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Wall Street Banks Warn Downturn Is Coming

332 points by champagnepapi 9y ago

graphitezepp 9y ago
Slow growth is the new normal. Even the weak modern post-recession market, is growing unsustainably fast.
cm2187 9y ago
Valuations I think are massively pushed by the amount of quantitative easing, which the Fed said it is only going to start withdrawing in Sept: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... I think this could have some nasty impact on stocks, particularly if combined with an interest rise.
- Finnucane 9y ago
  Currently, the Fed is maintaining the balance sheet at a high level by reinvesting funds from maturing bonds they hold. At some point they're going to stop reinvesting the funds, and let the balance drop. Which means the initial impact will be in long-term rates, esp. mortgage rates. It probably won't effect stocks too much directly in the near term, but eventually will. It will be interesting to see what effect this has on certain overheated coastal real estate markets.
  - cm2187 9y ago
    There might be a month or two of lags but when you look at a 10y chart of the S&P vs the size of the Fed B/S, the correlation is striking.
    - icebraining 9y ago
      Doesn't seem to be that correlated: https://www.pragcap.com/wp-content/uploads/2013/12/stupid_chart1.png https://www.pragcap.com/wp-content/uploads/2013/12/stupid_ch...
      - cm2187 9y ago
        Correlated from the introduction of QE of course. I made that chart a year ago: http://imgur.com/kOXtm8N http://imgur.com/kOXtm8N The correlation only started to break a couple few months ago, with the S&P skyrocketing. But many suggest this is bubble territory.
        icebraining 9y ago
        Even during the same period, the two graphs of the Fed sheet don't seem to match up, do you know why? I'm not clear what CERBTTAL means.
        cm2187 9y ago
        It is just the bloomberg ticker for the weekly size of the Fed assets. What difference do you see? They both end up at about $4.5 trillons, they should be exactly the same.
nugget 9y ago
This leads me to think that a real downturn is at least a couple years away.
- trey-jones 9y ago
  Exactly. Banks (or anybody) making statements like this is completely meaningless. The market will tell us when the downturn is starting.
  - Finnucane 9y ago
    As the saying goes, the market can stay irrational longer than you can stay solvent.
- exelius 9y ago
  The thing is, you never notice a "real downturn" until right at the point the bottom falls out. It just looks like market cyclicality at first -- a 10% drop in equities over 6 months is nothing to worry about until you hit a week where you lose 10-15%. Suddenly you're down 20-25% over 6 months and people start to say "oh crap, we're in a recession". But really, at that point you've been in the recession for six months. This is why amateur investors do a lot of hand-wringing about market timing -- they think they can "time" the recessions. And of course you can in hindsight, but recessions are very difficult/impossible to see in real-time, even for experienced economists.
  - codelitt 9y ago
    The downturn cycle is every ten years it seems. Is there a similar recession cycle? I can only think of 3 instances where the recession was substantial in both unemployment above 10%, big drop in GDP, and length of time it lasted: - The Great Depression (1930) - The 1980s recession (1980) - The Great Recession (2008)
    - exelius 9y ago
      My personal theory is that recessions are dependent on wealth inequality. It makes sense if you think about it on the personal level -- if there is high wealth inequality, a greater percentage of the country suffers during an economic downturn. That suffering puts a pinch on all non-essential spending for a larger percentage of the population than it would if there were a larger middle class. A wealthy and prosperous middle class is thus essential to a stable economy. Without it, you get these boom-bust cycles and you condition people to "spend it while you got it" (aka the poverty mindset). This creates a feedback loop that the US had to work really hard to break out of in the early 20th century (the time between the Civil War and the first World War was extremely tumultuous economically because we were learning a lot of hard lessons about monetary policy). We had some pretty bad economic downturns in the 50s, 60s and 70s as well. But they didn't reach recession level because the wealth gap wasn't as vast. My grandfather was a factory owner in the rust belt during that period and the richest man in his small town. He was wealthier than his employees, but not by a lot. But eventually he had to sell out to a large multinational because he simply couldn't match their prices in the market.
sputknick 9y ago
What do you think will happen to crypto currency during a recession? The next recession will be our first since Bitcoin was created. My prediction is you see a spike up early, as people get desperate for a profitable trade, then they all plummet as people flee for safety.
- cableshaft 9y ago
  I don't think they'll totally plummet, but yeah, I think it will cause another run, and then some form of correction. But I'm not sure where they're going to put their money into if stocks are freefalling for awhile. They may just keep them in cryptocurrency until they think the stocks have hit the bottom and decide to start buying again.
- deleted 9y ago
  [deleted]
- lifty 9y ago
  I look at crypto as a deflationary asset class that can't be influenced by central banks as much, so they might withstand the credit contraction cycle rather well. There are factors that make the whole equation complicated like: regulation, small market cap, hype, relative novelty etc.
- delazeur 9y ago
  For certain millennials, crypto-currency already seems to hold the role that gold does for certain baby boomers. I would expect that phenomenon to grow during a bear market.
  - justadeveloper2 9y ago
    Man, I just see massive heartache and disappointment for them at some point in the future.
    - RationPhantoms 9y ago
      Yeah there have been quantifiable "bubble bursts" multiple times. It's like multiple, concussive "Stock and awe" campaigns where the price has plummeted by $600 per coin. Everytime that happens, the subreddit for /r/bitcoin posts the national suicide hotline and the price rallies in 4 months.
chollida1 9y ago
What I'm most excited to see in the event of a market downturn is how well Betterment and Wealthfront hang onto their clients. I'm guessing that the average client of those firms hasn't really lived with a significant stock market investment during a bear market. Will these clients keep their money invested in a larger percentage than the typical ETF investor? If so then I think that's a huge bullish signal for these new types of wealth management firms. If not, then those companies are going to have to go out and raise money in a downturn. If you can hold peoples money during a downturn, then I view that as a very positive investment signal, there has to be something more than the dollar, bitcoin, hedge funds, and gold that people can turn to in a downturn.
- bsiemon 9y ago
  Should the electronic brain managing these funds do something smart in the event of a down turn? It would be nice if these funds made more rational choices than humans.
  - mattferderer 9y ago
    I could see a lot of users of the companies adjusting their risk either up or down depending on how they want to play the market.
    - yellow_postit 9y ago
      "Playing the market" is the antithesis of what these firms claim to offer. They keep you on track for asset allocation and maybe the occasional tax loss harvesting. Nothing that couldn't be tracked via a simple spreadsheet and 15min in a brokerage account on whatever time scale people want to rebalance or tlh
  - spoonie 9y ago
    The rational thing is to buy more cheap stocks during a downturn. The is called "rebalancing".
    - 9y ago
chatmasta 9y ago
The pattern of boom/bust cycles over the past century is alarmingly consistent, especially for a field like economics that is famously unpredictable. Just look at the graph in Exhibit 7 of this article. It's almost perfectly periodic. According to investopedia [0], "there have been 11 business cycles from 1945 to 2009, with the average length of a cycle lasting about 69 months, or a little less than six years." By this logic, we're definitely "due" for a downturn very soon. Does anyone who understands finance have any insight on why this pattern seems so predictable? Is it due to fundamental economic drivers, or is it merely correlated with major historical events (internet 2000s, globalization 1990s, deregulation 1980s, post-WW2 society 1950s, etc)? If technological society does not continue to innovate at the pace of the last few decades, will boom/busts smooth out at a point of slower growth? [0] http://www.investopedia.com/terms/b/businesscycle.asp http://www.investopedia.com/terms/b/businesscycle.asp
- dthakur 9y ago
  Some explanations as per Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
  - Fredej 9y ago
    Thank you! I've been looking for this video for quite a while! It's a fantastic video for explanation for how the economy actually works.
    - splintercell 9y ago
      I just want to point out that what it explains relies upon the Keynesian or Saltwater School of Economics. The assumption being "Spending drives the economy", the Chicago, Austrian and other free market schools of economics believe that "Savings drive the economy". Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).
TazeTSchnitzel 9y ago
Oh great. I'm sure that won't make politics even worse than they are.
- moomin 9y ago
