caveat from the insightful, and cautious, Howard Marks -
> 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.)
The other ratios have inverted over the last 6 months, I think as early as the 5-1 ratio in January. The 10-2 is simply the more extreme indicator and the bigger signal that a recession will probably happen in the coming 12-24 months. I used 10-2 both as it is in the news this week and is the critical indicator that I studied in college. In January I was referencing the 5-1 as an early indicator that without correction would lead to the 10-2 inverting as well.
Economic contraction isn't necessarily a bad thing so long as it is a cautious, thoughtful and controlled contraction that gets rid of the kind of spoilage that festers into a crash.
Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking.
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:
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).
I'd just like to point out that the yield curve inverted in 2018 [1] yet here we are.
> 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.
> I'd just like to point out that the yield curve inverted in 2018 [1] yet here we are.
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'd just like to point out that the yield curve inverted in 2018 [1] yet here we are.
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.
It needn't be a "collapse", could be a protracted period of little to no growth, and most indications are that it will start in a couple of years at most.
Re: the yield curve inverted in 2018 yet here we are.
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.
A recession will follow in 12-24 months, based on my understanding of the bond yield curve and close following of it in recent years. We can check in mid 2020 and see if that timeline holds.
You don't have a time machine. Economic indicators work every time - until they don't.
>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 main issue here is that events like these become a self fulfilling prophecy. Since 100% of inverting yield curves have resulted in recessions in the past, stock market investors will start behaving as if an recession is inevitable which in turn starts the recession.
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
There are couple more points why it would not turn into 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.
> 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".
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.
"Past Performance Is Not Indicative Of Future Results".
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?
Yeah, my gut is also telling me, that governments would let half the population starve then let a recession happen.. But if it hits. It will be huge... We might also hit incredible high inflation... Making cash worthless..
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.
Those are some great points you have raised, I just want to add:
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.
> When the yield between the 10-year and 2-year US treasury inverts, a recession is months away.
> 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.
I think you are right but it won't really hit until 2020 when the administration changes. One thing really helping drive this market is that indexes are driven by a few huge mammoth companies. Additionally, the tax law changes let them bring home tens of billions that they spent on buybacks to drive the price even higher. That was a one time event. Interest rates are already too low and the Fed still has too much paper. There isn't nearly as much powder in the gun this time around. I think this time will be worse than 2008 but time will tell.
> 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.
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.
QE is unprecedented. If you look at the absolute yields, we're talking about rates below inflation (1.8%). It's an inversion but the magnitude is so low it's hard to compare it to past inversions.
Equity valuations are pretty much in line with earnings with the S&P 500 index as a whole trading around 20x earnings. Considering how low the risk free rate is (US treasuries), that's not a booming valuation and is probably undervalued if interest rates stay this low considering most of these companies return at least 10% on tangible equity.
Unemployment is low right now, but so are wages and so is inflation so it's not like we're booming there either.
Regarding precedent: the Bank of Japan began QE in 2001 and has expanded it beyond sovereign bonds to also buy equities and ETF’s. Could the day come when the Fed bids up $BYND?
10y/2y inverted also in 1998, but recession only came in 2001. so 3years later.... it can be long time until recession ;)
note that the 10y/3m already inverted though. its more reliable....
Also worth noting that if you go long, and there is a stimulus required, you may be in trouble as rates are low enough that you can lose money to inflation. No free lunch.
If a stimulus is required (which it definitely will be when the next downturn hits, unless we want the worst depression in history), we'll be begging for inflation. But there will be massive deleveraging and the resulting deflation to compete with. All the while, there will be fools crying for austerity, and business men thinking a sovereign government with the power to issue currency should be run like a business (i.e. tightening the belt during a downturn).
At some point I have to better understand the weird relationship between bonds and bond funds. If rates are low then bonds are a low performing investment, but apparently bond funds go up.
