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Recession?


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This reminds me of a time when I was either 14 or 15 and my mom was hosting a party in the backyard for a few of her senior colleagues.  So I was sitting there awkwardly on a bench amongst these impressive looking businessmen and women until one of them — a gentleman probably in his mid 60s who I later learned was a partner at the firm — came up to me and said hi, so what are you planning to study in college.  I really had no idea, so I probably said something silly like “economic forecasting.”  The gentleman chuckled a bit and said “I’m an economist too, son, and you know what, we have a very important job to do, which is to make the weatherman look good.”  Boy did it take me a long time to get that joke.

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This reminds me of a time when I was either 14 or 15 and my mom was hosting a party in the backyard for a few of her senior colleagues.  So I was sitting there awkwardly on a bench amongst these impressive looking businessmen and women until one of them — a gentleman probably in his mid 60s who I later learned was a partner at the firm — came up to me and said hi, so what are you planning to study in college.  I really had no idea, so I probably said something silly like “economic forecasting.”  The gentleman chuckled a bit and said “I’m an economist too, son, and you know what, we have a very important job to do, which is to make the weatherman look good.”  Boy did it take me a long time to get that joke.

 

That was a man to listen to  ;)

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Opihiman2, while i am not 100% cash i am looking to raise cash. Will the US ever have another recession? I think so. When? No idea.

 

It makes sense to me that higher interest rates from the Fed and a reversing of QE is going to negatively impact equity markets. The volatility we have seen in January and for much of 2018 is likely just a precursor of what is to come.

 

It appears the Fed will continue raising rates until something breaks. Every increase from this point forward is going to get more and more interesting for stock markets.

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Opihiman2, while i am not 100% cash i am looking to raise cash. Will the US ever have another recession? I think so. When? No idea.

 

It makes sense to me that higher interest rates from the Fed and a reversing of QE is going to negatively impact equity markets. The volatility we have seen in January and for much of 2018 is likely just a precursor of what is to come.

 

It appears the Fed will continue raising rates until something breaks. Every increase from this point forward is going to get more and more interesting for stock markets.

 

Yeah, I believe Fed will break things again as usual.  My god, the Fed chairmen have been really clueless since Volker.  Although Bernanke did well with saving the economy and financial markets, he has missed the housing bubble and said some really crazy things in the past such as U.S. having a savings glut problem.  These guys live in ivory towers.  The new guy is just as bad.  He is saying there's no heightened financial risks even at a time when nearly every asset is overvalued and risk premium pricing is insanely mispricing risk.  Italian bonds were cut above junk and just yielding 4% or something like that.  Insane.

 

My current macro thesis is based on what we seen with near end QEx.  Every time QE1,2,3 was about to end, markets almost plummeted into near bear market territories.  We'll see how it goes, but I think when 10 yr hits 4%, watch out below. 

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Opihiman2, while i am not 100% cash i am looking to raise cash. Will the US ever have another recession? I think so. When? No idea.

 

It makes sense to me that higher interest rates from the Fed and a reversing of QE is going to negatively impact equity markets. The volatility we have seen in January and for much of 2018 is likely just a precursor of what is to come.

 

It appears the Fed will continue raising rates until something breaks. Every increase from this point forward is going to get more and more interesting for stock markets.

 

Yeah, I believe Fed will break things again as usual.  My god, the Fed chairmen have been really clueless since Volker.  Although Bernanke did well with saving the economy and financial markets, he has missed the housing bubble and said some really crazy things in the past such as U.S. having a savings glut problem.  These guys live in ivory towers.  The new guy is just as bad.  He is saying there's no heightened financial risks even at a time when nearly every asset is overvalued and risk premium pricing is insanely mispricing risk.  Italian bonds were cut above junk and just yielding 4% or something like that.  Insane.

 

My current macro thesis is based on what we seen with near end QEx.  Every time QE1,2,3 was about to end, markets almost plummeted into near bear market territories.  We'll see how it goes, but I think when 10 yr hits 4%, watch out below.

 

In the post from Liberty, Druckerman really does a good job of explaining the issues. With real interest rates below zero for years it has created a free money scenario and resulted in an explosion of bad debt (hello emerging markets). He mentioned Argentina’s issuance a couple of years ago of 100 year bonds at 7%. He thinks corporate bonds are another bomb waiting to go off (i think Gundlach is in this camp as well). He thinks there is a lot of junk corporate debt masquerading as investment grade.

 

The longer the central banks take to normalize interest rates the more bad debt will get issued. The problem now is there is so much debt that as the central banks raise rates it will now create a larger crisis (then if they would have raised rates 4or 5 years ago). (Druckenmiller quotes Buffett and said we will find out who has been swimming naked... i.e. where all the shitty loans are hiding). The ECB and Bank of Japan are so screwed (they haven’t even started normalizing).

 

The central banks have a situation where they have two bad options. Keep raising rates and cause a recession. Don’t normalize rates and watch debt and financial markets explode even higher. Hard to see how things don’t get very messy at some point in time. The challenge is timing... nobody knows when we will reach the tipping point (and the smaller bombs going off become a much larger bomb).

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"The longer the central banks take to normalize interest rates the more bad debt will get issued."

 

I disagree. They already reached the point were skepticism has arisen in all kinds of markets. And the USD is already sky high.

 

They need to take a pause for now and see how things play out.

 

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