  It will, if nothing else, demonstrate the utter idiocy of thinking a real estate developer understood the economy better than a professional politician. Except that the evidence will be explained away by anyone who believed that in the first place. Downturns do favour anti-establishment candidates, so I'd pay attention to the Bernie wing in the next few years.
  - seanmcdirmid 9y ago
    Whether the economy tanks will have little to do with Trump, even if he is incompetent. Bernie is probably too old to be a serious contender next time.
    - moomin 9y ago
      I never replied to this, but I think the big challenge for the Bernie wing is showing they're bigger than one man. Hate the Trump wing all you want, but when he goes, there will be a replacement waiting in the wings.
  - matt4077 9y ago
    To be honest, the claim of any influence of a president's policy on the economy is tenuous, although the bailouts at the beginning of Obama's first term may be one of the exceptions. The only real fault you can find with Trump so far is how he's constantly claiming positive news from Wall Street and economic indicators as his successes. Since he started with almost full employment, he's almost assured to end his first term with a net growth in unemployment. Establishing the idea of being measured by those numbers is almost comically bad strategy. But I guess he and his sycophants will just go back to claiming that the statistics are manipulated.
  - zeveb 9y ago
    > It will, if nothing else, demonstrate the utter idiocy of thinking a real estate developer understood the economy better than a professional politician. That sounds a little like 'the utter idiocy of thinking a sous chef understands particle physics better than a janitor': I see no reason why either profession would have an edge over the other. Frankly, neither is real business: real estate is easily as much about using public means to earn private profit as it is about working in an actual market, and of course politics is not a free-market business at all.
jseliger 9y ago
The nice thing is that if you predict enough downturns you'll eventually be right. The cliché goes, "Economists have predicted nine of the last seven recessions," but I think the numerator is actually higher. This article: https://www.theatlantic.com/magazine/archive/2008/12/why-wall-street-always-blows-it/307147/ https://www.theatlantic.com/magazine/archive/2008/12/why-wal... was published in 2008 but is still underrated.
- seanmcdirmid 9y ago
  The antithesis of predicting that the eventual downturn will happen is "it's different this time" claiming that the cycle has been broken and there is only upturns to come. The former are always right and the latter are always wrong.
  - seanp2k2 9y ago
    until now
    - metalliqaz 9y ago
      invest everything in bitcoin
      - TACIXAT 9y ago
        "invest"
  - criddell 9y ago
    Are you talking about Wired's Long Boom prediction?
  - Godel_unicode 9y ago
    While that's true as far as it goes, be careful not to draw unwarranted conclusions. There are always downturns, but the next one could start tomorrow, or in 2025, or in 3025. It will hit some point lower than the point at which the downturn starts, but that point could be higher, lower, or even equal to where the market is today.
xzel 9y ago
This is sensationalism at its best and repeats what people have been preaching for years, one big example being Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0. The fact the US market is probably in the late cycle says nothing about how long that could last or about the state anywhere else in the world. Yes the Fed will be raising rates, yes money won't be as cheap but there are still companies making products and making a difference in the economy. There are still good investments to be made in emerging markets, which are less mature in their cycle, and even can be found in the US's more mature part of the cycle. I don't know how many fund managers invest strictly according the the cycle, I'd say 0, but instead use it as a piece of information to help make their decisions and help rationalize valuations, metrics, etc. Regardless, diversify your holdings from just US securities (again something that has been said forever) and if there is a market downturn, it will probably come back up eventually. It is, after all, a cycle.
- metalliqaz 9y ago
  It's not purely an examination of a cycle. They are talking about indicators, especially decoupling of economic dependencies. For example, they cite that valuation is starting to diverge from corporate earnings, which could indicate a coming correction (and therefore downturn).
  - xzel 9y ago
    But that has been happening for years during this cycle, investors willing to pay a premium for future earnings, Tesla, Amazon, the list could go on. On the other side companies with good earnings are still underpriced because people are pricing in other things. I see that as a good thing, people are being rational and not sticking to numbers. If the banks thought they were undervalued they'd be taking huge positions in those securities, not exposing them to the world. The only really bit in this article was a shitty attempt at explaining the "economic cycle". Saying the "Downturn Is Coming" because we might be a peak was less helpful than explaining what the cycle is, what it means to be at this point and what that might mean to do about it. Saying the "Downturn Is Coming" to me says, "shit guys, sell all your securities right now". It is plain sensationalism. To reiterate, I don't see much substance in this article and I expect a lot more from someone claiming the "Downturn Is Coming". If anyone can get their hands on a copy of Gloom Boom Doom [1] by Marc Faber and you see what quality analysis looks like of the current economic cycle. I believe his August edition goes into it but I don't have my copies to confirm. [1] www.gloomboomdoom.com
nabla9 9y ago
Downturns usually happen sometime after GDP reaches the potential GDP. Timing the downturn is almost impossible. It relies too much on 'animal spirits'. Downturn within 1-5 years is very likely. Illustrative picture: https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9 https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9
jackmott 9y ago
for those of us in the bottom 95% of incomes the downturn has been going on 30 years.
- icantdrive55 9y ago
  Yea, the amount of poor people in the US seems higher than I ever remember. I knew it was bad years before the Internet, but people didn't talk about it. So much success (financial) has been due to daddy's money. I saw it in college, and it's been so apparant for as long as I remember. If you came from a wealthy family, you needed to proactively blow it. I grew up with some absolute idiots, who's family picked up the pieces after every bad move. Gavin Nuesome was one of those guys. If not for that family, he would be homeless by now. Along with the guy who's father invented the plastic dental pick. When this bubble bursts, it will be ugly. There are too many laws, and there will be a whole generation of people very vulnerable. I wish were could be more proactive. In a year, or so, certain enclaves of California will have thousands of new homeless individuals, and it's basically illegial to not have a shelter in the USA. Besides making homeless illegial, I would like to increase the homestead exemption to what Texas has, basically no one can touch your home in a bankruptcy. Counties shouldn't be able to lien properties for back taxes as quickly as they can now. I could go on forever, but stuff like taking a nap in the park should be questioned--ever. Police/local municipalities have been given too many laws to harass us with. Guys should be on prison for fishing without a license. Yea, I'm as liberal as they come, and love animals, but oppression is wrong. Fines/fees need to be tied to income----period. As to these market downturns, I have noticed the downturn rears its head Only after the middle income retail investor has put their money in. It should be a Economic law. It might be the only trend I can count on? There's almost a psychology to it. The talking heads talk about how much they made on whatever stock. Investors, even investors whom have been burned, think about getting back in. They wait for years. They finally jump in in times like this, and only when the market has all the the retail investors does it blow. The real old money guys seem to know when to pull out, or short the market. The amout of Insider Trading has always been astoundingly high. Every wealthy person I have know took that advice, and made money. And yes, every wealthy person I have known has been a hypocrite. Real growth has been stagnant for years. The unemployment rate doesn't feel right. That "Able Bodied, but can't find work" number just gets higher. Tech is eliminating so many jobs. Local governments have ticketed/fined/fee'd us blindly. Insurance lobbies have raped us for the last twenty years. It's all kinda depressing. It's all great if you're in the Party, but I have a feeling we are all about to be hobbled/humbled very soon. I hope we don't turn into Mexico, where you can't take a walk without worrying.
Leader2light 9y ago
Whats scary is we are still basically in pump mode from the last recession. The gov will not have much power to "fix" the next one. Not to mention the major debt many states carry now such as IL.
- Clubber 9y ago
  Nope, especially since we'v been loath to raise the interest rates. Lowering rates is often used to stir economic growth. We've been near zero for quite a while now. If it hits soon, the fed won't have much water to put out the fire. https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate Note: Click the Max button on that chart for perspective of where the rate is now relative to historical rates.
  - winslow 9y ago