I'm surprised that everyone blindly cites the inverted yield curve as a recession indicator without considering the "why". Seriously, if you were to ask ten people why an inverted curve predicts recession, you'd get ten completely different answers.
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.
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.
I agree. For the two recessions I’ve lived through, we didn’t arrive at them with everyone well aware it was going to happen. They snuck up and took the country by surprise. The tech bubble burst, and the real estate subprime bubble burst.
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.
Of the two recessions you lived through, both were expected. Many people decried the tech boom. Many people thought there were warning signs pre-2008. The problem was that nobody knew the depth of the 2008 recession.
The question is, what is the bubble? I'd argue the entire stock market is the bubble right now, with boomers throwing everything they have into the market to get some of that free money before they retire. Once they start pulling back it's going to be a sad day. Right now US household "wealth" is sitting at >500% of GDP. That's not sustainable.
Why is it not sustainable that household wealth is > 500% of GDP?
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 :)
Traditionally, anything above ~350% has indicated a bubble. With the housing bubble, we saw a peak of 473%, and the dot-com bubble was 429% at its peak. Essentially, yes, wealth will be a multiple of GDP, but the multiple has been fairly constant historically, and it's diverging rapidly now. So either we're in an era where assets are significantly more valuable (and I'm not sure there's a good case for that given the multiplier), or we're in an asset bubble.
Not just boomers. Robinhood has made it so you can buy stock on your iphone in a couple minutes. Everyone has stock, and I think the market is crazy overvalued right now. I think everything's a bubble right now.
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.
Sorry, I meant more like day traders and volatile stocks. Especially younger people, who can now become day traders and even trade options with ease. Investment plans are different in the idea that the money is in there for an extended amount of time, and usually just stays invested.
Is it not a sure thing? Time and time again, the US government has been willing to sacrifice the value of the dollar to pump up the value of equities. Maybe the share price of certain companies decline, but the voters of the US have a vested interest in keeping equity prices high (401k, pension fund investments, etc).
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.
Wouldn't the boomers be heavily allocated in bonds at this point? Even the youngest of them are basically at or nearly at retirement age (at least the ones with enough resources to hold much in stocks)
Anecdotally -- take my experience for what it's worth, small sample size warning -- some/a lot of boomers are behind in saving for retirement, and are trying to catch up by riding the asset boom.
This is what I've been seeing, too. If everyone is expecting a recession, then the recession gets "priced into" the current valuations. The big trouble comes if the expectations/pricings are off in some sector.
For one thing, inverted yield curves are bad for banks and for investors who do the same thing as banks.
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.
I remember the dot-com crash of 2001 and seeing companies close so fast, they didn’t their employees a final paychecks; I remember one day, after the dot-com collapse a position I was qualified for got filled within three hours.
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.
First of all predicting a crash is a fool’s errand. It as much about emotions as it is about fundamentals. There’s a perfectly valid explanation for the valuation of Startups and the availability of capital for startups in the last 9 or so years. After 2008 crash, markets were stagnant until 2012. At the same time capital was being eased by govts worldwide. This capital has to flow somewhere. Tech startups were ripe at this crucial juncture for investments - we had seen enough successes with the likes of Facebook, Amazon and Google - and tech had a major point in its favour in terms of being able to scale easily. Now, in hindsight (personally i never thought it could work as claimed) this is emphatically not true for the sharing economy.
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.
I am pretty sure recessions will at least be good for ridesharing companies, since they will get more drivers, which will lower driver pay. Since they can treat the prices consumers are willing to pay as sticky, this could help them solve profitability issues. I am not sure how much a recession would affect demand or consumers' willingness to spend on ridesharing though, but I think overall a recession is actually good for ridesharing
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
I'm not convinced a recession would be good for ridesharing companies. In a lot of places today, using Uber or Lyft is significantly more expensive than driving yourself on a per-mile basis, and way more expensive than alternatives like public transit. In a recession scenario where people are losing jobs and tightening personal budgets, it's pretty easy to envision a lot of people taking a hard look at their rideshare expenditures and either deciding to use an alternative or just not go out places nearly as often.
