The State of the Economy Thread - “Falling inflation, rising growth give U.S. the world’s best recovery”

[PleaseBlitz]

⬇️This is a big important topic, and it shouldn't all be shunted into the Trump thread, because there is nothing he or anybody else can do to stop it and it's not all about politics anyways.  The next recession is coming because that's how economic cycles work.  Let's try to keep the politics in this thread to a minimum.  If you want to post about how Trump is exacerbating recession fears through his stupid trade wars, please put that in the Trump thread.  If you want to post about how Trump will singlehandedly prevent a recession from happening, please put that in the Trump thread.  If you want to post about how a recession will impact an election, please put that in appropriate election thread. 

 

There have been minor warning signs for over a year that the next recession was getting ready to rear its ugly head.  Last week, the yield curve inverted, which is generally seen as a sign that a recession is coming.  The stock market went ballistic.

  

https://www.washingtonpost.com/business/2019/08/14/recession-watch-what-is-an-inverted-yield-curve-why-does-it-matter/

 

Quote

Stock markets tanked Wednesday after the bond market sounded a loud warning that the U.S. economy might be headed toward a recession.

 

Investors are spooked by a scenario known as the “inverted yield curve,” which occurs when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds. What it means is that people are so worried about the near-term future that they are piling into safer long-term investments.

 

In a healthy economy, bondholders typically demand to be paid more — or receive a higher “yield” — on longer-term bonds than they do for short-term bonds. That’s because longer term bonds require people to lock their money up for a greater period of time — and investors want to be compensated for that risk. In contrast, bonds that require investors to make shorter time commitments, say for three months, don’t require as much sacrifice and usually pay less.

 

For U.S. government securities — known as Treasury bonds — that relationship has now turned upside down. On Wednesday morning, the yield on the 10-year Treasury temporarily fell below the yield on the two-year Treasury for the first time since 2007. (It later recovered slightly.)

 

The yield curve has inverted before every U.S. recession since 1955, although it sometimes happens months or years before the recession starts. Because of that link, substantial and long-lasting inversions of the yield curve are largely viewed as a strong predictor that a downturn is on the way.

 

Two researchers for the Federal Reserve Bank of San Francisco summed it up in a letter they published last year. “Forecasting future economic developments is a tricky business, but the [yield curve] has a strikingly accurate record for forecasting recessions,” they wrote. “Periods with an inverted yield curve are reliably followed by economic slowdowns and almost always by a recession.”

 

The fact that people are willing to take such little money for their long-term bonds suggests that they aren’t too worried about inflation, says Brian Rehling, co-head of global fixed income strategy for the Wells Fargo Investment Institute. If they aren’t too worried about inflation, it also suggests that they expect the economy to grow more slowly in the future, he says. Inflation usually picks up when the economy is hot.

 

In response, the Dow Jones fell by 800 points that day, which is 3% of its total value.  It's lost close to 7% between July 30 and Aug 14, but is now creeping back up.

 

 

 

In this article, Buzzfeed hilariously tries to explain what a recession is to Generation Zers.  https://www.buzzfeednews.com/article/venessawong/how-to-prepare-for-a-recession?ref=bfnsplash.  Here is a representative sample of how it goes:

 

Quote

When hiring freezes or layoffs increase, people who still have jobs stay in them, making it harder for anyone looking for work to find a position. One reader wrote, “My law firm laid off a bunch of lawyers and rescinded its offer to all its incoming lawyers. It took me 14 months to find another legal job, and even then, it was very low-paying because I felt like I needed to take any job.”

 

To make matters worse, your parents might say incredibly stupid **** about how you should go about finding a job. Be nice to them — they have no idea.

 

 

 

 

Edited January 30 by PleaseBlitz

[tshile]

The yield curve...

when something becomes trending on twitter and everyone becomes an expert, it’s time to bail. Everything is right for the “perfect recession indicator” to be wrong. 

 

https://www.calculatedriskblog.com/2019/08/dont-freak-out-about-yield-curve.html?m=1

 

the indicator and planet money have done things in it over the last few months. 

 

Basically a lot has changed. A lot of things that weren’t the case when the inverted yield curve has “worked” in the past as an indicator. 