    That definitely puts some perspective on things. It's a little bit absurd it was at 0% and it stayed there for so long. Never in the previous history (at least of the graph history) did it stay at the same rate for so long.
jonbarker 9y ago
This article mentions assets decoupling from the price of oil. I've found that the price of oil is generally useless: either people think it will cost more to move things and they then reduce their expectations, or they think the oil companies are driving the economy and will make more profit, and then they increase their expectations. This all seems to depend on which side of the bed they get up on.
- samsonradu 9y ago
  Oil price these days is mostly politics, it has little to do with the free-market, supply/demand and such.
norea-armozel 9y ago
I'm not sure we can get a bust when all the major reserve banks (especially the US Federal Reserve) keep propping up the economy. The real question is how much longer can investors take advantage of this? We've basically been in QE since 2009 (almost a decade?). The real test, as said in other comments here, will be when the US Federal Reserve pulls back. If the markets can take the burden then it'll survive but maybe at a lower rate of growth. If they can't bare any burden I think we'll see it immediately.
afsina 9y ago
Related mandatory video: https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
- hathym 9y ago
  Another must https://youtu.be/EoS52fVtVQM https://youtu.be/EoS52fVtVQM
module0000 9y ago
This is nonsense. Downturn is how you describe consecutive periods of lower prices after they happen. It's a trailing analysis! It's impossible to say with certainty that you are ever "in" a downturn for an instrument - a moment of consecutive successful buying(price increases) ends the downturn, the time you thought you were "in" it was actually the moment after it ended. This type of trading mentality is why the 90/90/90 statistic exists. People read this, believe it, and become sellers when they would have been buyers or non-participants. The only thing that matters is right now if you are trading. Yesterday is irrelevant, your [N]-period MA's, fib lines, gann fans, and other indicators are equally irrelevant. If you are on a commercial trading floor, ask the guy next to you "are we having a bull day/week/month/year or a bear one?". Either you get laughed at, or completely ignored. The people actually causing these numbers that people see visualized at charts aren't even looking at them! They likely aren't looking at charts at all! If that last statement seems too "oh no it can't really be that way, I see charts on MSNBC so they must be professional tools!" to you, then find a friend who works for a market-related institution, and ask them. You might be surprised at the answer. Now the interesting part, is if you can get enough people to believe they are in a "downturn", then you influence them into becoming sellers opposed to buyers. This only turns "down" if enough institutional size believes selling is more immediately profitable than buying or non-participation. A good way to incite this belief is to publish it to major news sites. Like bloomberg(another word that will cause hilarity and snark if uttered on the trading floor). Do you know why your financial-news network is a free channel? They want you to see it. Anything that can encourage you to participate means there is more amateur liquidity available. Institutions really like amateur liquidity. After consumption, your exit(at your loss and their gain) is assured, since your pain threshold is orders of magnitude lower than theirs. One last bit about "patterns".... your brain is a pattern recognition machine. It's the reason you think you see "text" right now, instead of a purple giraffe. It's also the reason you see shapes in complete randomness: your brain wants to categorize things it sees, and we call that categorization a pattern. Patterns are death to a day trader: 100% financial death. Repeat that to yourself each morning before you walk into the pit, or you will walk out bankrupt.
Jordy_Man 9y ago
Crypto Assets like Bitcoin and Ethereum will play a roll in this. I believe we will continue to see big gains in the crypto world and this will only make large institutions jump over when their typical markets start to make a down turn. The next 5 years will be VERY interesting as we turn into a more decentralized and digital asset world.
- 659087 9y ago
  Is the goal of these posts showing up literally everywhere money happens to be discussed on the entire internet something along the lines of "if we spam it enough, maybe it will come true"? Sometimes the best thing to do with a heavy bag, is set it down. Trying to convince everyone around you that the contents of said bag are more valuable than they are, just ends up annoying people.
  - rglover 9y ago
    Not at all, it is very topical to discuss cryptocurrency in step with a market downturn. Reason being is that cryptocurrencies are less vulnerable to the market fluctuations we see with government backed currency (read: I'm not saying their impervious to corrections, just those related to the U.S. stock market). Directly related to the article? No. But it has merit because cryptocurrency didn't truly exist during the last major downturn and it will be interesting to see how people value it during such a scenario.
    - TACIXAT 9y ago
      They're less vulnerable to market fluctuations because they're backed by nothing besides speculative demand and the online drug trade.
      - rglover 9y ago
        You could say the say the same thing about the U.S. Dollar but just add a military to the list.
jasonrhaas 9y ago
Of course we are due for a pull back in the stock market. Stocks are historically overvalued by many metrics, the most simple of which is the P/E ratio. Check out this website -- http://www.multpl.com/ http://www.multpl.com/ The question is not if stocks will pull back, its when. Bull markets can run for a long time even if they are over valued. The boom of the early 2000's and 2007 went way higher than average, and crashed hard.
shorsher 9y ago
As someone who is graduating college in December and currently looking at starting a Roth IRA with money I saved from internships. Should I wait to invest until this downturn actually happens? Or does that not matter and the sooner I start investing the better? Not well versed in this subject, appreciate all advice:)
- fullshark 9y ago
  The basic rule of thumb is to not try to time the market. In your case I might avoid putting the money in an IRA though until you are sure you are happy at your employment post graduation. That nest egg could give you crucial flexibility in the short run if your job doesn't work out which is probably more important than starting an IRA ASAP.
- eof 9y ago
  Well, if you know it will go down, you shouldn't invest. In general for IRA stuff the sooner the better though.
  - kspaans 9y ago
    If the money isn't going to be used for 30+ years it really, really doesn't matter if it gets invested today right before a downturn. And if it is going to be used in significantly less than 30 years it should be something other than stocks (like bonds perhaps).
    - kgwgk 9y ago
      If he buys today for 100 something he could have bought in a couple of years for 65, I’m not sure he will agree that “it really, really doesn’t matter”. Market timing is difficult and there may not be a crash but stocks are objectively expensive now and it’s hard to see how the recent performance could continue for long: https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-s-p-500-just-say-no.pdf https://www.gmo.com/docs/default-source/research-and-comment...
- codelitt 9y ago
narrator 9y ago
Must be time to buy then. These free articles are always herding people in the opposite direction the market is really going so the traders can unload their stock or get in cheaply.
justadeveloper2 9y ago
This is crap--someone is always warning about a downturn coming. The game is as the game has always been--scare the rubes into doing something stupid with their money so the people who know the play can keep making big bucks off the uninitiated.
greyfox 9y ago
Starting in the United States from 1800, it seems there's one great financial 'panic' in 1857, and not another until 1910, shortly before the FED Reserve took control and started the fiatization and debasement of the currency. So about 50 years between crises. It seems that the business or boom bust cycles is a relatively new phenomenon and it might just be related to the way the federal reserve handles the money. Anyone feel free to correct or add info here as im not an authority on historical economics in the united states, but i have always found that the instillation of the federal reserve to be an 'epoch' of sorts for the US economically.
- frgtpsswrdlame 9y ago
  >Anyone feel free to correct or add info here as im not an authority on historical economics in the united states, but i have always found that the instillation of the federal reserve to be an 'epoch' of sorts for the US economically. Sure, it's just totally untrue, this wikipedia article will help: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
- rm_-rf_slash 9y ago
  You forget the devastating depression of 1893, among several others. Depressions were common and severe throughout 19th century America, and it wasn't until the New Deal reforms that they became remotely manageable.
3pt14159 9y ago