It depends a lot on how much ridesharing companies pass on any labor cost decreases to consumers, and consumers' demand curves.
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
Totally agree, I just think that on average, the net result in a recession will be less rideshare usage, even with lower costs. For example, people are probably more likely to ask a friend/family member to take them to the airport in a recession scenario than they are today. If you've lost your job, a $20 ride can be a significant expense for a large portion of potential customers.
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.
Until every competitor leap frogs them. Everyone's running up a down escalator.
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.
IMO, we’ve reached the diffusion limit of innovation in ridesharing. Autonomous is a pipe dream and in a recession, human drivers will be cheap.
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.
The bond yield curve inversion mentioned in the article has led every recession in the last 70 years by 12-24 months. It's an indicator, because we don't know the future, but it's historically accurate to a T. On some level it is self fulfilling but the evidence of past crashes is there too.
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.
I'm not sure whether to feel vindicated to see someone else echoing my own internal thoughts, or to feel nauseous about reliving those years. I was fortunate enough to have been at a company that was making money, but I still remember growing from 500 employees to 4000 or so in 2 years...and then dropping back down to 1500 two years later. We bought a small software company for the talent, and 3 months later was told to layoff the entire team.
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.
Most my friends went back to grad school and retrained for other professions, too, like attorneys and some optometrists.
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.
That seems exactly how you would expect capitalism to work, isn’t it? Labor retrains when demand for it drops and chases capital in other industries which do need it.
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.
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 the difference this time around is that the largest tech companies (Apple, Google, Facebook, Microsoft, to a lesser extent Amazon) are generating healthy profits. So while there is likely an issue with a lot of the unprofitable unicorns, the industry as a whole won't collapse.
If anyone has done a comparison of the size of profitless companies in the (tech) market, today and before the dot-com crash, that would be incredibly valuable.
My gut feeling is that they constituted a larger portion of the market back then, but I've never seen a direct comparison.
Not enough time to do a real comparison, but Uber feels a lot bigger than all of the mid-sized startups which dominated the dot-com landscape. They are a lot bigger than Webvan was (22,000 vs. 3,500 employees) not to mention Netscape (2,500 employees at its peak); Webvan and Netscape were the most famous big dot-com flops.
Thanks for the data point. It's helpful, but I'd be worried about extrapolating too much from one outsized data point.
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.
However, the collapse of unprofitable unicorns will propagate across tech. Reduced investments in start-ups and tech companies with risky ventures translates to increased labor supply, which means downward pressure on compensation across the industry (even at the healthy big-5 tech).
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.
Yeah, I mean as a software engineer as long as job availability doesn't reduce too much, I don't mind compensation reducing if housing prices go down with it...
It seems like one of the key characteristics in a crash is a domino effect. Whereby companies' financials that previously looked solid are suddenly cast as untenable in a new economic light. Usually because of an underappreciated correlation with a substantially removed market.
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?)
I think there are definitely systemic risks which could hit the US economy (small recession due to everyone cutting back spending to weather the recession, resulting in poorly profitable zombie firms - many of them retail firms - being unable to service bad corporate debt). It's noteworthy that we've been seeing retail bankruptcies like Sears and Payless in a consumer economy this good - what happens to other retailers when the sentiment turns for the worse? Note that low fed rates won't necessarily keep the cost of servicing debt low, if investors anticipate potential bankruptcies and flee from poorly-rated bonds.
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.
Sears (and possibly Payless too) were mortgaged past the point of sustainability.
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.
There's lots of relationships whereby the fortunes of one company can be effected by another. For example Tesla and Uber are total dogs snd I could see them imploding. Are there smaller startups that sell services to Tesla and Uber in a significant enough way that they could get hurt too?
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.
