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Posting this as its own top level comment for better visibility: Look at how (relatively) low it was in September 2007. One can assume in February it was even
by alexb_ 4y ago
Posting this as its own top level comment for better visibility:
Look at how (relatively) low it was in September 2007. One can assume in February it was even lower - and February is when Greenspan said a recession was obviously coming. The subprime mortgage crisis started in April 2007. But the job market didn't really get fucked until 2008. There's a delay with these types of things - I personally predict that a year from now, a lot of companies (especially ones in the tech sector fueled by immense amounts of cheap debt and the assumption ad revenue always goes up) will collapse. That's when you see the spike in unemployment, not now.
- bryanlarsen 4y agoPeople may read causality into your comment that you didn't imply. That the number of unemployed persons per job opening is so low is a very strong "boom" signal. Busts inevitably follow booms, but booms don't cause busts. Something else is the trigger. Subprime mortgage crisis in 2007, the rate tightening caused by inflation in 2022, etc. I argue that the US fed rate is going to have to get a lot higher than 4% to cause this boom to bust in the US. That's an exercise in fed tea leaf reading. The last fed guidance was a lot more ambiguous than previous tightenings this year.
- bcrosby95 4y agoEveryone mentions 2007, but 2006 was when lending tightened, making the subprime crisis inevitable given all the interest only ARM loans.
- bryanlarsen 4y agoAnd now is when we find out who didn't learn from the subprime lesson. The UK had the gilt crash, but so far no cascade crisis has appeared with the tightening interest rates in the US. Given that the rates today are about the same as what they were in 2019, I don't expect any cascade crisis unless rates rise significantly higher.
- chrisco255 4y agoEven then, in the U.S. less than 5% of mortgages are variable rate loans: "The percentage of adjustable-rate mortgages to total loans shrank from a high of roughly 34% in 2005 to a low of under 5% in 2022. The decline began when the housing market peaked around 2006 and bottomed in 2009 at around 2.5%." https://www.financialsamurai.com/adjustable-rate-mortgages-as-a-percentage-of-total-loans/ https://www.financialsamurai.com/adjustable-rate-mortgages-a... Everyone is always fighting the last war. The real estate market may slow down here, maybe even prices decline in either real or nominal terms, but I don't think real estate is where the biggest risks lay, at least in the domestic US real estate market (can't say anything for China or AUS or other markets that seem primed for a dramatic bust). I'm far more concerned about sovereign debt levels, which have absolutely ballooned over the past decade, and are even accelerating in growth in many cases.
- bcrosby95 4y agoReal estate is, unironically different this time. A key component in this run up vs the last is, last time rents did not increase nearly as much as home prices. In 2005-2006 I was paying $2200/mo to rent a house worth $1 million. And no, it wasn't rent controlled. That rent prices haven't massively dislocated from housing prices makes me think it's not the same situation.
- bjornsing 4y ago> I personally predict that a year from now, a lot of companies (especially ones in the tech sector fueled by immense amounts of cheap debt and the assumption ad revenue always goes up) will collapse. I think this will unfold quicker than that. We’ve had artificially low interest rates (+ QE) for over a decade now. There’s lots and lots of economic activity that will not be profitable when rates go up. If we’ll have ~5% rates in February (as Powell indicates) then I think we’ll see massive deterioration in the labor market before summer.
- whimsicalism 4y agoWhat makes an interest rate artificial? If it is different from what you think or want it to be?
- datavirtue 4y agoIs the market setting the rates when the Fed has them bottomed out? Kind of hard to tell when the banks are essentially able to create free money at the discount window. I imagine interest rates would be much, much higher than we are used to if they relied on raw savings. Things would be very different for sure, and we most likely would not be able to maintain enough growth to match population growth. That would mean widescale creeping poverty. Maybe not, seems like all we know is a strong dollar cheap fiat orgy, and it has been quite nice.
