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If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it would

If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it wouldn't work. As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly. There have been ways of predicting market movements in the past that, kept secret by their discoverers, were later turned into trading empires before they stopped working. But there are no ways of predicting future market movements that both (A) work and (B) are on the front page of Hacker News.

chimeracoder 8y ago
> If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it wouldn't work. As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly. You're equating the behavior of the stock market with a recession, when they're not the same thing. The stock market is correlated, yes, and people talk about it because it can be a leading indicator of the BLS data, but it's not how we define a recession. You can have negative GDP growth with a rise in the stock market, and you can have a dip in the stock market along with positive GDP growth.
- Symmetry 8y ago
  Yeah, I was being sloppy in how I was talking there. But if you know there's going to be a recession you'll immediately stop making investments in capital goods, for instance. You'll probably reduce other forms of output too and see if you can lay off some of the workers you know you shortly wont' be needing. This will all tend to cause a recession if everybody does it.
checkyoursudo 8y ago
How would an algorithmic (presumably?) selloff of stock markets cause a recession?
- ryansmccoy 8y ago
  Imagine you are CEO of a construction engineering company that is traded publicly and whose business is cyclical (or earnings fluctuate widely according to variations in the economy or the cycle of the seasons). Alright, now imagine the Stock Market sells off on fears of an upcoming recession. What do you do? Well, you may cut investments in that new plant you were planning on building or put a freeze on hiring. Now imagine, that your competitors, suppliers, and customers hear about this. This type of stuff starts to feed on itself then forecasts are lowered. This becomes self-reinforcing. This is a simple example of how a sell-off in stocks can cause a recession.
fbonetti 8y ago
1. There already is an incredibly accurate predictor of recessions: the 10 year vs 2 year yield ratio. 2. The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” It has nothing to do with the stock market.
- nickles 8y ago
  > There already is an incredibly accurate predictor of recessions: the 10 year vs 2 year yield ratio. This is not quite true. 2s10s curve inversion is commonly discussed, but 3m UST bill vs 10y UST note has far greater predictive power [0] -- and this indicator does not exist for all large economies. BoJ and ECB factor in curve inversions already, which diminishes their predictive power. Additionally, some have argued that the US tax policy changes have diminished the signal from the curve (companies repatriating cash tend to hold it in short dated tenors, making the curve steeper than it would otherwise be). Finally, there's argument over whether yield curve inversions are causative or indicative of recession in the US. [0] https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/information-in-yield-curve-about-future-recessions/ https://www.frbsf.org/economic-research/publications/economi...
elif 8y ago
>As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly. The dilemma you propose relies upon a conflation of a prediction's accuracy with the prediction's adoption on a universal scale. You can see the flaw in that logic in this exchange here. Your prediction on how a market would behave given a perfect predictor, if accurate, has not garnered my belief, so the universality of it's adoption has failed regardless of its validity.

chimeracoder 8y ago

> If there were a way to predict future recessions, and it was reliable, and it was well known to the point of being published on a public web page, then it wouldn't work. As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly. You're equating the behavior of the stock market with a recession, when they're not the same thing. The stock market is correlated, yes, and people talk about it because it can be a leading indicator of the BLS data, but it's not how we define a recession. You can have negative GDP growth with a rise in the stock market, and you can have a dip in the stock market along with positive GDP growth.

Symmetry 8y ago
Yeah, I was being sloppy in how I was talking there. But if you know there's going to be a recession you'll immediately stop making investments in capital goods, for instance. You'll probably reduce other forms of output too and see if you can lay off some of the workers you know you shortly wont' be needing. This will all tend to cause a recession if everybody does it.

checkyoursudo 8y ago

How would an algorithmic (presumably?) selloff of stock markets cause a recession?

ryansmccoy 8y ago
Imagine you are CEO of a construction engineering company that is traded publicly and whose business is cyclical (or earnings fluctuate widely according to variations in the economy or the cycle of the seasons). Alright, now imagine the Stock Market sells off on fears of an upcoming recession. What do you do? Well, you may cut investments in that new plant you were planning on building or put a freeze on hiring. Now imagine, that your competitors, suppliers, and customers hear about this. This type of stuff starts to feed on itself then forecasts are lowered. This becomes self-reinforcing. This is a simple example of how a sell-off in stocks can cause a recession.

fbonetti 8y ago

1. There already is an incredibly accurate predictor of recessions: the 10 year vs 2 year yield ratio. 2. The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” It has nothing to do with the stock market.

nickles 8y ago
> There already is an incredibly accurate predictor of recessions: the 10 year vs 2 year yield ratio. This is not quite true. 2s10s curve inversion is commonly discussed, but 3m UST bill vs 10y UST note has far greater predictive power [0] -- and this indicator does not exist for all large economies. BoJ and ECB factor in curve inversions already, which diminishes their predictive power. Additionally, some have argued that the US tax policy changes have diminished the signal from the curve (companies repatriating cash tend to hold it in short dated tenors, making the curve steeper than it would otherwise be). Finally, there's argument over whether yield curve inversions are causative or indicative of recession in the US. [0] https://www.frbsf.org/economic-research/publications/economic-letter/2018/august/information-in-yield-curve-about-future-recessions/ https://www.frbsf.org/economic-research/publications/economi...

elif 8y ago

>As soon as it predicted a future recession everyone would sell their long positions and the recession would happen almost instantly. The dilemma you propose relies upon a conflation of a prediction's accuracy with the prediction's adoption on a universal scale. You can see the flaw in that logic in this exchange here. Your prediction on how a market would behave given a perfect predictor, if accurate, has not garnered my belief, so the universality of it's adoption has failed regardless of its validity.