4 ms·

The great recession of 2016 has begun. This is China finally having their 2008 and it impacting the world.

by cenal 11y ago

c-slice 11y ago
I doubt it will have a long term impact on other markets. Other markets aren't anywhere near as overvalued. Markets have been expecting this since mid 2015. There isn't going to be a liquidity crisis, if anything it will make Chinese goods cheaper as the RMB is devalued. This couldn't be more different than 2008.
- jamesblonde 11y ago
  China Will export deflation to the rest of the world. That will create lots of problems....
  - jamesblonde 11y ago
    Russell Napiers Anatomy of the bear shows that the unifying feature of all the great bear markets was deflation. With rates aready at zero, central banks will need even more non conventional mechanisms. QE4, then govt spending. That's Napier's thesis...
xyzzy4 11y ago
I agree, it could very well prompt a recession. Also looking at the technicals, the 1 year percent change of the S&P 500 is negative, which is a strong recession indicator historically. The 150-300-39 day MACD also looks bad. These indicators have both only been negative one other time since 2009, which was in September 2015. Lastly the US CAPE ratio is pretty bad too.
- deleted 11y ago
  [deleted]
- UK-AL 11y ago
  For the past few years, someone has predicting a recession in the next 6 months via technicals. Technicals = Star Signs in most cases.
  - xyzzy4 11y ago
    Well have you actually run a historical trading simulation (like I did)? You would know these indicators are far superior to a buy and hold strategy.
    - UK-AL 11y ago
      I've heard many people say the same, which then never comes true. Just because stuff happens in the past, doesn't mean it will come true. The fact that people know this information, changes the outcome which is why markets are so hard to predict.
      - xyzzy4 11y ago
        There's countless different indicators and investors don't follow the same ones, if any at all. Most people aren't computer programmers who have run historical simulations. Just because you know something doesn't mean that other investors do. For example I bought lots of Bitcoin when it was at $16, because I thought I knew something other people didn't, and I was right. The fact is if you followed the indicators that I mentioned since 1950, your net worth growth rate would've increased at least 50% without even using leverage. Trends in the general stock market change slowly (the price doesn't look like random noise) and that's why it's predictable enough to beat a buy and hold strategy.
        jrockway 11y ago
        So are you mostly short on the S&P 500? If I was guaranteed a recession, I would be. I'm long on the US stock market because if US companies are good at one thing, it's their 5% YoY growth.
        11y ago
- tunesmith 11y ago
  Meanwhile I've been trying to sell holdings when they go below the 12-month moving average, since that strategy would have made me a ton of money had I used them during 2001 and 2008, but instead I've just been whipsawed to all hell. Not sure any of these indicators really make sense in the long run.
  - xyzzy4 11y ago
    What I found through lots of calibration is that it's best to sell when the weekly average of the S&P 500 is -2% compared to that same week a year ago, and then re-purchase when it goes back up to 0%. In fact it's best to short the S&P 500 when it's less than -2%. Perhaps if the interest rate is high then it's best to hold bonds, but that's not the current case. I can't guarantee the indicators will work in the future, but they worked in the past, and they make sense to me because the S&P 500 historically followed a momentum-like path. And I don't see why a 65 year trend based on mathematically simple technical indicators will suddenly change overnight just because it's the future versus the past. If you don't use indicators, then you're taking the strong position that they don't matter, which is more contrary to the evidence than using them. Unfortunately you either have to use indicators or not use them. So an "I don't know" opinion is still a definitive decision that they are worse, which is probably an incorrect decision.
- Jeema101 11y ago
  Bad historically, yes. Bad compared to everything else in the current investment climate, not so much. CAPE of 25 corresponds to a yield of 4% before growth in earnings is taken into account. That's still pretty good compared to the yield on treasuries and just about anything else right now.
  - xyzzy4 11y ago
    I haven't tried to use CAPE in any simulation because I don't think it is too predictive in the near term. But it's good to keep in mind.
arasmussen 11y ago
2008 was more of a housing bubble. I think this crash looks a lot more similar to 1999 - when valuations were ridiculous (see: http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg) and people were borrowing money like crazy to invest in an insane bull market.