While they will survive, there's a ton more people in the rest of tech, and if they don't have jobs and are desperate that's going to change the lives of Google employees.
During the dot com bust that was part of the problem. As the startups started dying, it turned out that the big companies had started to rely on them for their profitability.
Yeah, but the only one of these that might be reliant on a booming tech startup industry for profitability is Amazon (due to AWS - I'm not sure how much of its revenues come from traditional enterprises vs. VC-fueled growth money).
Agreed that it’s not exactly the same but the larger point holds IMO. That is that the tech economy is more like the food web, where it’s not always obvious what chain effect will happen when something starts dying off
Well, two of those companies survive largely on the basis of advertising, which is in turn financed through the Silicon Valley Venture Capital Machine. If that dried up, it would be Bad News.
The hyper growth of the dot-com crash was way different than today. Are there companies that are outrageously unprofitable today and over-valued? Yes. But it's nowhere near the dot-com hysteria. I doubt a tech sector 'crash' is going to occur but I wouldn't be surprised if a correction happens.
I'm not 100% sure this is true, there are a few big high profile companies that will need to substantially restructure to achieve profitability, however there are loads of companies with lots of customers and growth that can be turned into profit.
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.
"Tech" is another way of saying "risk" in the eyes of investors. When the yield curve inverts, it means investors - as a herd - are turning away from risk in the short term. Tech being a manifestation of risk is going to take a short term hit in the form of more difficult capital raising.
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:
For me that Deck basically says what I think will happen now and what happened in 2008. Some people will lose money, governments will panic, people with normal jobs will have a harder and harder time and people in IT will get richer as if there is no recession even happening.
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.
I heard a few key thinkers predicting a larger recession due to our inability of getting more energy out.
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.
That model seems incomplete given the lack of efficiency as a variable. Home energy usage went down in spite of growth in electronics and power mainly due to better lighting efficiency alone. While it can help it doesn't drive all.
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.
I don't think it's a tech crash at all. Sure, we've got companies being propped up by VCs that are doomed to fail (Uber, etc), but the fundamentals of other big tech companies are sound. They have customers, they sell products, and demand for some of those (advertising and support services) are and will be perpetual. The signals for the downturn don't really seem to have anything to do with tech in particular.
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.
Question: While I'm sure economists have been studying this effect for decades, or maybe even way longer for all I know, it seems like this metric has been popularized as the key thing everyone looks at just in the last decade -- after the last recession that we had.
Given the popularization, any chance of an increased observer effect? In either direction, I mean, positive or negative.
That's absolutely not the case The Yield Curve is now talked about on nightly news shows and it used to be only known about by economists and people in finance.
It's completely legitimate to question whether this increase in publicity for this one metric might be causing it to be less useful.
I just went and fact-checked myself via Google Trends.
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:
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.
You were asking a totally reasonable question and I gave a needlessly curt & unhelpful response. Especially considering I heard "yield inversion" and its variations literally like an hour before I commented.
Probably not. Normal people have little impact on the bond market, most of them accept market rates through some intermediary such as a bank or broker.
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.
Something can both be a historical pattern and popularized as something we pay attention to. There are also historical patterns that many people don't talk about frequently or pay attention to.
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.
That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up. People who buy securities for the purpose of re-selling, rather than holding, bid prices up, based not on fundamental valuation but on the thought that it will become more popular.
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 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".
> That's partly because the market boom is itself a self-fulfilling prophecy. Stock markets go up because other people think they're going up.
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?
Index funds will do exactly as well as the aggregate of the individual stocks that they track (whether equities, bonds, treasuries, real estate, metals or something else.)
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.
Frankly, with the market we’ve had the last 10 years practically anyone can beat the market as long as they invest in decent tech stocks. That’s why there’s so many millionaires running around here these days.
> 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.
Is that true? It sounds like you took on debt to finance your trading. Do most startup founders personally take on debt?