 

Including the fed being aware of it and trying to head it off. And Trump. And then you have all the deflationary things that don’t count that Peter has mentioned many times. 

 

 

[PleaseBlitz]

The other side of that coin is that it is very profitable to take the contrary view (on whatever the issue de jure is).  Hot takes = clicks and clicks = money.  The markets, however, don't lie.  

 

In any event, the first paragraph of your link states: "There are reasons to be concerned. The global economy is slowing. The US economy has slowed. Current policy (especially on trade) is a drag on growth. "

Edited August 22, 2019 by PleaseBlitz

[TradeTheBeal!]

I’m not big on Chicken Little stuff and I’m no economist...BUT, as a car dealer guy, I can say that 2019 looks a lot like 2007 to me.

 

And I have made preparations, both for the business and on a personal level.

[tshile]

6 minutes ago, PleaseBlitz said:

The other side of that coin is that it is very profitable to take the contrary view (on whatever the issue de jure is).  Hot takes = clicks and clicks = money.  The markets, however, don't lie.  

 

What markets? the stock market?

😂

You of all people are going to come in here tying stock market volatility to the economy?

 

The stock market is overly infested with machine learning algorithms and scrape social media and news looking for an edge in short term trading (wars, terrorism, natural disasters, whatever.) It's caused volatility to be worse and the swings to be more.

 

That guy isn't a hot taker. He does great work over there, and his partner was also awesome until she died. He's not being a contrarian. He's sharing his expertise on his blog as he's been doing for a very long time.

 

Whatever. Go buy some gold then.

 

Planet Money and The Indicator aren't really full of hot takers either. 

Edited August 22, 2019 by tshile

[PleaseBlitz]

Just now, tshile said:

 

What markets? the stock market?

😂

You of all people are going to come in here tying stock market volatility to the economy?

 

The stock market is overly infested with machine learning algorithms and scrape social media and news looking for an edge in short term trading (wars, terrorism, natural disasters, whatever.) It's caused volatility to be worse and the swings to be more.

 

That guy isn't a hot taker. He's a respected economist. He does great work over there, and his partner was also awesome until she died. He's not being a contrarian. He's sharing his expertise on his blog as he's been doing for a very long time.

 

Whatever. Go buy some gold then.

 

 

The yield curve references the bond market.  The stock market(s) took their cue from that.  

 

And I've read this blog before, it's good.  He also states right up front that things are slowing down; his point is don't panic over one indicator.  I'm not saying anyone should panic over that one indicator either, I said quote "Last week, the yield curve inverted, which is generally seen as a sign that a recession is coming."  Which, generally, it is.  

[tshile]

8 minutes ago, PleaseBlitz said:

 

In any event, the first paragraph of your link states: "There are reasons to be concerned. The global economy is slowing. The US economy has slowed. Current policy (especially on trade) is a drag on growth. "

 

1 minute ago, PleaseBlitz said:

He also states right up front that things are slowing down; his point is don't panic over one indicator.

 

And the last one says... 

 

Quote

In general, I find new home sales and housing starts a better leading indicator for recessions than the yield curve.   And Year-to-date (through June), new home sales are up 2.2% compared to the same period in 2018. Not indicating a recession!

 

 

[FanboyOf91]

 

[tshile]

3 minutes ago, PleaseBlitz said:

The yield curve references the bond market.  The stock market(s) took their cue from that.  

I'm aware of what the yield curve is.

 

Are we going to play this game now where we pretend bonds are wholly separated from stocks?

 

[PleaseBlitz]

Just now, tshile said:

In general, I find new home sales and housing starts a better leading indicator for recessions than the yield curve.   And Year-to-date (through June), new home sales are up 2.2% compared to the same period in 2018. Not indicating a recession!

 

This I totally disagree with.  Almost always, towards the end of a boom cycle, interest rates are not at near-historic lows (which they are now) which fuel home buying. 

[Riggo-toni]

On the one hand, I don't think we will have the massive collapse of financial institutions that made the 2008 collapse so severe.  On the other hand, the budget is so very far out of control despite record low unemployment and interest rates are at Rock bottom, so there will be no viable options for the government to make much of a difference....in fact, it is liable to crowd out access to capital for the private sector.  I think what we will see is a recession similar to 91.

