4 ms·

Nobody "wants" another recession. We all read these articles, though, and then go on to spread them amongst peers like wild fire. The echo chamber only gets lou

Nobody "wants" another recession. We all read these articles, though, and then go on to spread them amongst peers like wild fire. The echo chamber only gets louder as time goes on. At some point those predictions/analyses become irreversible and de facto a self-fulfilling prophecy. I've started refraining from talking about negative financial news with friends and family.

toomuchtodo 7y ago
This is not about a recession. This is about fundamental shifts in financial market expectations (the exhaustion of growth, ~$17 trillion in bonds offered at negative interest rates, etc). If your entire socioeconomic model is based on positive rates of return (retirement, pensions, investment income, etc), and you can no longer obtain those returns safely, things start to break down. Maybe the idea of retirement is an aberration in history if we're not going to provide for it through a transfer system. Maybe a dollar today is just as valuable as a dollar tomorrow, or ten years from now (time value of money). Do you save for retirement if you absolutely can never save enough due to the rate of return? Do you no longer care about all of that extra fiat (speaking about corporate finance) when its utility rapidly declines to near zero? This is not constrained to just Europe. Look to both Japan, where the Bank of Japan owns a non-insignificant amount of the Nikkei, or the US where the Federal Reserve is already dropping rates again. This comes to every first world country eventually, the financial version of the Langoliers.
- fennecfoxen 7y ago
  Until humanity is operating at its full economic potential, then money will continue to have time value, for it can be invested to increase economic potential. And if you think that humanity is operating at a fraction of its economic potential, even just given today's technologies, well, take a look at the world. The current state of sub-Saharan Africa comes to mind as an obvious counterexample. "The exhaustion of growth" is political rhetoric meant to excuse anti-growth policy environments which actively suffocate growth by destroying incentives for growth and misallocating resources away from growth.
  - deleted 7y ago
    [deleted]
  - toomuchtodo 7y ago
    Interest rates of safe investments don't agree with your thesis. If there's growth to be captured, capital would rush to invest (and we see some dysfunction in that, like SoftBank's Vision fund, and we all know how that's turning out, throwing VC money into a dumpster fire of unprofitable ventures). Risk adjusted returns are an important metric. There is a lot of growth left in the developing world, but the risk profile is drastically different than the first world.
    - TheOtherHobbes 7y ago
      There's plenty of growth to be captured, but its potential has been diverted into financialisation - which is essentially just moving money from middle and working class people to rich people - and away from physical invention and innovation. The financial sector has eaten the last couple of generations of top mathematical talent, and there's almost nothing of lasting value to show for it. With a more balanced economy we'd be further ahead in quantum computing, aerospace, AI, medical/bio tech, green tech, and education - all of which still have huge potential.
- indigochill 7y ago
  >Do you save for retirement if you absolutely can never save enough due to the rate of return? I find this an interesting question because I turn around and look at the notion of multiple generations living together in the same household, as is practiced in some cultures. In that environment, if you can trust the next generation (or more specifically, your offspring) to care for you in your old age without necessarily banking on an annual 7% rate of return on financial investments, maybe you start putting more money and time into setting your children up for success instead. If we follow this train of thought, then one might want to invest more into schools and other infrastructure to benefit the next generation rather than necessarily investing in high-yield funds, which strikes me as a healthier alternative in the long run, but would need to be localized to see sufficient return on that investment.
- mrep 7y ago
  > If your entire socioeconomic model is based on positive rates of return (retirement, pensions, investment income, etc), and you can no longer obtain those returns safely, things start to break down. Which is why most companies in the US have moved to 401k plans as assuming risk free rate of returns is ridiculous.
vkou 7y ago
When I talk to family and friends, I assure them that everything will be great, and 4% year-over-year economic growth will continue from now until the heat death of the universe.
freehunter 7y ago
Is there any evidence that talking about a possible recession with your grandmother or uncle could actually cause a recession to happen? Are recessions like Tinker Bell, they only exist if you believe in them?
- chris5745 7y ago
  Have you ever heard about the Law of Attraction?
- Mikeb85 7y ago
  If everyone believes a recession is coming, they stop spending, causing a recession. On the flipside, the economy can be stimulated merely by sentiment; if everything thinks things will get better, they invest and spend. The concept is similar to the 'animal spirits' that Keynes spoke of.
- curo 7y ago