Pulling out of an index fund after you've been hit by a market crash is a really bad strategy. Either pull out now and put your money in a savings account, or stay in the index fund for the long run.
You could also reverse that and say "all it takes to cause a boom is to convince everyone there's a boom". People think the markets are rational and maybe over decades they are but in the short term half of it is sheer psychology and herd mentality.
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.
There are articles all over the internet stating matter-of-factly that the US-China trade war has had a hand in the German recession. Why is that the case? At first blush it seems like newly un-fulfilled demand in the US and newly available supply/capacity in China would be a boon for other countries. What am I missing?
Germany exports mostly industrial goods, such as machines (for manufacturing). As such, China is a far more important market than the US. The overlap of things both China and Germany manufacture is relatively small.
Or, in economists' terms: Germany's and China's goods are complementary more than competitive.
What would you expect? Brexit fears and almost every EU government banning ICE vehicles ten years from now. Good luck selling those Volkswagens. Add to that Trump's trade war with China. The EU is probably next.
The forward looking indicators indicate recession, the backwards looking indicators indicate recession, and the general pattern of the yield curve suggests a downturn within ~20 months.
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.
That depends on your risk profile. Are you going to freak out if your portfolio loses 30% of its value in a year? Then maybe move to a more balanced portfolio. If you are happy to wait and let things turn around again, then stay the course. Timing the market is generally not recommended because the people that do this every day have a much better grasp on what is going on than the public in general and they will have already responded en-masse before you can, so at best you are hoping to get lucky.
The balanced portfolio is a 60/40 stock/fixed income (government bonds, etc) split. If you're running hot (a 90/10 balance seems quite toasty) then perhaps you could consider pulling back to a more moderate position until you feel we're approaching the bottom, and then return to your aggressive split.
Yield curve inversions could be forecasting either bad stock market performance or low interest rates. If the Fed drops interest rates in a year back down to near-zero rates, nobody is going to be selling a 3 month treasury for 3%. In that case, being in a 10-year treasury for 2% will feel like a pretty good idea. Interest rates put an upper limit on federal bond yields, and it's possible that the yields represent a forecast of a very low upper limit.
this frightens me far more than the yield curve inverting. the information-distributing capacity of the fed's website is built for routine loads, but the fact that it is down suggests that everyone is scrambling.
It will be interesting to watch a recession that hits with zero or near zero (or even negative) central bank rates together with ongoing market disruptions such as the US/China trade conflict and Brexit. By “interesting” I mean terrifying.
I agree with this, also will we try to pass another tax cut to try to stimulate the economy. It seems to me should use tax cuts, large increases in government spending, and rate cuts to stimulate the economy on a "rainy days". Doing these things during a good economy seems foolish to me.
And Mitch McConnell recently argued the exact opposite. When asked he said (paraphrising) "Why would we increase taxes when the economy is doing well, why would we want to hurt that growth?"
The idea of repaying borrowed money never occurs to people. The idea that interest rates might rise and cripple those who owe too much never occurs to people. That seems very short-sighted to me.
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?
Nothing about the intent behind the 2018 tax cuts was about them being good for the economy. They were good for the corporate sponsors of the legislation and administration that pushed for them and bad for the long term solvency of the country and bad for the working class as a whole.
I asked this in a similar thread a couple of weeks ago, but I feel like the sentiment is a lot more pessimistic today than it was then. Anyway, I've been holding way too much cash for the last two years in anticipation of a recession. Everyone was telling me that trying to time the market is a bad idea and that I should just invest and forget about it, but given the current signals, might it be a good idea for me to hold out just a little longer?
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...
Whatever you feel comfortable with. To own stocks means to accept upside and downside risk. If you can't afford to lose 40% in a year because you might need the money within 10 years, reexamine your risk profile. It's okay to have cash on hand that you might need for a down payment, wedding, car purchase. If you're talking about money you won't touch in 10+ years and you won't panic sell, then don't try to time the market.