[PleaseBlitz]

Just now, tshile said:

I'm aware of what the yield curve is.

 

Are we going to play this game now where we pretend bonds are wholly separated from stocks?

 

 

Are we going to play this game where you take the position that a recession isn't coming at some point?

[bearrock]

You can have a correction, recession, or a crash, but chances of uninterrupted infinite period of economic growth is slim to none, especially when US consumers are doing bulk of the heavy lifting across the world and lot of those consumption is built on credit.  Like most things, you can make a great deal of money if you can time it well, but most people can't time it nor can they readily absorb the consequences of mistiming it. 

 

Bread and butter investment advices apply.  Mix of varying risk and length assets, with consideration to long term and short term investment goals.

[tshile]

1 minute ago, Riggo-toni said:

so there will be no viable options for the government to make much of a difference.

i've been reading some interesting views on this.

 

Not everyone agrees there's nothing they can do. Almost everyone agrees they aren't quite sure the remaining options will actually work.

 

1 minute ago, PleaseBlitz said:

 

Are we going to play this game where you take the position that a recession isn't coming at some point?

 

No that sounds stupid. I'm sure our economy will not continually grow infinitely.

 

The question is whether this inverted yield curve is correctly indicating a recession in the next 22 months.

 

On one side we got a lot of people who just learned about the inverted yield curve in the last month.

 

On the other side we got quite a few respected experts in the field going "... hmmm... i don't know... things are a lot different... "

 

It's funny you talk about taking a contrarian view for clicks. Don't suppose you see any of that in the #InvertedYieldCurve

 

[PleaseBlitz]

5 minutes ago, tshile said:

No that sounds stupid. I'm sure our economy will not continually grow infinitely.

 

The question is whether this inverted yield curve is correctly indicating a recession in the next 22 months.

 

Yes, it does sound stupid. 

 

Whether the yield curve inversion is correctly indicating a recession was not my question.  I simply stated that it is (again quoting) "generally seen as a sign that a recession  is coming."  Which is just a fact.  

 

Quote

 

On one side we got a lot of people who just learned about the inverted yield curve in the last month.

 

On the other side we got quite a few respected experts in the field going "... hmmm... i don't know... things are a lot different... "

 

It's funny you talk about taking a contrarian view for clicks. Don't suppose you see any of that in the #InvertedYieldCurve

 

Yea, I have a degree in economics and work on the legal side of the housing finance industry.  I'm pretty happy to compare resumes. 

Edited August 22, 2019 by PleaseBlitz

[tshile]

(just for the record, i do think our current government policies and ideas are going to hurt us economically long term, including things like a bad recession, but I don't know that *this* instance of an inverted yield curve is telling us that it's going to happen soon. i'm not smart enough to know, but I 've listened/read opinions of people who are supposed to know, and they're hesitant to jump on the hysteria the media has pushed the last week or so.)

1 minute ago, PleaseBlitz said:

Whether the yield curve inversion is correctly indicating a recession was not my question.

Right

 

What i took issue with was your response that it was just a contrarian view for the sake of clicks.

 

Which is a dumb comment considering Bill McBride's history of work. Same with Planet Money, unless they have some reputation I'm unaware of.

 

Edited August 22, 2019 by tshile

[Elessar78]

Well, the top 2 economies (US and China) are struggling. #3 Germany is taking collateral damage from the USCHINA trade war and they are slowing as well. It's not looking great. But market timing is a ****. And the ride-up after a recession is usually pretty profitable. 

 

Look at it positively: stocks are going on sale. Time to, um, stock up. 

[PleaseBlitz]

2 minutes ago, tshile said:

 

Right

 

What i took issue with was your response that it was just a contrarian view for the sake of clicks.

 

Which is a dumb comment considering Bill McBride's history of work. Same with Planet Money, unless they have some reputation I'm unaware of.

 

 

LOL, you took issue with something I did not say, now you are trying to salvage your inability to read.  Great hijack. 

[tshile]

2 minutes ago, Elessar78 said:

Look at it positively: stocks are going on sale. Time to, um, stock up. 

Yup. 

 

Time to start shopping

 

24 minutes ago, PleaseBlitz said:

The other side of that coin is that it is very profitable to take the contrary view (on whatever the issue de jure is).  Hot takes = clicks and clicks = money.  The markets, however, don't lie.  