I called it a couple weeks ago: https://twitter.com/zachaysan/status/895197582586261504 https://twitter.com/zachaysan/status/895197582586261504 Forward P/E, yields, EPS, everything is just too frothy right now in the US. In my home country (Canada) it's difficult to see how the short term oil market will turn out, since it's such an inelastic market, but in the medium term oil is effectively over - especially for resource intensive extractions like the Alberta oil/tar sands. The only major company that I'm still in on is Facebook, but that's only until regulators start coming down harder on them. Even so, Facebook has a huge amount of growth ahead of them. I've been able to make around 18% YoY, even after the fact that half my portfolio is in bonds and low-risk consumer staples. I don't do anything too fancy. I sell before busts (like in late 2006) I put a little money into put options on the S&P500 (SPY) well out of the money for an extra boost if I've timed it right, I move things into actual cash and then I wait until people are panicking and then I buy back in. Split exposure to 1/3 USD, 1/3 CAD, 1/3 Other (basically Bitcoin, startups, bit of precious metals, Asian / Euro stocks) when things are undervalued and move most things into cash when things are scary. When choosing investments I generally do: 1. Tech I understand (in the past Amazon, Tesla, Apple, Google, Shopify) 2. High dividends stocks (Apple, then a bunch of boring ones with no appreciable downside, since I don't like buying declining industries). 3. Short term commodity plays (since in the long run clever humans invent better mining techniques). 4. Strategies that anticipate the catchup effect. Last decade it was China this decade it will be India and Africa. I'm not perfect (SQM and Etsy were two stocks I was quite confident in that didn't pay out for a number of reasons) but I'm confident and careful. I really think I would have been wealthier if I'd gone into finance instead of machine learning, since I seem to have a knack for it, but we'll see how the chips finally land in the future I guess.
EternalData 9y ago
It's going to be interesting to see how cryptocurrencies react to a protracted financial crisis. Time to see if the money in crypto is a hedge or if it's a risk-on asset.
- chocolatebunny 9y ago
  bitcoin is the new gold. Which is unfortunate, because the more it's treated like a commodity the less likely it will be used as an actual currency.
  - rglover 9y ago
    What needs to be said: it's both a commodity and a currency. It's never been seen before so a lot of folks doubt its potential.
  - Jordy_Man 9y ago
    That's a good thing! Bitcoin is currently no scalable enough to be a world currency. It is a great digtal asset. Other alt coins might be better at being a digital currency like Lite Coin, Dash, etc...
ElijahLynn 9y ago
Wonder how #45 will try to spin this when it hits. "Obama ...".
csomar 9y ago
Okay let's look at the following chart: https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYPI/v2/1000x-1.png https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYP... While there have been "cycles", the cycle doesn't have a precise duration. The expansion period could be a "few years" or over a decade. The "dip" isn't predictable either. Someone who was ready to buy the dip in 2010 might had to cut his losses because the decline was really steep that he might have believed the "sky is falling" news. See the 1960-1970 period. We might still have 1-5 years of more "bull running" before seeing any correction. Given that we have little data too, it is possible that it turns into a 7-10 year of more "bull running" just for the fun of stretching the limits a little. You'll have to be real patient not to buy stocks/assets for the next 5-10 years. That "crash" day will happen once everyone is confident that "things are the way it is and bull is normal".
justforFranz 9y ago
Oh good. Just in time to keep labor from having any pricing power. Excellent.
logicallee 9y ago
I just want to point out that it's really nice of HSBC, Citigroup, Morgan Stanley not to take any market positions before doing this, and just share their analysis in full as a public service. What I mean, is that they could have very easily first taken short positions, then made this announcement. Or kept the analysis for themselves. But they didn't. They just did the analysis and shared it for free as a public service, which is a class act all the way. I wish more Wall Street Banks looked out for investors this way. Sometimes big investment banks forget that there are people behind these pieces of paper.
- alexandercrohde 9y ago
  I hope this is a tongue-in-cheek criticism.
andy_ppp 9y ago
I wonder if the price of Bitcoin will go up should there be a recession?
daxfohl 9y ago
Figures. At age 41, I just last week went in debt for the first time in my life, moving my family from a home we owned in Michigan to the red-hot Seattle market for a job offer I couldn't turn down, spending well over a million to do so. It's just starting to dawn on me now how precarious a situation we're in. Going in, it's like "awesome job, a million+ house will be worth 1.2M+ next year, maybe 1.4+ after that." Seemed reasonable. My cynical side is just waiting for the market to implode now, our loan to be upside-down, and layoffs to start. Everything was so good six months ago. House paid off, a rainy-decade reserve. And now reality is sinking in that we could be homeless jobless and bankrupt in a month. Hopefully not. Hopefully the economy has a couple more years in it. I'd probably not make the same decision again.
- imjk 9y ago
  Take a deep breath man. You'll be fine. Moving (especially across country like that) is always a stressful event. I think once you settle in and find a routine for your new career you'll realize you're not in as precarious a situation as you think. Best of luck. Cheers.
  - kpennell 9y ago
    I love finding kind HN comments
  - Godel_unicode 9y ago
    Exactly this. Former you sounds like a sound financial planner. Trust that he knew what he was doing.
- havetocharge 9y ago
  A new job, and relocation can introduce enough risk for me not to increase it by buying a new property. It's just my personal approach though.
  - artmageddon 9y ago
    But if you have to relocate, aside from rent(which can be absurd in CA), how else are you supposed to do it?
dkrich 9y ago
People have been making this prediction consistently for a year. Meanwhile the market just keeps going up. Bubbles never happen where or for what reason people think they will, and for good reason- bubbles are formed by market participants, so in order for one to exist, people by definition can't believe a bubble exists or that the market is due for a selloff.
eighthnate 9y ago
The FED has already raised interest rates and has said they will continue to do so in the coming qtrs/years. The 2007 recession started about 2-3 years after greenspan started raising rates in the latter part of 2004. Also, we generally get a recession every 7 to 10 years. Do we really need wall street banks to tell me what is going to happen. I still think we have 2 or 3 years of economic growth but sooner or later the hammer is gonna drop on us. The growth of asset prices, the expansion of debt and the growth of FED balance sheet is quite interesting. And this isn't just the US - China, Europe, Japan, SK, etc are also interesting.
jrs95 9y ago
A downturn is coming! You should sell! (To us)
exabrial 9y ago
I know there's a longer cycle, but IIRC, there's also an economic lapse going into the fall as well, especially on years with high Atlantic hurricane levels
jackcosgrove 9y ago
Don't try to time the market with gross predictions like this. Just keep investing as long as you are working, and keep investing in stocks as long as you are young. Invest regularly so that you spread out risk over time.
noddy1 9y ago
Keynesian economists triumphantly point to the massive QE that has occurred and the seemingly minimal resulting inflation and claim victory for stimulatory monetary policy. How was the QE performed? Basically printing piles of money and giving it to banks. What have the banks done? Double or triple the value of every equity market. Hardly any of the money ended up in the pockets of regular people buying groceries and petrol. Yet our measures of inflation come from consumer goods, not equity markets. Is it any wonder that our bullshit measures of inflation have barely budged. I think the coming bust (whenever it occurs) will be the last boom/bust cycle in which this shit flies anymore. We now, finally, have universal, non-inflationary currency of a type which can compete with the unproven conjecture of Keynesian economists. People have been complaining that about economic theories being hard to prove, well here is a battle between the old dogma and a new challenger.
- godzillabrennus 9y ago
  It is 1994 on Wall Street today with Cryptocurrencies and yet so many of them can't see it coming.
- dragonwriter 9y ago
  > Keynesian economists triumphantly point to the massive QE that has occurred and the seemingly minimal resulting inflation and claim victory for stimulatory monetary policy. Every Keynesian I’ve heard from seems to think QE was, at best, the least bad option given the complete failure of those empowered to do so to adopt stimulatory fiscal policy, and that it in many ways demonstrated the weakness of monetary policy in isolation. I've seen none cheering QE the way you describe.
xj9 9y ago
downturn? compared to what? was there an upturn?
readhn 9y ago
I'd say we are overdue for a decent size pull back/sell off BUT getting the timing WHEN exactly this will happen is the hardest part. Typically before decent market corrections/crashes you do not hear on the "news" that it is coming. The point of the down move is to catch most market players off guard. The fact that these "smart" guys are yelling "sell off" is coming tells me stay the course ... for now (where were they back in 2000 or 2008 warning general public??). But longer term i agree we will correct probably sooner than later. Market loves round numbers. 2000, 2500 ... 3000? who knows where and when it will stop this massive bull run.