Timing the marking is a bad idea, but getting good value for your money is a good idea, and has some element of timing. Don't try to figure out when prices are low, figure out when value is high. For instance, relatively low P/E, high dividend yield, high ROI, high ROE, etc. If you're looking to invest in an index fund, check out the S&P 500 historical P/E: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...
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.
Earnings are also cyclical, just like prices. Imagine an industry whose earnings are especially sensitive to business cycles. On an upswing of the cycle, they look like a good deal because their P/E might be low, but that's only because the market is reflecting the risk inherent in the industry. After earnings crash during a recession, investing in such a "value" company at the top starts to look like it was a bad idea.
Statistically, the only months with average declines in the stock market since 1950 have been August and September. If I were you I'd hold out 'till Oct. 1, and not a day longer. Two years and two months isn't that much worse than two years, and you'd really kick yourself if you turned out to be right after all.
Also, setting a fixed date will probably help you come to terms with it psychologically.
I'm sorry to hear that you missed out on the market growth over the past two years.
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.
This is not advice, but if I were 100% or even 50% in cash and had at least 20 years left of time horizon, with no immediate need for the cash, I'd probably put 5% back in the market each month until I had 100% allocation.
Time to get more conservative with your investments. Just moved my retirement accounts from 100% in a 2050 lifecycle fund to 75% in a 2030 lifecycle fund and 25% in just government bonds.
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.
Why does low or negative yield bonds mean that you are going to be ok with govt bonds? This is exactly the problem, where bonds are no longer providing interest payments.
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 exactly the problem, where bonds are no longer providing interest payments.
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.
Thanks for the reply, I was confusing negative yield curves[1] with negative yield bonds (in the EU) [2].
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.
> 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.
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.
I know nothing of finance, but I have a normal liquid savings account that's paying 2.25%, apparently "permanently". Why would anyone buy a less-flexible product that pays less?
> normal liquid savings account that's paying 2.25%
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.
That high yield savings account is (likely) unavailable to their tax-advantaged account(s) such as 401k. In that case, their choices may be limited to stocks or bonds.
You can hold CDs in an IRA; currently Navy Federal is offering a 5-Year CD at 3.50% APY available for IRAs with no maximum purchase amount. [1]
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.
It's not actually permanent. Your bank almost certainly has the right to change it daily, and once their asset acquisition goals are met, they probably will.
Not knowing exactly how much you want explained; but...
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.
The bond interest payments are separate from the value of the bond. Which you can sell back at a greater premium and faster than even worrying about maturity.
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.
I’m not sure how I get your logic? I do think the US bond yields have a large discrepancy versus other developed market yields, but convexity greater increases as yields fall towards zero. So how is that behavior similar to a deep ITM option?
the only similarity is that a deep ITM option is an asset that decreases in value in one way while gaining in value in another way, due to the same forces.
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.
I missed the big downturn twelve years ago because I procrastinated. My 401k money was in some fund that was no longer being offered, so the money was transferred into a currency fund (I don't recall what it was). I kept meaning to move it to an index fund, but never got around to it and then the market dropped. A year later I did the transfer and as a result I did very well.
I haven't touched it since but now with yield curve warnings popping up, I'm starting to think I should.
I'm 40% in cash, 50% in S&P and 10% in small-cap. The last few months, all of my contributions have been going into cash, so that when the fall happens, I can hopefully scoop up a deal.
Well if this was Nov 1999 (one year before the crash), S&P 500 was at $1.4k, so it would've taken you 14 years for your position to be in the green again
27% return over 14 years with dividends reinvested (1.86% annualized)[1]. Although when we calculate it with inflation its -7% and -0.5% annualized.
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).
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.
A fixed ratio like rebalancing? That’s not really timing the market as you typically rebalance after a set period regardless of how the market has moved.
But you still money money the opposite of how the market moved.
