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Vanguard Warns of Worsening Odds for the Economy and Markets
- h4b4n3r0 8y ago>> Vanguard tracks data to predict the likelihood of a recession at certain points in the future. Having read nearly the entire literary output of one Nassim Taleb, I'd like to see the results of past predictions on this one. I'm pretty sure it will show that this "tracking" carries no actual predictive power.
- Apocryphon 8y agoAren't we near the end of a 7-10 year cycle regardless?
- h4b4n3r0 8y ago“Cycle” is a myth. There is no guarantee that any pattern you have seen in the past will repeat in any shape or form in the future.
- mistermann 8y agoThat it's not a guarantee of the future in no way nullifies the existence of business cycles. They exist, or they do not.
- rosser 8y agoThe presence of a cycle and its periodicity or predictability are not remotely the same thing.
- mistermann 8y agoI completely agree, although maybe it wasn't clear.
- nur0n 8y agoBased on historical data, how accurate would it be to say that a recession happens every 7-10 years? What percent of recessions(for some definition of recession) follow this pattern? Are there different patterns for different kinds of economic/political environments? Does anyone know of a good analysis that a layman could understand?
- dragonwriter 8y ago> Based on historical data, how accurate would it be to say that a recession happens every 7-10 years? Starting with the Great Recession and working backwards to and including the Great Depression, the gap from the previous US recession for each recession has been: 6y, 1 m 10y 7y, 8m 1y 4y, 10m 3y 8y, 10m 2y 3y, 3m 3y, 9m 3y, 1m 6y, 8m 4y, 2m 1y, 9m Only 3 of 14 of those gaps were in the 7-10 year range, and all of the rest are shorter.
- curuinor 8y agoBy the very nature of vanguard, except for its tiny, tiny managed funds, vanguard doesn't ever do shit with this knowledge. Just continues following the index.
- tanderson92 8y agoOver 25% of Vanguard AUM are not in indexed products.
- whack 8y agoDidn't Taleb himself predict the past recession, although using very different methodologies. https://www.globalresearch.ca/risk-experts-who-predicted-2008-financial-crash-believe-gmos-to-be-riskier-than-2008-crash/5465011 https://www.globalresearch.ca/risk-experts-who-predicted-200...
- panarky 8y agoThey're not making a prediction. "We don’t make any actual predictions about where things are going next month or, in the markets, next year. The stock market could rise a lot, short-term. We don’t know." Vanguard's model says the probability of a recession by late 2020 is between 30% and 40%, which is higher than normal. That also means that the probability of no recession by late 2020 is between 60% and 70%, which is lower than normal.
- h4b4n3r0 8y agoI don’t know how to say this any more plainly: anyone who predicts such things is 100% full of shit. It’s a random process. Anyone able to predict this with a significant degree of certainty would quickly become a multi-trillionaire. Insanely huge financial institutions employing thousands of PhDs were not able to predict the last big one and many of them would have collapsed without government’s help. What makes you think anyone has the foggiest clue as to the timing and severity of the next black swan event?
- katzgrau 8y agoAgreed. There are an unlimited number of variables that cannot all be accounted for, and even the most insignificant of them have the ability impact the future in dramatic ways. There is absolutely no saying what the likelihood of a recession is.
- lucisferre 8y agoBoth of you seem to be confusing estimating the likelihood of a random event with predicting the event’a occurrence. These are not remotely the same.
- h4b4n3r0 8y agoNo, it’s the downvoters who are confused. :-)
- st26 8y ago
- aptwebapps 8y ago>> In recent years, the company has put the probability of a recession six months out at close to 10 percent. Now, Vanguard says the chances of one by late 2020 are between 30 and 40 percent. That’s Vanguard’s highest-ever estimate for that time frame, Mr. Davis said. (A six-month forecast reported a greater than 40 percent probability before the recession that started in December 2007.) The parenthetical was the interesting part to me. I would love to see some long-term data on their forecasts.
- rdtsc 8y agoWhen I see a $5T asset management firm making predictions of market downturn, I wonder if it is only trying to predict the future or influence it. That is, did they place bets then went on to warn everyone of impending disaster so they can then profit from it.
- darkerside 8y agoVanguard is practically synonymous with index investing. They have everything to gain from letting retail investors continue to believe the stock market is a free ride. Why would they cash that in for a one time profit gain?
- darkerside 8y agoIf anything, this is an angle at manipulating the Fed into keeping rates low > If the facts change — with, say, the Federal Reserve delaying anticipated interest-rate hikes in response to a weaker economy — the recession forecast will change, too, Mr. Davis said.
- spectrum1234 8y agoAnd this should highlight the absurdity of interest rates even being "set" in the first place.
- amanaplanacanal 8y agoThat's just the way the Federal Reserve works. As long as they are around, they will loan money at interest rates that they set. Potentially they could get out of the money business and we could go back to using precious metals for money, but I don't know how you get there from here.