The great recession of 2016 has begun. This is China finally having their 2008 and it impacting the world.

by cenal 11y ago

The great recession of 2016 has begun. This is China finally having their 2008 and it impacting the world.

I doubt it will have a long term impact on other markets. Other markets aren't anywhere near as overvalued. Markets have been expecting this since mid 2015. There isn't going to be a liquidity crisis, if anything it will make Chinese goods cheaper as the RMB is devalued. This couldn't be more different than 2008.

jamesblonde 11y ago
China Will export deflation to the rest of the world. That will create lots of problems....
- jamesblonde 11y ago
  Russell Napiers Anatomy of the bear shows that the unifying feature of all the great bear markets was deflation. With rates aready at zero, central banks will need even more non conventional mechanisms. QE4, then govt spending. That's Napier's thesis...

xyzzy4 11y ago

I agree, it could very well prompt a recession. Also looking at the technicals, the 1 year percent change of the S&P 500 is negative, which is a strong recession indicator historically. The 150-300-39 day MACD also looks bad. These indicators have both only been negative one other time since 2009, which was in September 2015. Lastly the US CAPE ratio is pretty bad too.

deleted 11y ago
[deleted]
UK-AL 11y ago
For the past few years, someone has predicting a recession in the next 6 months via technicals. Technicals = Star Signs in most cases.
- xyzzy4 11y ago
  Well have you actually run a historical trading simulation (like I did)? You would know these indicators are far superior to a buy and hold strategy.
  - UK-AL 11y ago
    I've heard many people say the same, which then never comes true. Just because stuff happens in the past, doesn't mean it will come true. The fact that people know this information, changes the outcome which is why markets are so hard to predict.
    - xyzzy4 11y ago
      There's countless different indicators and investors don't follow the same ones, if any at all. Most people aren't computer programmers who have run historical simulations. Just because you know something doesn't mean that other investors do. For example I bought lots of Bitcoin when it was at $16, because I thought I knew something other people didn't, and I was right. The fact is if you followed the indicators that I mentioned since 1950, your net worth growth rate would've increased at least 50% without even using leverage. Trends in the general stock market change slowly (the price doesn't look like random noise) and that's why it's predictable enough to beat a buy and hold strategy.
      - jrockway 11y ago
        So are you mostly short on the S&P 500? If I was guaranteed a recession, I would be. I'm long on the US stock market because if US companies are good at one thing, it's their 5% YoY growth.
        11y ago
tunesmith 11y ago
Meanwhile I've been trying to sell holdings when they go below the 12-month moving average, since that strategy would have made me a ton of money had I used them during 2001 and 2008, but instead I've just been whipsawed to all hell. Not sure any of these indicators really make sense in the long run.
- xyzzy4 11y ago
  What I found through lots of calibration is that it's best to sell when the weekly average of the S&P 500 is -2% compared to that same week a year ago, and then re-purchase when it goes back up to 0%. In fact it's best to short the S&P 500 when it's less than -2%. Perhaps if the interest rate is high then it's best to hold bonds, but that's not the current case. I can't guarantee the indicators will work in the future, but they worked in the past, and they make sense to me because the S&P 500 historically followed a momentum-like path. And I don't see why a 65 year trend based on mathematically simple technical indicators will suddenly change overnight just because it's the future versus the past. If you don't use indicators, then you're taking the strong position that they don't matter, which is more contrary to the evidence than using them. Unfortunately you either have to use indicators or not use them. So an "I don't know" opinion is still a definitive decision that they are worse, which is probably an incorrect decision.
Jeema101 11y ago
Bad historically, yes. Bad compared to everything else in the current investment climate, not so much. CAPE of 25 corresponds to a yield of 4% before growth in earnings is taken into account. That's still pretty good compared to the yield on treasuries and just about anything else right now.
- xyzzy4 11y ago
  I haven't tried to use CAPE in any simulation because I don't think it is too predictive in the near term. But it's good to keep in mind.

arasmussen 11y ago

2008 was more of a housing bubble. I think this crash looks a lot more similar to 1999 - when valuations were ridiculous (see: http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg) and people were borrowing money like crazy to invest in an insane bull market.