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.
Timing the market is exactly what you said about saving cash. Changing your asset allocations based on age or other milestones is not timing the market in any way. It’s reducing risk if you are about to retire.
Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.
As I said a fixed asset ratio is timing the market. The expected returns for socks are higher than bonds, it’s rebalancing that makes fixed ratios a good idea.
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.
As a person who isn't in any way confident in my ability to time the market, I think I'll stick to the old adage of time in the market not timing the market.
Warren Buffet made the same bet, S&P 500 vs some hedge funds. From 2007 to 2017 S&P gained 7.1% vs 2.2% for the hedge funds. The hedge funds arguably know more than you.
The hedge fund must have been doing a different strategy as I did much better than 7.1% from 2007 to 2017. Left at 1500 got back in at 930 and then ignored the market for 10 years.
The bet was for returns AFTER fees, though. S&P was its return minus 0.05%/yr (or whatever it is for vanguard). The hedge funds was their returns (which did suck compared to the S&P500 IIRC) minus 2%/yr plus 20% of final profits.
I'd disagree with this approach. If your target retirement date really is 2050, you have more than enough time to weather a downturn in the market.
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.
You’re not going to get a return on investment if none of your consumers have enough money to buy anything. A negative return is the market itself telling you that you need to give them money for purchases to even happen.
So, somebody with a more rigorous understanding correct me if I'm wrong, but I always thought it was a truism that any advice about the market appearing in print was necessarily useless:
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.
As you may have noticed from the article, the point of yield curves inverting is that it is a pretty reliable recession-coming indicator: "The curve inversion to this point is flagging a 55-to-60 percent chance of a U.S. recession over the next 12 months"
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.
I find the general interest of the public in inversions - similar to their interest in negative yields - a bit surprising. I suppose it must be due to these concepts seeming counter-intuitive. Some brief notes, not all of which are meant to tie seamlessly together:
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.
> 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.
I haven't heard about this. Any public reading material?
Sure, it's slightly complicated. Some may quibble on my somewhat explicit wording, but under the primary dealer system the Treasury can unequivocally ensure that auctions clear lest designations be stripped. It's hard to articulate how much an auction failure would disturb money markets. Therefore, clearing bond auctions is the highest possible priority of the Treasury and FRBNY and you saw JPM in Dec 18 taking it on the chin to make auctions clear (as there was surprise about the utter lack of foreign interest).
"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]
You'll notice in this graphic the sharp jump in holdings that corresponds to around October. This is when - for foreign buyers - the yield curve really inverted for practical purposes, leading to primary dealers filling up their books, which I detailed a bit in my initial post.
Time to buy more equities, as always. Seriously, once you have good emergency cash, just keep buying whenever you can and stay sharp at work. What happens in the future is always a buying opportunity.
Yeah, same boat. I'm a pretty naive investor and through my 401k have about 50% of my net worth invested in index funds with the other 50% in cash. Are there simple strategies to limit exposure other than "sell everything"?
I'm not the OP, but if the Fed decides that the stock market isn't going to fall, then come hell or high inflation it's not going to fall. Some people think that the recent history of interventionist monetary policy (QE) points to a Fed that is willing to pump up asset prices in the event of trouble. Does that mean the economy won't fall apart? No, but it does mean that holding cash could be a worse idea than holding equities.
There’s now also moral hazard too with the rise of indexing and retirement. They need to keep the WHOLE stock market up. Many fewer investors now do any research and chose companies based on fundamentals. The companies that exist today must exist forever into in roughly the same proportions to keep SP 500 index from falling too heavily.
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.
> Companies exploit this relationship now by destroying their balance sheets and using buybacks to boost their relative market caps vs other companies.
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.
In practice it does increase market cap because constantly buying back shares increases PE multiple growth which then makes the stock then sell at a higher valuations since they are showing (artificial) growth. The long term stability of those buybacks isn’t taken into account with 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.