332 points by champagnepapi 9y ago

Slow growth is the new normal. Even the weak modern post-recession market, is growing unsustainably fast.

Valuations I think are massively pushed by the amount of quantitative easing, which the Fed said it is only going to start withdrawing in Sept: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... I think this could have some nasty impact on stocks, particularly if combined with an interest rise.

Finnucane 9y ago
Currently, the Fed is maintaining the balance sheet at a high level by reinvesting funds from maturing bonds they hold. At some point they're going to stop reinvesting the funds, and let the balance drop. Which means the initial impact will be in long-term rates, esp. mortgage rates. It probably won't effect stocks too much directly in the near term, but eventually will. It will be interesting to see what effect this has on certain overheated coastal real estate markets.
- cm2187 9y ago
  There might be a month or two of lags but when you look at a 10y chart of the S&P vs the size of the Fed B/S, the correlation is striking.
  - icebraining 9y ago
    Doesn't seem to be that correlated: https://www.pragcap.com/wp-content/uploads/2013/12/stupid_chart1.png https://www.pragcap.com/wp-content/uploads/2013/12/stupid_ch...
    - cm2187 9y ago
      Correlated from the introduction of QE of course. I made that chart a year ago: http://imgur.com/kOXtm8N http://imgur.com/kOXtm8N The correlation only started to break a couple few months ago, with the S&P skyrocketing. But many suggest this is bubble territory.
      - icebraining 9y ago
        Even during the same period, the two graphs of the Fed sheet don't seem to match up, do you know why? I'm not clear what CERBTTAL means.
        cm2187 9y ago
        It is just the bloomberg ticker for the weekly size of the Fed assets. What difference do you see? They both end up at about $4.5 trillons, they should be exactly the same.

nugget 9y ago

This leads me to think that a real downturn is at least a couple years away.

trey-jones 9y ago
Exactly. Banks (or anybody) making statements like this is completely meaningless. The market will tell us when the downturn is starting.
- Finnucane 9y ago
  As the saying goes, the market can stay irrational longer than you can stay solvent.
exelius 9y ago
The thing is, you never notice a "real downturn" until right at the point the bottom falls out. It just looks like market cyclicality at first -- a 10% drop in equities over 6 months is nothing to worry about until you hit a week where you lose 10-15%. Suddenly you're down 20-25% over 6 months and people start to say "oh crap, we're in a recession". But really, at that point you've been in the recession for six months. This is why amateur investors do a lot of hand-wringing about market timing -- they think they can "time" the recessions. And of course you can in hindsight, but recessions are very difficult/impossible to see in real-time, even for experienced economists.
- codelitt 9y ago
  The downturn cycle is every ten years it seems. Is there a similar recession cycle? I can only think of 3 instances where the recession was substantial in both unemployment above 10%, big drop in GDP, and length of time it lasted: - The Great Depression (1930) - The 1980s recession (1980) - The Great Recession (2008)
  - exelius 9y ago
    My personal theory is that recessions are dependent on wealth inequality. It makes sense if you think about it on the personal level -- if there is high wealth inequality, a greater percentage of the country suffers during an economic downturn. That suffering puts a pinch on all non-essential spending for a larger percentage of the population than it would if there were a larger middle class. A wealthy and prosperous middle class is thus essential to a stable economy. Without it, you get these boom-bust cycles and you condition people to "spend it while you got it" (aka the poverty mindset). This creates a feedback loop that the US had to work really hard to break out of in the early 20th century (the time between the Civil War and the first World War was extremely tumultuous economically because we were learning a lot of hard lessons about monetary policy). We had some pretty bad economic downturns in the 50s, 60s and 70s as well. But they didn't reach recession level because the wealth gap wasn't as vast. My grandfather was a factory owner in the rust belt during that period and the richest man in his small town. He was wealthier than his employees, but not by a lot. But eventually he had to sell out to a large multinational because he simply couldn't match their prices in the market.

sputknick 9y ago

What do you think will happen to crypto currency during a recession? The next recession will be our first since Bitcoin was created. My prediction is you see a spike up early, as people get desperate for a profitable trade, then they all plummet as people flee for safety.

cableshaft 9y ago
I don't think they'll totally plummet, but yeah, I think it will cause another run, and then some form of correction. But I'm not sure where they're going to put their money into if stocks are freefalling for awhile. They may just keep them in cryptocurrency until they think the stocks have hit the bottom and decide to start buying again.
deleted 9y ago
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lifty 9y ago
I look at crypto as a deflationary asset class that can't be influenced by central banks as much, so they might withstand the credit contraction cycle rather well. There are factors that make the whole equation complicated like: regulation, small market cap, hype, relative novelty etc.
delazeur 9y ago
For certain millennials, crypto-currency already seems to hold the role that gold does for certain baby boomers. I would expect that phenomenon to grow during a bear market.
- justadeveloper2 9y ago
  Man, I just see massive heartache and disappointment for them at some point in the future.
  - RationPhantoms 9y ago
    Yeah there have been quantifiable "bubble bursts" multiple times. It's like multiple, concussive "Stock and awe" campaigns where the price has plummeted by $600 per coin. Everytime that happens, the subreddit for /r/bitcoin posts the national suicide hotline and the price rallies in 4 months.

chollida1 9y ago

What I'm most excited to see in the event of a market downturn is how well Betterment and Wealthfront hang onto their clients. I'm guessing that the average client of those firms hasn't really lived with a significant stock market investment during a bear market. Will these clients keep their money invested in a larger percentage than the typical ETF investor? If so then I think that's a huge bullish signal for these new types of wealth management firms. If not, then those companies are going to have to go out and raise money in a downturn. If you can hold peoples money during a downturn, then I view that as a very positive investment signal, there has to be something more than the dollar, bitcoin, hedge funds, and gold that people can turn to in a downturn.

bsiemon 9y ago
Should the electronic brain managing these funds do something smart in the event of a down turn? It would be nice if these funds made more rational choices than humans.
- mattferderer 9y ago
  I could see a lot of users of the companies adjusting their risk either up or down depending on how they want to play the market.
  - yellow_postit 9y ago
    "Playing the market" is the antithesis of what these firms claim to offer. They keep you on track for asset allocation and maybe the occasional tax loss harvesting. Nothing that couldn't be tracked via a simple spreadsheet and 15min in a brokerage account on whatever time scale people want to rebalance or tlh
- spoonie 9y ago
  The rational thing is to buy more cheap stocks during a downturn. The is called "rebalancing".
  - 9y ago

chatmasta 9y ago

The pattern of boom/bust cycles over the past century is alarmingly consistent, especially for a field like economics that is famously unpredictable. Just look at the graph in Exhibit 7 of this article. It's almost perfectly periodic. According to investopedia [0], "there have been 11 business cycles from 1945 to 2009, with the average length of a cycle lasting about 69 months, or a little less than six years." By this logic, we're definitely "due" for a downturn very soon. Does anyone who understands finance have any insight on why this pattern seems so predictable? Is it due to fundamental economic drivers, or is it merely correlated with major historical events (internet 2000s, globalization 1990s, deregulation 1980s, post-WW2 society 1950s, etc)? If technological society does not continue to innovate at the pace of the last few decades, will boom/busts smooth out at a point of slower growth? [0] http://www.investopedia.com/terms/b/businesscycle.asp http://www.investopedia.com/terms/b/businesscycle.asp

dthakur 9y ago
Some explanations as per Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
- Fredej 9y ago
  Thank you! I've been looking for this video for quite a while! It's a fantastic video for explanation for how the economy actually works.
  - splintercell 9y ago
    I just want to point out that what it explains relies upon the Keynesian or Saltwater School of Economics. The assumption being "Spending drives the economy", the Chicago, Austrian and other free market schools of economics believe that "Savings drive the economy". Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).

