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Some of the world's biggest economies are on the brink of recession
- umvi 7y agoIf we know a global recession is coming, is there anything we can do to profit off it it? Does gold, Bitcoin, etc. go up during recessions? Or is the best strategy to just buy low (during recession) and sell high (after recession)?
- godzillabrennus 7y agoThe market can stay irrational longer than one can stay solvent. If you can time the market you can always get rich. The trouble is timing the market.
- dazc 7y agoThe media are always predicting the next recession so it's just a case of picking the time they are right. Which is about once every ten years, on current form.
- jkhdigital 7y agoThis wisdom was clearly conceived before the advent of widespread, liquid options markets. Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive so there is a substantial price to pay for capping one's downside risk.
- odyssey7 7y agoOptions are priced by the same market forces that a speculator attempts to time. You can always lose the price you pay for the options, although you can avoid insolvency by not buying more than you can afford to lose.
- thaumasiotes 7y ago> Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive I didn't realize it was impossible to become insolvent just by spending money.
- H8crilA 7y agoYou can short bubbles via long term put options, that's what I do. Tech (XLK, QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous dreams (TSLA, SPCE), US corporate credit (JNK, LQD). Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. Also no two recessions are 100% alike. Most importantly - will the next one be deflationary or inflationary? Even that is hard to say. Growth in credit suggests deflation, but then if we face mass bailouts then gold and oil will be the places to be. Also, the virus thingy may be quite inflationary (disruption of supply chains, no more stuff from China!) if it materializes. I guess what I'm trying to say is that it's not about "crisis/not crisis", but rather "what is currently severely mispriced, and will correct when the market volatility rises?". This can be either up or down in price. Finally, if the world temperature goes to, say, +5*C or the virus is really super bad then this is risk that's not hedge-able via capital markets, because it will fuck up capital markets themselves. Think of this as counterparty risk.
- repsilat 7y ago> Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. So just use a spread?
- H8crilA 7y agoYou still pay a lot in IV even if you do a spread, i.e. the reward/risk is not that great (2022 puts on SPCE have an IV in excess of 100%... that's too much for me). And I don't have the stomach to sell options. But that's all my opinion, go ahead and do it if you think it makes sense.
- repsilat 7y agoYou pay IV on one side and get it back on the other, don't you? AIUI high IV just means the spread won't start "paying off" until closer to expiry.
- abrichr 7y agoThe standard technique is known as a "short sale", or "shorting" [1]: You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y. So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y. Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2]. [1] https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp [2] https://www.investopedia.com/terms/p/putoption.asp https://www.investopedia.com/terms/p/putoption.asp
- turk73 7y agoGood luck losing your ass shorting stocks! Shorting requires very accurate timing and even if the trend is your friend, it simply is not the opposite of going long. It just isn't. I only get two posts every 4 hrs because HN thinks I'm an asshole, but since I'm a rich asshole, I'll break it down for you: 99% of the advice on this thread is garbage.
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- Findeton 7y agoStay liquid, try to save money, put it in things that do hold their value in times of crisis like gold (or yes perhaps bitcoin/ethereum). Then when the crisis happens buy everything cheap.
- taiwanboy 7y agoInteresting that China is just a blurb in the article. https://asia.nikkei.com/Business/Industry-in-focus/Virus-hits-China-s-economic-heart-its-small-businesses https://asia.nikkei.com/Business/Industry-in-focus/Virus-hit... 65% of 1,506 Chinese SMEs surveyed in early February expect to run out of cash within 1 month, 85% within 3 months. Chinese small business which account for 99.8% of registered companies in China and employ 79.4% of workers, according to the latest official statistics. They contribute more than 60% of gross domestic product and, for the government, more than 50% of tax revenue. https://www.zerohedge.com/economics/jpmorgan-now-expects-china-q1-gdp-drop-1-crash-4-if-coronavirus-not-contained https://www.zerohedge.com/economics/jpmorgan-now-expects-chi... JPMorgan Now Expects China Q1 GDP To Drop To 1%, Crash To -4% If Coronavirus Is Not Contained
- i_am_nomad 7y agoGood lord... those numbers cannot be real, that’s terrifying.