 

 

 

1 minute ago, PleaseBlitz said:

 

LOL, you took issue with something I did not say, now you are trying to salvage your inability to read.  Great hijack. 

 

Yeah maybe I read it wrong 😂

[PleaseBlitz]

40 minutes ago, PleaseBlitz said:

Last week, the yield curve inverted, which is generally seen as a sign that a recession is coming.

 

30 minutes ago, tshile said:

The yield curve...

when something becomes trending on twitter and everyone becomes an expert, it’s time to bail. Everything is right for the “perfect recession indicator” to be wrong. 

 

🤣

 

#hijack

Edited August 22, 2019 by PleaseBlitz

[Springfield]

I considered starting this thread up last week.

 

Wapo sure does seem heavy in the coming recession, reporting all aspects of it.  I’m out of the stock market, aside from my 401k, which is pretty aggressive.  I’m considering switching my investments around to limit the hit I’ll take when things come crashing down.

 

I surely don’t know how to tell if a crash is coming, but the reporting seems eerily similar to 2006-7 when people were starting to sniff out the housing bubble.

 

I just hope I can afford to keep my home once it falls off.

[tshile]

3 minutes ago, PleaseBlitz said:

 

 

🤣

 

#hijack

Oh, so I'm the one making money off clicks?

 

Hmmmmm.

 

Yeah, your comment makes a lot more sense now that you've adjusted my reading of it.

[PleaseBlitz]

Just now, Springfield said:

I considered starting this thread up last week.

 

Wapo sure does seem heavy in the coming recession, reporting all aspects of it.  I’m out of the stock market, aside from my 401k, which is pretty aggressive.  I’m considering switching my investments around to limit the hit I’ll take when things come crashing down.

 

I surely don’t know how to tell if a crash is coming, but the reporting seems eerily similar to 2006-7 when people were starting to sniff out the housing bubble.

 

I just hope I can afford to keep my home once it falls off.

 

I think generally the reporting from a lot of outlets reflects how bad the last one was, and that people are keyed up about the next one.  

Just now, tshile said:

Oh, so I'm the one making money off clicks?

 

Hmmmmm.

 

Yeah, your comment makes a lot more sense now that you've adjusted my reading of it.

 

Do you have anything to add, or are you just here to advertise that you read one financial blog? 

[Elessar78]

1 minute ago, tshile said:

Yup. 

 

Time to start shopping

 

My Robinhood account, which is just for my amusement really and learning about investing, has an unreal return of 39%+ over the past year (since I started). 

 

Even though I put some thought into the "portfolio" of 3 stocks that I purchased—I don't think I'm some investing genius, mostly lucky, I guess. Now I'm curious what happens when the recession hits. I'm thinking it will be a hit of 20% to the overall value. 

 

But anyway, the stock market is NOT the economy. I feel it's a self-fulfilling thing. Media throws around the word "recession", we enter a recession, stocks go down, people panic and stop spending. The stopping of the spending, to me, is the critical thing. Yes, there's some job loss with recessions but it shouldn't really rock the economy as such.

 

To my non-expert brain, just like monetary value is a psychic assignment of value, the economy is the collective assignment of value/confidence in the future. But really it shouldn't be, everyone needs the same basic goods in a recession, everyone still wants that new kitchen/car/appliance, companies still need to do that thing they were doing before the recession. 

[tshile]

1 minute ago, PleaseBlitz said:

Do you have anything to add, or are you just here to advertise that you read one financial blog? 

 

I read more than one, but I'm glad your feathers are ruffled. It's deserved. If being a jerk doesn't work at first, just double down.

1 minute ago, Elessar78 said:

My Robinhood account, which is just for my amusement really and learning about investing, has an unreal return of 39%+ over the past year (since I started). 

nice. i've been sitting tight for a while. i dont' know enough to know how to navigate what's going on right now. so my returns have been OK but surely nothing to brag about.

 

i have another problem, i refuse to buy tech stocks. too close to the industry, too biased. 

 

healthcare and finance were great sectors for a while. not sure where to go now. just sitting tight and allocating money for buying if things actually fall a ways. we'll see...