  Collective fear feeds a recession or depression. Banking panics are real and speculation of a prolonged recession of course deepens and lengthens it. FDR (in his 1933 inaugural address) certainly believed this to be true: "nothing to fear but fear itself."
  - onlyrealcuzzo 7y ago
    Short-term fear can cause a sell off. You need long-term consistent fear to cause a recession (it's based on a quarter or year, depending on how you define it). You usually don't have consistent long-term fear without reason. It's usually the underlying problems that cause recessions. It's usually short-term fear that causes market crashes.
    - mrep 7y ago
      So much this. Every recession that I remember studying in my economics classes had an actual market failure acting as a trigger that caused widespread panic which resulted in a recession. The 2018 us stock market downturn comes to mind as a panic that didn't result in a recession because there was no actual market failure causing actual economic harm outside of pure speculation.
fierarul 7y ago
If nobody is having fun at a party, it's not a party. If enough people start having fun at a gathering, it becomes a party. So, mood matters. But once there's no more beer, game over. Objective reality also matters.
tlb 7y ago
Actually, some investors do want a recession. You start by taking a hedge position that pays off massively in a downturn, and then try to bring it about by spreading doom and gloom. No investor is big enough to cause a recession all by themselves. Or maybe some sovereign funds are, but they play by rules that don't allow manipulation. But when enough large investors think a recession might be coming, and they all take short positions and try to bring it about, it is more likely to happen.
Ididntdothis 7y ago
This reminds of the .COM era when a lot of "experts" were calling for people to "keep believing" so things could keep going. The financial system should be based on hard facts and not sentiment. If the situation was stable then negative news shouldn't have much of an effect since the fundamentals are solid.
- curo 7y ago
  Wouldn't a distortion be damaging either way? If all the bulls tell us to keep believing beyond the hard numbers, then we'll end up with an economic fallout. If all the bears tell us its worse than it really is, we'll end up with a deeper and wider recession.
- baby 7y ago
  > If the situation was stable then negative news shouldn't have much of an effect since the fundamentals are solid that's not how it works though, markets can be irrational and follow human emotions. Crisis can happen just because of unfounded panic.
  - Ididntdothis 7y ago
    I know this is not how it works. But telling people to not talk about negative things makes the market even less rational. I would argue that more negative talk would have slowed the build up of the .COM and real estate bubbles and avoided the following major crises.
- Karunamon 7y ago
  No such thing, I'm afraid. How people spend their money is going to be based, in large part on sentiment at the end of the day. That old saying about the ability of "the market to remain irrational longer than you can remain solvent" has a lot of truth behind it.
cheschire 7y ago
At the very least it’s causing the dips to be a lot more dramatic lately. Everyone’s on edge and reacting wildly to minor indicators. The nice thing is it creates a lot more opportunities to build profit in an overall flat market.
cco 7y ago
Nobody? Anybody with capital wants a recession, assets become cheaper, labor becomes cheaper, never let a good crisis go to waste and all that. If you had $100 million in cash in 2008 you could buy up real estate for 10-20% off and be very comfortable waiting another 5-10 years for the property to appreciate.
0x8BADF00D 7y ago
Sentiment/Emotional based investing will get your face ripped off. As the old saying goes, Bulls make money, bears make money, pigs get slaughtered. This recession had already started when the Fed started Quantitative Easing again. The Fed's balance sheet is twice as much as when it was doing QE1 back in '08. The real unemployment rate is contained in U6. If this economy were so great, why is the unemployment rate at 6.9%? Why is the Fed doing QE again?
segmondy 7y ago
Burying your head in the sand won't change reality. Recession, market busts and depressions don't happen because people talk about it. It's just part of the cycle. Think about this. Imagine 100% employment. 100% Sounds great right? Well, what will that mean for job reports the month after? 0% growth! 0 hiring. If there's 100% employment, what will that mean for pay? Pay will absolutely go up as workers are in immense demand. If pay goes up, what will that mean for the companies? Profits must come down than before! If profits are coming down, guess what? That's the beginning of recession. ... companies are going to cut back, etc, etc. This is really basic economics, the market is long term rational. With that said, is a recession around the corner? Perhaps. People are spending a lot, wages haven't gone up much. Cost of health care, college education, cars have gone up more. Tons of zombie companies out there who should be dead but are alive because of easy money. Tons of money have been printed and injected into the economy because of quantitative easing. Rates are at an all time low. The Fed is bailing out banks on a short term daily basis to keep things running. Lots of capital can't find a safe spot to be invested in. Things are lining up. When will it happen? Who knows? maybe tomorrow, maybe 5 years. If anyone knew, they would be rich!