TazeTSchnitzel 9y ago

Oh great. I'm sure that won't make politics even worse than they are.

moomin 9y ago
It will, if nothing else, demonstrate the utter idiocy of thinking a real estate developer understood the economy better than a professional politician. Except that the evidence will be explained away by anyone who believed that in the first place. Downturns do favour anti-establishment candidates, so I'd pay attention to the Bernie wing in the next few years.
- seanmcdirmid 9y ago
  Whether the economy tanks will have little to do with Trump, even if he is incompetent. Bernie is probably too old to be a serious contender next time.
  - moomin 9y ago
    I never replied to this, but I think the big challenge for the Bernie wing is showing they're bigger than one man. Hate the Trump wing all you want, but when he goes, there will be a replacement waiting in the wings.
- matt4077 9y ago
  To be honest, the claim of any influence of a president's policy on the economy is tenuous, although the bailouts at the beginning of Obama's first term may be one of the exceptions. The only real fault you can find with Trump so far is how he's constantly claiming positive news from Wall Street and economic indicators as his successes. Since he started with almost full employment, he's almost assured to end his first term with a net growth in unemployment. Establishing the idea of being measured by those numbers is almost comically bad strategy. But I guess he and his sycophants will just go back to claiming that the statistics are manipulated.
- zeveb 9y ago
  > It will, if nothing else, demonstrate the utter idiocy of thinking a real estate developer understood the economy better than a professional politician. That sounds a little like 'the utter idiocy of thinking a sous chef understands particle physics better than a janitor': I see no reason why either profession would have an edge over the other. Frankly, neither is real business: real estate is easily as much about using public means to earn private profit as it is about working in an actual market, and of course politics is not a free-market business at all.

jseliger 9y ago

The nice thing is that if you predict enough downturns you'll eventually be right. The cliché goes, "Economists have predicted nine of the last seven recessions," but I think the numerator is actually higher. This article: https://www.theatlantic.com/magazine/archive/2008/12/why-wall-street-always-blows-it/307147/ https://www.theatlantic.com/magazine/archive/2008/12/why-wal... was published in 2008 but is still underrated.

seanmcdirmid 9y ago
The antithesis of predicting that the eventual downturn will happen is "it's different this time" claiming that the cycle has been broken and there is only upturns to come. The former are always right and the latter are always wrong.
- seanp2k2 9y ago
  until now
  - metalliqaz 9y ago
    invest everything in bitcoin
    - TACIXAT 9y ago
      "invest"
- criddell 9y ago
  Are you talking about Wired's Long Boom prediction?
- Godel_unicode 9y ago
  While that's true as far as it goes, be careful not to draw unwarranted conclusions. There are always downturns, but the next one could start tomorrow, or in 2025, or in 3025. It will hit some point lower than the point at which the downturn starts, but that point could be higher, lower, or even equal to where the market is today.

xzel 9y ago

This is sensationalism at its best and repeats what people have been preaching for years, one big example being Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0. The fact the US market is probably in the late cycle says nothing about how long that could last or about the state anywhere else in the world. Yes the Fed will be raising rates, yes money won't be as cheap but there are still companies making products and making a difference in the economy. There are still good investments to be made in emerging markets, which are less mature in their cycle, and even can be found in the US's more mature part of the cycle. I don't know how many fund managers invest strictly according the the cycle, I'd say 0, but instead use it as a piece of information to help make their decisions and help rationalize valuations, metrics, etc. Regardless, diversify your holdings from just US securities (again something that has been said forever) and if there is a market downturn, it will probably come back up eventually. It is, after all, a cycle.

metalliqaz 9y ago
It's not purely an examination of a cycle. They are talking about indicators, especially decoupling of economic dependencies. For example, they cite that valuation is starting to diverge from corporate earnings, which could indicate a coming correction (and therefore downturn).
- xzel 9y ago
  But that has been happening for years during this cycle, investors willing to pay a premium for future earnings, Tesla, Amazon, the list could go on. On the other side companies with good earnings are still underpriced because people are pricing in other things. I see that as a good thing, people are being rational and not sticking to numbers. If the banks thought they were undervalued they'd be taking huge positions in those securities, not exposing them to the world. The only really bit in this article was a shitty attempt at explaining the "economic cycle". Saying the "Downturn Is Coming" because we might be a peak was less helpful than explaining what the cycle is, what it means to be at this point and what that might mean to do about it. Saying the "Downturn Is Coming" to me says, "shit guys, sell all your securities right now". It is plain sensationalism. To reiterate, I don't see much substance in this article and I expect a lot more from someone claiming the "Downturn Is Coming". If anyone can get their hands on a copy of Gloom Boom Doom [1] by Marc Faber and you see what quality analysis looks like of the current economic cycle. I believe his August edition goes into it but I don't have my copies to confirm. [1] www.gloomboomdoom.com

nabla9 9y ago

Downturns usually happen sometime after GDP reaches the potential GDP. Timing the downturn is almost impossible. It relies too much on 'animal spirits'. Downturn within 1-5 years is very likely. Illustrative picture: https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9 https://fred.stlouisfed.org/graph/fredgraph.png?g=eQa9

jackmott 9y ago

for those of us in the bottom 95% of incomes the downturn has been going on 30 years.

icantdrive55 9y ago
Yea, the amount of poor people in the US seems higher than I ever remember. I knew it was bad years before the Internet, but people didn't talk about it. So much success (financial) has been due to daddy's money. I saw it in college, and it's been so apparant for as long as I remember. If you came from a wealthy family, you needed to proactively blow it. I grew up with some absolute idiots, who's family picked up the pieces after every bad move. Gavin Nuesome was one of those guys. If not for that family, he would be homeless by now. Along with the guy who's father invented the plastic dental pick. When this bubble bursts, it will be ugly. There are too many laws, and there will be a whole generation of people very vulnerable. I wish were could be more proactive. In a year, or so, certain enclaves of California will have thousands of new homeless individuals, and it's basically illegial to not have a shelter in the USA. Besides making homeless illegial, I would like to increase the homestead exemption to what Texas has, basically no one can touch your home in a bankruptcy. Counties shouldn't be able to lien properties for back taxes as quickly as they can now. I could go on forever, but stuff like taking a nap in the park should be questioned--ever. Police/local municipalities have been given too many laws to harass us with. Guys should be on prison for fishing without a license. Yea, I'm as liberal as they come, and love animals, but oppression is wrong. Fines/fees need to be tied to income----period. As to these market downturns, I have noticed the downturn rears its head Only after the middle income retail investor has put their money in. It should be a Economic law. It might be the only trend I can count on? There's almost a psychology to it. The talking heads talk about how much they made on whatever stock. Investors, even investors whom have been burned, think about getting back in. They wait for years. They finally jump in in times like this, and only when the market has all the the retail investors does it blow. The real old money guys seem to know when to pull out, or short the market. The amout of Insider Trading has always been astoundingly high. Every wealthy person I have know took that advice, and made money. And yes, every wealthy person I have known has been a hypocrite. Real growth has been stagnant for years. The unemployment rate doesn't feel right. That "Able Bodied, but can't find work" number just gets higher. Tech is eliminating so many jobs. Local governments have ticketed/fined/fee'd us blindly. Insurance lobbies have raped us for the last twenty years. It's all kinda depressing. It's all great if you're in the Party, but I have a feeling we are all about to be hobbled/humbled very soon. I hope we don't turn into Mexico, where you can't take a walk without worrying.

Leader2light 9y ago

Whats scary is we are still basically in pump mode from the last recession. The gov will not have much power to "fix" the next one. Not to mention the major debt many states carry now such as IL.