> The long term stability of those buybacks isn’t taken into account with valuation models.
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.
Doesn't seem to be. You're referring to the big crunch, but that theory was ~disproven.
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.
As someone who has been out of BTC for years because I have no faith in it anymore and recognize it as the foreign controlled money laundering machine it is, its still probably going to skyrocket in this recession. I've been wrong every time before when I expected markets to grow wise to the pyramid scheme and centralized nature of bitcoin and how it doesn't function at all according to its creators vision and how it doesn't function at all as a currency whatsoever but the prospect of short term profits simply overrides all rationality in that fledgling market it seems.
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.
What change if any should someone make if they have money in robo-investing services like wealthfront? Is shifting money to cash or lower risk robo accounts a sensible strategy, or have undesirable consequences crystallizing losses/gains, a somewhat expensive perturbation going against the robo algorithms that you have elected to trust?
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?
I wonder how much NPR's Planet Money contributed to the general awareness of the Yield Curve. That is where I learned about this and they speak about this multiple times on numerous episodes.
Any continuous locus of points is a curve - that's what makes the Jordan Curve Theorem hard to prove :)
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:
Quips about the Jordan curve theorem aside, I don't think that's really a meaningful question. It is or it isn't, depending on how you want to model it.
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!
People talk about the 2/10 and say "the curve is inverted", exactly like you can measure the position of just the tip and tail of an airplane and say "it's going up/down".
While the press will blame trade tensions with China for this, in reality the US economy has been doing well lately, however outside the US the other major economies have not been growing. Ranging from plateauing to shrinking. That is the real reason we are seeing this correction.
"As recession signals go, this so-called inversion in the yield curve has a solid track record as a predictor of recessions. But it can take as long as two years for a recession to follow a yield curve inversion."
We had one close call in the mid 90s, about 1995-1996. I don't think it actually inverted but it was within less than one percentage point away from inverting. Luckily, 1995-1996 was the start of the Dotcom bubble, which gave us a few more years before the recession of 2001 hit.
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.
> 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).
If there are bubbles, there will be corrections. And the more "bubbly" the economy, the more often there will be corrections. It's hard to quote other, wildly different economies as examples of why market corrections are not inevitable, but Australia, Japan, and Netherlands are not the same economies as the US.
>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.
If it's so sure, why isn't it priced in already? I can't help but notice my investments are only down a couple of percent recently, well within the range of normal fluctuations.
The 2-10 year is the "official" indicator. The other inversions were signs that the 2-10 year was going to invert.
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.
I don't want the economy to tank anymore than the next guy but if it blows up before the 2020 elections and kills President Trump's chance of re-election that would be a fantastic silver lining.
I'm calling it now, but you won't actually see a recession until after he leaves office. The rich and powerful control the market and it has no actual real indicator to the effects a majority of people are seeing in their personal lives.
That supposes the rich and powerful give a rip about trump. They don't. If anything, they don't like his unpredictability. But, I don't think it's really tied to a person or party. For example, Obama provided the wall street bailout.
I just thought of a horrifying thought. Bernie becomes president, recession hits inauguration day. Banks start to fail, but he doesnt bail anyone out because 'bernie cant be bought'. At least obama did the right thing and saved the economy.
I think Bernie and Warren are perfectly capable to work within the constructs of a free market than most people give them credit for. However, that doesn't mean that there shouldn't be transparency involved and if bankers begin manipulating the markets to try to control politics then they should be brought in for a public investigation in front of congress.
The rich and powerful will continue to do what they always do: act in their own personal interest. If they decide they can make more by divesting from the market, you can bey they will. There is no monolith.
The effects of a recession have to be seen and felt on a visible, visceral level, with a limited lag effect, for it to affect people's votes. In 2008, the subprime crisis led to people's homes being foreclosed on a mass scale while big banks and auto companies got government bailouts and the US was embroiled in two major wars.
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.