toomuchtodo 7y ago

This is not about a recession. This is about fundamental shifts in financial market expectations (the exhaustion of growth, ~$17 trillion in bonds offered at negative interest rates, etc). If your entire socioeconomic model is based on positive rates of return (retirement, pensions, investment income, etc), and you can no longer obtain those returns safely, things start to break down. Maybe the idea of retirement is an aberration in history if we're not going to provide for it through a transfer system. Maybe a dollar today is just as valuable as a dollar tomorrow, or ten years from now (time value of money). Do you save for retirement if you absolutely can never save enough due to the rate of return? Do you no longer care about all of that extra fiat (speaking about corporate finance) when its utility rapidly declines to near zero? This is not constrained to just Europe. Look to both Japan, where the Bank of Japan owns a non-insignificant amount of the Nikkei, or the US where the Federal Reserve is already dropping rates again. This comes to every first world country eventually, the financial version of the Langoliers.

fennecfoxen 7y ago
Until humanity is operating at its full economic potential, then money will continue to have time value, for it can be invested to increase economic potential. And if you think that humanity is operating at a fraction of its economic potential, even just given today's technologies, well, take a look at the world. The current state of sub-Saharan Africa comes to mind as an obvious counterexample. "The exhaustion of growth" is political rhetoric meant to excuse anti-growth policy environments which actively suffocate growth by destroying incentives for growth and misallocating resources away from growth.
- deleted 7y ago
  [deleted]
- toomuchtodo 7y ago
  Interest rates of safe investments don't agree with your thesis. If there's growth to be captured, capital would rush to invest (and we see some dysfunction in that, like SoftBank's Vision fund, and we all know how that's turning out, throwing VC money into a dumpster fire of unprofitable ventures). Risk adjusted returns are an important metric. There is a lot of growth left in the developing world, but the risk profile is drastically different than the first world.
  - TheOtherHobbes 7y ago
    There's plenty of growth to be captured, but its potential has been diverted into financialisation - which is essentially just moving money from middle and working class people to rich people - and away from physical invention and innovation. The financial sector has eaten the last couple of generations of top mathematical talent, and there's almost nothing of lasting value to show for it. With a more balanced economy we'd be further ahead in quantum computing, aerospace, AI, medical/bio tech, green tech, and education - all of which still have huge potential.
indigochill 7y ago
>Do you save for retirement if you absolutely can never save enough due to the rate of return? I find this an interesting question because I turn around and look at the notion of multiple generations living together in the same household, as is practiced in some cultures. In that environment, if you can trust the next generation (or more specifically, your offspring) to care for you in your old age without necessarily banking on an annual 7% rate of return on financial investments, maybe you start putting more money and time into setting your children up for success instead. If we follow this train of thought, then one might want to invest more into schools and other infrastructure to benefit the next generation rather than necessarily investing in high-yield funds, which strikes me as a healthier alternative in the long run, but would need to be localized to see sufficient return on that investment.
mrep 7y ago
> If your entire socioeconomic model is based on positive rates of return (retirement, pensions, investment income, etc), and you can no longer obtain those returns safely, things start to break down. Which is why most companies in the US have moved to 401k plans as assuming risk free rate of returns is ridiculous.

vkou 7y ago

When I talk to family and friends, I assure them that everything will be great, and 4% year-over-year economic growth will continue from now until the heat death of the universe.

freehunter 7y ago

Is there any evidence that talking about a possible recession with your grandmother or uncle could actually cause a recession to happen? Are recessions like Tinker Bell, they only exist if you believe in them?

chris5745 7y ago
Have you ever heard about the Law of Attraction?
Mikeb85 7y ago
If everyone believes a recession is coming, they stop spending, causing a recession. On the flipside, the economy can be stimulated merely by sentiment; if everything thinks things will get better, they invest and spend. The concept is similar to the 'animal spirits' that Keynes spoke of.
curo 7y ago
Collective fear feeds a recession or depression. Banking panics are real and speculation of a prolonged recession of course deepens and lengthens it. FDR (in his 1933 inaugural address) certainly believed this to be true: "nothing to fear but fear itself."
- onlyrealcuzzo 7y ago
  Short-term fear can cause a sell off. You need long-term consistent fear to cause a recession (it's based on a quarter or year, depending on how you define it). You usually don't have consistent long-term fear without reason. It's usually the underlying problems that cause recessions. It's usually short-term fear that causes market crashes.
  - mrep 7y ago
    So much this. Every recession that I remember studying in my economics classes had an actual market failure acting as a trigger that caused widespread panic which resulted in a recession. The 2018 us stock market downturn comes to mind as a panic that didn't result in a recession because there was no actual market failure causing actual economic harm outside of pure speculation.