Clubber 9y ago
Nope, especially since we'v been loath to raise the interest rates. Lowering rates is often used to stir economic growth. We've been near zero for quite a while now. If it hits soon, the fed won't have much water to put out the fire. https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate Note: Click the Max button on that chart for perspective of where the rate is now relative to historical rates.
- winslow 9y ago
  That definitely puts some perspective on things. It's a little bit absurd it was at 0% and it stayed there for so long. Never in the previous history (at least of the graph history) did it stay at the same rate for so long.

jonbarker 9y ago

This article mentions assets decoupling from the price of oil. I've found that the price of oil is generally useless: either people think it will cost more to move things and they then reduce their expectations, or they think the oil companies are driving the economy and will make more profit, and then they increase their expectations. This all seems to depend on which side of the bed they get up on.

samsonradu 9y ago
Oil price these days is mostly politics, it has little to do with the free-market, supply/demand and such.

norea-armozel 9y ago

I'm not sure we can get a bust when all the major reserve banks (especially the US Federal Reserve) keep propping up the economy. The real question is how much longer can investors take advantage of this? We've basically been in QE since 2009 (almost a decade?). The real test, as said in other comments here, will be when the US Federal Reserve pulls back. If the markets can take the burden then it'll survive but maybe at a lower rate of growth. If they can't bare any burden I think we'll see it immediately.

afsina 9y ago

Related mandatory video: https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk

hathym 9y ago
Another must https://youtu.be/EoS52fVtVQM https://youtu.be/EoS52fVtVQM

module0000 9y ago

This is nonsense. Downturn is how you describe consecutive periods of lower prices after they happen. It's a trailing analysis! It's impossible to say with certainty that you are ever "in" a downturn for an instrument - a moment of consecutive successful buying(price increases) ends the downturn, the time you thought you were "in" it was actually the moment after it ended. This type of trading mentality is why the 90/90/90 statistic exists. People read this, believe it, and become sellers when they would have been buyers or non-participants. The only thing that matters is right now if you are trading. Yesterday is irrelevant, your [N]-period MA's, fib lines, gann fans, and other indicators are equally irrelevant. If you are on a commercial trading floor, ask the guy next to you "are we having a bull day/week/month/year or a bear one?". Either you get laughed at, or completely ignored. The people actually causing these numbers that people see visualized at charts aren't even looking at them! They likely aren't looking at charts at all! If that last statement seems too "oh no it can't really be that way, I see charts on MSNBC so they must be professional tools!" to you, then find a friend who works for a market-related institution, and ask them. You might be surprised at the answer. Now the interesting part, is if you can get enough people to believe they are in a "downturn", then you influence them into becoming sellers opposed to buyers. This only turns "down" if enough institutional size believes selling is more immediately profitable than buying or non-participation. A good way to incite this belief is to publish it to major news sites. Like bloomberg(another word that will cause hilarity and snark if uttered on the trading floor). Do you know why your financial-news network is a free channel? They want you to see it. Anything that can encourage you to participate means there is more amateur liquidity available. Institutions really like amateur liquidity. After consumption, your exit(at your loss and their gain) is assured, since your pain threshold is orders of magnitude lower than theirs. One last bit about "patterns".... your brain is a pattern recognition machine. It's the reason you think you see "text" right now, instead of a purple giraffe. It's also the reason you see shapes in complete randomness: your brain wants to categorize things it sees, and we call that categorization a pattern. Patterns are death to a day trader: 100% financial death. Repeat that to yourself each morning before you walk into the pit, or you will walk out bankrupt.

Jordy_Man 9y ago

Crypto Assets like Bitcoin and Ethereum will play a roll in this. I believe we will continue to see big gains in the crypto world and this will only make large institutions jump over when their typical markets start to make a down turn. The next 5 years will be VERY interesting as we turn into a more decentralized and digital asset world.

659087 9y ago
Is the goal of these posts showing up literally everywhere money happens to be discussed on the entire internet something along the lines of "if we spam it enough, maybe it will come true"? Sometimes the best thing to do with a heavy bag, is set it down. Trying to convince everyone around you that the contents of said bag are more valuable than they are, just ends up annoying people.
- rglover 9y ago
  Not at all, it is very topical to discuss cryptocurrency in step with a market downturn. Reason being is that cryptocurrencies are less vulnerable to the market fluctuations we see with government backed currency (read: I'm not saying their impervious to corrections, just those related to the U.S. stock market). Directly related to the article? No. But it has merit because cryptocurrency didn't truly exist during the last major downturn and it will be interesting to see how people value it during such a scenario.
  - TACIXAT 9y ago
    They're less vulnerable to market fluctuations because they're backed by nothing besides speculative demand and the online drug trade.
    - rglover 9y ago
      You could say the say the same thing about the U.S. Dollar but just add a military to the list.

jasonrhaas 9y ago

Of course we are due for a pull back in the stock market. Stocks are historically overvalued by many metrics, the most simple of which is the P/E ratio. Check out this website -- http://www.multpl.com/ http://www.multpl.com/ The question is not if stocks will pull back, its when. Bull markets can run for a long time even if they are over valued. The boom of the early 2000's and 2007 went way higher than average, and crashed hard.

shorsher 9y ago

As someone who is graduating college in December and currently looking at starting a Roth IRA with money I saved from internships. Should I wait to invest until this downturn actually happens? Or does that not matter and the sooner I start investing the better? Not well versed in this subject, appreciate all advice:)

fullshark 9y ago
The basic rule of thumb is to not try to time the market. In your case I might avoid putting the money in an IRA though until you are sure you are happy at your employment post graduation. That nest egg could give you crucial flexibility in the short run if your job doesn't work out which is probably more important than starting an IRA ASAP.
eof 9y ago
Well, if you know it will go down, you shouldn't invest. In general for IRA stuff the sooner the better though.
- kspaans 9y ago
  If the money isn't going to be used for 30+ years it really, really doesn't matter if it gets invested today right before a downturn. And if it is going to be used in significantly less than 30 years it should be something other than stocks (like bonds perhaps).
  - kgwgk 9y ago
    If he buys today for 100 something he could have bought in a couple of years for 65, I’m not sure he will agree that “it really, really doesn’t matter”. Market timing is difficult and there may not be a crash but stocks are objectively expensive now and it’s hard to see how the recent performance could continue for long: https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-s-p-500-just-say-no.pdf https://www.gmo.com/docs/default-source/research-and-comment...
codelitt 9y ago

narrator 9y ago

Must be time to buy then. These free articles are always herding people in the opposite direction the market is really going so the traders can unload their stock or get in cheaply.

justadeveloper2 9y ago

This is crap--someone is always warning about a downturn coming. The game is as the game has always been--scare the rubes into doing something stupid with their money so the people who know the play can keep making big bucks off the uninitiated.

greyfox 9y ago

Starting in the United States from 1800, it seems there's one great financial 'panic' in 1857, and not another until 1910, shortly before the FED Reserve took control and started the fiatization and debasement of the currency. So about 50 years between crises. It seems that the business or boom bust cycles is a relatively new phenomenon and it might just be related to the way the federal reserve handles the money. Anyone feel free to correct or add info here as im not an authority on historical economics in the united states, but i have always found that the instillation of the federal reserve to be an 'epoch' of sorts for the US economically.

frgtpsswrdlame 9y ago
>Anyone feel free to correct or add info here as im not an authority on historical economics in the united states, but i have always found that the instillation of the federal reserve to be an 'epoch' of sorts for the US economically. Sure, it's just totally untrue, this wikipedia article will help: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
rm_-rf_slash 9y ago
You forget the devastating depression of 1893, among several others. Depressions were common and severe throughout 19th century America, and it wasn't until the New Deal reforms that they became remotely manageable.