- saryant 8y agoI don't believe Vanguard trades for its own account. Given their structure, I'm not sure how they could trade on their own account. IANAL, but they're a registered investment advisor and that status requires them to act as a fiduciary for their clients. Plus, with their structure as a mutual company the firm is owned by its customers. Even if they did trade for themselves, the account would effectively be owned by all their customers, wouldn't it?
- nickthemagicman 8y agoThis is a recurring trend. Republican policies seem to harm the economy while Liberal policies seem to benefit it. A Princeton paper was written on the subject. https://www.princeton.edu/~mwatson/papers/DemRep_BlinderWatson_July2015.pdf https://www.princeton.edu/~mwatson/papers/DemRep_BlinderWats... For the past almost 100 years the economy has done better on every major indicator with a Liberal in office. I suspect it's because the trickle down effect doesn't work.
- ams6110 8y agoEhh, the reason my parents retired millionaires, despite never having earned an annual six figures combined in their lives, as well as putting two kids through college with no financial aid, was because of being invested in the stock market during the Reagan 80s economy.
- nickthemagicman 8y agoWere they doing put options? Didn't Reagan put us into a recession?
- philwelch 8y agoNot really: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... In 1980, at the end of the Carter administration, the US was suffering from a bad recession that double-dipped in 1981. From 1982 onwards, the economy grew without a hitch until 1990-91. You could blame that recession on Reagan and Bush, but it didn't happen during the Reagan years.
- chrisco255 8y agoBoy blaming Reagan for the 91 recession (2.5 years after his term) is a stretch. And also, in retrospect, the '91 recession was a blip, in what was largely a booming decade of growth.
- imron 8y ago> The chances of a recession by the end of 2020 are mounting. And the prospects for the American stock market in the next decade have worsened appreciably. The day after Trump's election win, NY Times published an article [0] by nobel-prize winning economist Paul Krugman saying: "It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never." That prediction didn't work out so well. And maybe these new prognostications are built on more solid foundations, but still they are prognostications, and if the past decade has taught us anything, it seems most pundits and economists have no clue what they are talking about. 0: https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016/paul-krugman-the-economic-fallout https://www.nytimes.com/interactive/projects/cp/opinion/elec...
- themagician 8y agoThe prediction didn’t work out so well—so far. Hindsight compresses time. Things said in 2004 and 2005 definitely bubbled up to the top after Lehman’s collapsed in ‘08 as “correct predictions of the coming financial crisis.” If things implode tomorrow or six months or even a year from now everyone will look back at that Krugman quote and say, “The man’s a damn genius, he totally called it.” It’s easy to forget about the time period when a financial prediction was wrong before it was right, particularly when the magnitude of disruption is significant. Sometimes the time even emboldens the former position because “they knew all along.” The one thing we do know is that markets are cyclical. There is always another crisis lurking around the corner. If you went to a cash position the day after Trump was elected you seem like a fool today. You can wake up a financial genius tomorrow. Maybe you didn’t sell at the top, but people who got out of real estate in 2005 probably don’t look back with too much regret saying, “should have hung in there another two years.”
- nradov 8y agoMarkets are fractal, not cyclical.
- hendzen 8y agoHere's a good article that goes in detail on this, written in January before the top. http://www.philosophicaleconomics.com/2018/01/future-u-s-equity-returns-a-best-case-upper-limit/ http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...
- spectrum1234 8y agoA good reminder to invest in world stock indexes not just US ones. Personally instead of investing purely on weighed average, I tilt quite a bit towards international indexes. I'm American.
- Someone1234 8y agoIt is worth considering that international indexes are often more expensive than domestic, and also have had more volatility historically. They're also often pinned to the USD.
- wrong_variable 8y agoTrue, but there are markets that are completely outside the reach of international capital markets - and are highly non-correlated to the US stock indexes. - Congo, Somalia are the extreme case but you can make really good gains in real estate, telecommunication in these places. (I know that people might balk at the idea of investing in Somalia but I consider it a no brainer to invest in renewable energy in a place like Somalia - I also get to enjoy the risk premium for it)
- arashout33 8y agoHow do I get invest in renewable energy in Somalia?
- downrightmike 8y agoIt is worth noting that Egypt had the largest solar power plant a century ago, but that was broken down for steel when WWI broke out[1]. Nothing is isolated from other markets. 1. https://www.thenational.ae/business/technology/the-promise-of-solar-power-made-a-century-ago-1.389398 https://www.thenational.ae/business/technology/the-promise-o...
- theshadowknows 8y agoBut won’t a report like this from vanguard cause investors to panic and pull their money, causing a recession?
- Someone1234 8y agoAnd put it where?
- brisance 8y agoThe VIX has been steady while CBOE SKEW is at all time high of 159.03. While this by itself means nothing since SKEW has been trending upwards, it is interesting that the yield curve is also flattening.
- DrFell 8y agoEnjoy not accruing interest, people with market investments! Ha ha... sigh.