fierarul 7y ago

If nobody is having fun at a party, it's not a party. If enough people start having fun at a gathering, it becomes a party. So, mood matters. But once there's no more beer, game over. Objective reality also matters.

tlb 7y ago

Actually, some investors do want a recession. You start by taking a hedge position that pays off massively in a downturn, and then try to bring it about by spreading doom and gloom. No investor is big enough to cause a recession all by themselves. Or maybe some sovereign funds are, but they play by rules that don't allow manipulation. But when enough large investors think a recession might be coming, and they all take short positions and try to bring it about, it is more likely to happen.

Ididntdothis 7y ago

This reminds of the .COM era when a lot of "experts" were calling for people to "keep believing" so things could keep going. The financial system should be based on hard facts and not sentiment. If the situation was stable then negative news shouldn't have much of an effect since the fundamentals are solid.

curo 7y ago
Wouldn't a distortion be damaging either way? If all the bulls tell us to keep believing beyond the hard numbers, then we'll end up with an economic fallout. If all the bears tell us its worse than it really is, we'll end up with a deeper and wider recession.
baby 7y ago
> If the situation was stable then negative news shouldn't have much of an effect since the fundamentals are solid that's not how it works though, markets can be irrational and follow human emotions. Crisis can happen just because of unfounded panic.
- Ididntdothis 7y ago
  I know this is not how it works. But telling people to not talk about negative things makes the market even less rational. I would argue that more negative talk would have slowed the build up of the .COM and real estate bubbles and avoided the following major crises.
Karunamon 7y ago
No such thing, I'm afraid. How people spend their money is going to be based, in large part on sentiment at the end of the day. That old saying about the ability of "the market to remain irrational longer than you can remain solvent" has a lot of truth behind it.

cheschire 7y ago

At the very least it’s causing the dips to be a lot more dramatic lately. Everyone’s on edge and reacting wildly to minor indicators. The nice thing is it creates a lot more opportunities to build profit in an overall flat market.

cco 7y ago

Nobody? Anybody with capital wants a recession, assets become cheaper, labor becomes cheaper, never let a good crisis go to waste and all that. If you had $100 million in cash in 2008 you could buy up real estate for 10-20% off and be very comfortable waiting another 5-10 years for the property to appreciate.

0x8BADF00D 7y ago

Sentiment/Emotional based investing will get your face ripped off. As the old saying goes, Bulls make money, bears make money, pigs get slaughtered. This recession had already started when the Fed started Quantitative Easing again. The Fed's balance sheet is twice as much as when it was doing QE1 back in '08. The real unemployment rate is contained in U6. If this economy were so great, why is the unemployment rate at 6.9%? Why is the Fed doing QE again?

segmondy 7y ago

Burying your head in the sand won't change reality. Recession, market busts and depressions don't happen because people talk about it. It's just part of the cycle. Think about this. Imagine 100% employment. 100% Sounds great right? Well, what will that mean for job reports the month after? 0% growth! 0 hiring. If there's 100% employment, what will that mean for pay? Pay will absolutely go up as workers are in immense demand. If pay goes up, what will that mean for the companies? Profits must come down than before! If profits are coming down, guess what? That's the beginning of recession. ... companies are going to cut back, etc, etc. This is really basic economics, the market is long term rational. With that said, is a recession around the corner? Perhaps. People are spending a lot, wages haven't gone up much. Cost of health care, college education, cars have gone up more. Tons of zombie companies out there who should be dead but are alive because of easy money. Tons of money have been printed and injected into the economy because of quantitative easing. Rates are at an all time low. The Fed is bailing out banks on a short term daily basis to keep things running. Lots of capital can't find a safe spot to be invested in. Things are lining up. When will it happen? Who knows? maybe tomorrow, maybe 5 years. If anyone knew, they would be rich!