3pt14159 9y ago

I called it a couple weeks ago: https://twitter.com/zachaysan/status/895197582586261504 https://twitter.com/zachaysan/status/895197582586261504 Forward P/E, yields, EPS, everything is just too frothy right now in the US. In my home country (Canada) it's difficult to see how the short term oil market will turn out, since it's such an inelastic market, but in the medium term oil is effectively over - especially for resource intensive extractions like the Alberta oil/tar sands. The only major company that I'm still in on is Facebook, but that's only until regulators start coming down harder on them. Even so, Facebook has a huge amount of growth ahead of them. I've been able to make around 18% YoY, even after the fact that half my portfolio is in bonds and low-risk consumer staples. I don't do anything too fancy. I sell before busts (like in late 2006) I put a little money into put options on the S&P500 (SPY) well out of the money for an extra boost if I've timed it right, I move things into actual cash and then I wait until people are panicking and then I buy back in. Split exposure to 1/3 USD, 1/3 CAD, 1/3 Other (basically Bitcoin, startups, bit of precious metals, Asian / Euro stocks) when things are undervalued and move most things into cash when things are scary. When choosing investments I generally do: 1. Tech I understand (in the past Amazon, Tesla, Apple, Google, Shopify) 2. High dividends stocks (Apple, then a bunch of boring ones with no appreciable downside, since I don't like buying declining industries). 3. Short term commodity plays (since in the long run clever humans invent better mining techniques). 4. Strategies that anticipate the catchup effect. Last decade it was China this decade it will be India and Africa. I'm not perfect (SQM and Etsy were two stocks I was quite confident in that didn't pay out for a number of reasons) but I'm confident and careful. I really think I would have been wealthier if I'd gone into finance instead of machine learning, since I seem to have a knack for it, but we'll see how the chips finally land in the future I guess.

EternalData 9y ago

It's going to be interesting to see how cryptocurrencies react to a protracted financial crisis. Time to see if the money in crypto is a hedge or if it's a risk-on asset.

chocolatebunny 9y ago
bitcoin is the new gold. Which is unfortunate, because the more it's treated like a commodity the less likely it will be used as an actual currency.
- rglover 9y ago
  What needs to be said: it's both a commodity and a currency. It's never been seen before so a lot of folks doubt its potential.
- Jordy_Man 9y ago
  That's a good thing! Bitcoin is currently no scalable enough to be a world currency. It is a great digtal asset. Other alt coins might be better at being a digital currency like Lite Coin, Dash, etc...

ElijahLynn 9y ago

Wonder how #45 will try to spin this when it hits. "Obama ...".

csomar 9y ago

Okay let's look at the following chart: https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYPI/v2/1000x-1.png https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iRECXe3ViYP... While there have been "cycles", the cycle doesn't have a precise duration. The expansion period could be a "few years" or over a decade. The "dip" isn't predictable either. Someone who was ready to buy the dip in 2010 might had to cut his losses because the decline was really steep that he might have believed the "sky is falling" news. See the 1960-1970 period. We might still have 1-5 years of more "bull running" before seeing any correction. Given that we have little data too, it is possible that it turns into a 7-10 year of more "bull running" just for the fun of stretching the limits a little. You'll have to be real patient not to buy stocks/assets for the next 5-10 years. That "crash" day will happen once everyone is confident that "things are the way it is and bull is normal".

justforFranz 9y ago

Oh good. Just in time to keep labor from having any pricing power. Excellent.

logicallee 9y ago

I just want to point out that it's really nice of HSBC, Citigroup, Morgan Stanley not to take any market positions before doing this, and just share their analysis in full as a public service. What I mean, is that they could have very easily first taken short positions, then made this announcement. Or kept the analysis for themselves. But they didn't. They just did the analysis and shared it for free as a public service, which is a class act all the way. I wish more Wall Street Banks looked out for investors this way. Sometimes big investment banks forget that there are people behind these pieces of paper.

alexandercrohde 9y ago
I hope this is a tongue-in-cheek criticism.

andy_ppp 9y ago

I wonder if the price of Bitcoin will go up should there be a recession?

daxfohl 9y ago

Figures. At age 41, I just last week went in debt for the first time in my life, moving my family from a home we owned in Michigan to the red-hot Seattle market for a job offer I couldn't turn down, spending well over a million to do so. It's just starting to dawn on me now how precarious a situation we're in. Going in, it's like "awesome job, a million+ house will be worth 1.2M+ next year, maybe 1.4+ after that." Seemed reasonable. My cynical side is just waiting for the market to implode now, our loan to be upside-down, and layoffs to start. Everything was so good six months ago. House paid off, a rainy-decade reserve. And now reality is sinking in that we could be homeless jobless and bankrupt in a month. Hopefully not. Hopefully the economy has a couple more years in it. I'd probably not make the same decision again.

imjk 9y ago
Take a deep breath man. You'll be fine. Moving (especially across country like that) is always a stressful event. I think once you settle in and find a routine for your new career you'll realize you're not in as precarious a situation as you think. Best of luck. Cheers.
- kpennell 9y ago
  I love finding kind HN comments
- Godel_unicode 9y ago
  Exactly this. Former you sounds like a sound financial planner. Trust that he knew what he was doing.
havetocharge 9y ago
A new job, and relocation can introduce enough risk for me not to increase it by buying a new property. It's just my personal approach though.
- artmageddon 9y ago
  But if you have to relocate, aside from rent(which can be absurd in CA), how else are you supposed to do it?

dkrich 9y ago

People have been making this prediction consistently for a year. Meanwhile the market just keeps going up. Bubbles never happen where or for what reason people think they will, and for good reason- bubbles are formed by market participants, so in order for one to exist, people by definition can't believe a bubble exists or that the market is due for a selloff.

eighthnate 9y ago

The FED has already raised interest rates and has said they will continue to do so in the coming qtrs/years. The 2007 recession started about 2-3 years after greenspan started raising rates in the latter part of 2004. Also, we generally get a recession every 7 to 10 years. Do we really need wall street banks to tell me what is going to happen. I still think we have 2 or 3 years of economic growth but sooner or later the hammer is gonna drop on us. The growth of asset prices, the expansion of debt and the growth of FED balance sheet is quite interesting. And this isn't just the US - China, Europe, Japan, SK, etc are also interesting.

jrs95 9y ago

A downturn is coming! You should sell! (To us)

exabrial 9y ago

I know there's a longer cycle, but IIRC, there's also an economic lapse going into the fall as well, especially on years with high Atlantic hurricane levels

jackcosgrove 9y ago

Don't try to time the market with gross predictions like this. Just keep investing as long as you are working, and keep investing in stocks as long as you are young. Invest regularly so that you spread out risk over time.

noddy1 9y ago

Keynesian economists triumphantly point to the massive QE that has occurred and the seemingly minimal resulting inflation and claim victory for stimulatory monetary policy. How was the QE performed? Basically printing piles of money and giving it to banks. What have the banks done? Double or triple the value of every equity market. Hardly any of the money ended up in the pockets of regular people buying groceries and petrol. Yet our measures of inflation come from consumer goods, not equity markets. Is it any wonder that our bullshit measures of inflation have barely budged. I think the coming bust (whenever it occurs) will be the last boom/bust cycle in which this shit flies anymore. We now, finally, have universal, non-inflationary currency of a type which can compete with the unproven conjecture of Keynesian economists. People have been complaining that about economic theories being hard to prove, well here is a battle between the old dogma and a new challenger.

godzillabrennus 9y ago
It is 1994 on Wall Street today with Cryptocurrencies and yet so many of them can't see it coming.
dragonwriter 9y ago
> Keynesian economists triumphantly point to the massive QE that has occurred and the seemingly minimal resulting inflation and claim victory for stimulatory monetary policy. Every Keynesian I’ve heard from seems to think QE was, at best, the least bad option given the complete failure of those empowered to do so to adopt stimulatory fiscal policy, and that it in many ways demonstrated the weakness of monetary policy in isolation. I've seen none cheering QE the way you describe.

xj9 9y ago

downturn? compared to what? was there an upturn?

readhn 9y ago

I'd say we are overdue for a decent size pull back/sell off BUT getting the timing WHEN exactly this will happen is the hardest part. Typically before decent market corrections/crashes you do not hear on the "news" that it is coming. The point of the down move is to catch most market players off guard. The fact that these "smart" guys are yelling "sell off" is coming tells me stay the course ... for now (where were they back in 2000 or 2008 warning general public??). But longer term i agree we will correct probably sooner than later. Market loves round numbers. 2000, 2500 ... 3000? who knows where and when it will stop this massive bull run.