- DyslexicAtheist 7y agoingredients for a perfect storm: - crumbling of tightly integrated supply chains - global recession - financial systems (especially in EU) which have never been reformed after 2008 - droughts, floods, locusts, and wildfires - immigration crisis - never-ending war in ME - rise of nationalism and xenophobia - rampant spreading of mis-/disinformation
- DyslexicAtheist 7y agostill feel like I forgot a couple of things ...
- toomuchtodo 7y agoStructural demographic transition across the first world. This will lower productivity and labor participation rate, and will increase the reliance on social safety nets, which will likely be funded with debt and/or central bank intervention. Japan is the future for everyone, it’s just the time scale up for debate. In the US alone, 10k people turn 65 each day (retirement age for Medicare eligibility and their full retirement age for collecting Social Security).
- DyslexicAtheist 7y agoshould probably be on top of the list. probably increasingly hard to remedy with immigration given the political climate.
- toomuchtodo 7y agoFertility rate is below replacement rate worldwide except Africa and a handful of other countries. Even with immigration, it’s still somewhat zero sum (there’s only so much worldwide labor available, less so that can migrate). Even generous government and societal benefits (parental leave, cash transfer payments) have been unable to push the fertility rate up in developed/semi developed countries. It’s a good thing; the world has too many people to sustain everyone at first world standards, so a managed decline in population (while respecting the rights of existing humans) is optimal policy. https://ourworldindata.org/fertility-rate https://ourworldindata.org/fertility-rate
- ghouse 7y agoUS: Record Trade deficit + record fiscal deficit + record govt debt + record corp debt (all during a period when economy is supposedly doing well) = time bomb
- lazyjones 7y agoWhy are you looking only at alleged (nominal -> inflation...) negative records? Record low unemployment, highest stock indices, highest household incomes, low hispanic and african american poverty rates etc. etc. Also, some of your negative indicators are the result of lower taxes = more wealth for tax payers.
- jazzyk 7y ago>Record low unemployment The actual, real rate of unemployment is called "Civilian Labor Force Participation Rate" and covers all adults (16 or older) who are not working. As you can see from the diagram on the BLS website, the participation rate is ~ 63% which is close to the lowest level in 40+ years. Booming economy, for FAANG and Wall Street, perhaps. Just barely off the lows for most people, though. https://data.bls.gov/pdq/SurveyOutputServlet https://data.bls.gov/pdq/SurveyOutputServlet
- seanmcdirmid 7y ago> Record low unemployment, highest stock indices, highest household incomes, low hispanic and african american poverty rates etc. etc All of those points are true before any bust. Juicing an already hot economy with tax cuts and low interest rates is just stupid, leading to excessive inflation, bubbles, and ultimately a bust. If adults were running things, they would use taxation and interest rate as a lever, cut when the economy is bad, but raised when the economy is good: this would provide relief during bad times and prevent good times from overheating.
- Itsdijital 7y agoI never really thought about that, or put 2 and 2 together on taxes. Why don't we have annual dynamic taxes? I'm sure there is a lot of nuance that would have to be worked out, but it seems like an excellent method for smoothing volatility.
- brenden2 7y agoIt's all doom and gloom in the news. Best thing you can do for yourself is to stay off the news.
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- cryptica 7y agoWhy? So we can all blindly continue running this sham economy producing useless addictive junk and destroying society and the planet in the process? You're saying that the solution is to withdraw further into our echo-chambers and filter bubbles? Economic collapse is long overdue and filter bubbles are actually responsible for delaying it and for making it worse than it should have been.
- rytill 7y agoWhen did the phrase “filter bubble” popularize?
- skrebbel 7y agoBut then who will tell us when to stock up on face masks, medicine, and canned beans?
- chiefalchemist 7y agoWhen it was safe to have sex, it was "Sex sells." The new paradigm is fear. More and more fear.
- throwaway29303 7y agoFear isn't a new paradigm. It has long been established that media outlets, religion, terrorism, ads, etc use(s) fear as a means of control. I suggest watching "Bowling for Columbine"--here's a notable excerpt: https://www.youtube.com/watch?v=NiaxzBlFgmQ https://www.youtube.com/watch?v=NiaxzBlFgmQ Btw, I'd also recommend reading this https://www.rollingstone.com/culture/culture-news/columbine-whose-fault-is-it-232759/ https://www.rollingstone.com/culture/culture-news/columbine-... IMHO, the best way to fight such fear is, among other things, to insist on educating the masses and to open science as much as possible to them as well.
- cryptica 7y agoThe entire economy is a pyramid scheme just begging to collapse. Google worth over $1 trillion, Microsoft worth over $1.36 trillion, Apple over $1.37 trillion, Amazon over $1 trillion. Bitcoin $200 billion. A lot of terrible unscalable and insecure cryptocurrencies worth over $1 billion each. Even IOTA cryptocurrency which experienced a massive hack followed by total failure of the network is still almost worth over $700 million. The thing failed completely and the market still thinks it's worth $700 million... These are more or less the same kind of people who participate in other mainstream stock markets. US national debt is at 23 trillion. Close to 0% interest rate for an entire decade. We are way past the point where we should be worried; that point was probably 10 years ago. Everything everyone knows about the economy and value creation is wrong. It's a giant, fiat-fueled pyramid scheme and as soon as just a couple of semi-intelligent billionaires start to sell their stocks, it's going to collapse. Unlike the 2008 crisis, this time, we don't even need to find a single specific cause. The next economic depression will have so many causes that it will be easier to explain what is NOT the cause.
- pfdietz 7y agoWe don't need a specific cause, but a pandemic looks like it'll be a really big one.
- allovernow 7y agoIf you look at market history the last ≈5 recessions have all occured with a regular intervals of about 7 years. I think recessions are just a normal, emergent vent in an oscillatory system. It seems like putting one off artificially will lead to a more severe depression.
- cryptica 7y agoI agree. I think filter bubbles will be to blame for delaying the next recession. Maybe the corona virus had an impact in terms of showing investors that big news can transcend filter bubbles and we are not immune from global panic.
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- papito 7y agoWell, my bond mutual fund is up 21%, so there is that.
- H8crilA 7y agoThis is precisely because the market is pricing in bad future (low interest rates). US 10 year is around historic all time lows. And I assume you heard about how low the yields tanked (i.e. how high bond prices soared) in other developed countries.
- ur-whale 7y agoTime to sell.
- papito 7y agoReally, bad advice. The outlook for bonds in 2020 is changing as the impact of Corona virus puts previous projections into question.
- chiefalchemist 7y agoAre there any other sources that align with this. Sans TMZ-esque material CNN is too low on the credibility scale for such high-minded subject matter.
- appleiigs 7y agoThe author forgot to mention Brexit.
- eddhead 7y agoI voted Remain, but the forecast for a post-Brexit Britain is economically positive, at least for the short term. That's why it's not mentioned.
- threeseed 7y agoNo it's not. The news this week is that the UK is looking to not honour the terms of the withdrawal agreement in order to avoid a Northern Ireland-UK border. This sort of behaviour is eroding trust not just with EU but Japan. Lack of a transition FTA for either would send the UK into recession. Also look at UK's recent immigration policy announcement where they announced a move to a points based system. There is no low skilled visa for people who work in agriculture. That industry has already said they will see a significant decline over the long term.
- turk73 7y agoCNN Doom Porn
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- aSplash0fDerp 7y agoSomeone else mentioned news outlets having low integrity ratings and I have to agree that many have crossed that threshold. I remember channel-flipping past all of the outrage on daytime talk shows (Jerry! Jerry!) because they were trash, but that low-quality/short-sighted outrage somehow made its way into the news cycle over the decades. AI/ML filters will be a boon for information curation. Bipolar insights have no value whatsoever.
- Misdicorl 7y ago> Bipolar insights have no value whatsoever. I love the extreme tension this sentence creates. Both within itself and with the rest of the authors post.
- aSplash0fDerp 7y agoThe bipolar statement is probably more apparent on televised news, but alternating between murder, crime, (fear).. Then rotating to a few feelgood stories is not a healthy cycle (now with new and improved outrage). You could go your whole life without information like that and not be missing a thing.
- smkellat 7y agoLiving in a crossroads area for shipping readily shows me this is coming. Supply chains are freezing up. If I don't see as many tractor-trailer rigs on the road and not as many ships in the harbor then supply chains will freeze. "Just In Time" will break rather catastrophically for some companies. Oddly enough, the trade war with China instigated by President Trump unintentionally has had a good outcome in light of the current coronavirus worries. Companies that went all in on offshoring to China started diversifying again where their plants happened to be located. That start to deleveraging might keep a few manufacturers afloat as some or all operations per company relocate.