- whimsicalism 4y agoGiven that these are both human constructs, I don't know what makes one more artificial than the other. Given that one would likely lead to awful financial contractions and instability... and the other doesn't, seems like there is a preferred option - artificiality aside.
- bee_rider 4y agoAt some point this becomes "is human society artificial or is it, like, the natural product of human nature," right?
- whimsicalism 4y agoBecause the ad-fueled tech sector companies are driving employment? And which of these companies are fueled by immense amounts of debt (traditionally a mainstay of capital intensive industries, which tech is not). I don't know, your comment makes little sense to me. I encourage others to read what Greenspan actually said if they are under the impression that he predicted the 2008 recession.
- johnwheeler 4y agoExactly. Meta has no debt
- ochoseis 4y agoAsset prices are inversely correlated to interest rates, so companies can raise more capital by selling shares when rates are low than when they’re high.
- VirusNewbie 4y agoI disagree. There is a ton of VC dry powder right now. Many are waiting for 'the bottom' to happen before pulling the trigger on more investments and big rounds. As soon as things level out, you'll see a flood of money in. I think it's unlikely rates will continue to rise for an entire year.
- alexb_ 4y ago>I think it's unlikely rates will continue to rise for an entire year. Where do you get this idea from? Especially since the Fed has said over and over that they are going to do exactly that.
- VirusNewbie 4y agoI'm fairly confident CPI will be down quite a bit in 9 months.
- lamontcg 4y agoRates don't have to rise any more to cause a recession. Holding rates at this level should be more than enough. And Powell has indicates that they're going to go higher than expected and likely hold it there longer than the street expects. You should really listen to him rather than your own ideas about what the CPI is going to do.
- VirusNewbie 4y agoWhy? My track record is way better, I predicted inflation.
- thunky 4y agoWell the CPI is only up 0.5% in total over the last three months.
- ramesh31 4y ago>The subprime mortgage crisis started in April 2007. But the job market didn't really get fucked until 2008. The job market didn't just magically "get fucked". Companies found themselves with little cash and no access to credit. We had the biggest credit freeze since the Great Depression. The Fed is not making that mistake again, and the corporate world is absolutely loaded with cash right now.
- alexb_ 4y ago> corporate world is absolutely loaded with cash right now. ...Is it? Or is it loaded with debt masquerading as cash?
- ramesh31 4y ago>...Is it? It is: https://fred.stlouisfed.org/series/QFRTCASHINFUSNO https://fred.stlouisfed.org/series/QFRTCASHINFUSNO It started burning down this year, but corporate cash on hand is still the highest it's ever been in history.
- lamontcg 4y agoIt burned through 20% of that cash in one quarter and we're not even really in a recession yet...
- whimsicalism 4y agoDo you know what cash is?
- dilyevsky 4y agoSo my understanding of GFC is 2008 unemployment situation was caused by collapse of corporate debt (due to banks being caught in subprime loan crisis with their pants down) which in turn fed further banking collapse so we had a negative feedback loop. I don’t see a cycle like that today
- mywittyname 4y agoRecessions never look like the one before it, because that's what everyone expects to happen and plans for. This one is already quite odd in a number of ways (i.e., low unemployment), so there's good reason to expect several other aspects of it to not follow conventional wisdom. My personal opinion is that this will be seen as an indefinite recession, in that we will look back and see that it was comprised of the cause and effect of many smaller "recessionary events" rather than one defining event.
- lamontcg 4y ago> I personally predict that a year from now, a lot of companies (especially ones in the tech sector fueled by immense amounts of cheap debt and the assumption ad revenue always goes up) will collapse. That is likely the wrong prediction. The thing to be worried about is stuff like commercial real estate and all the vacancies in places like downtown SF and Portland (plus Mall vacancies and everything else--other than self-storage of course). Those vacancies are currently being floated on cheap debt and rolling that over is going to get much more expensive. But it takes time to push a business into insolvency, so the delay you cite is certainly real. That can rollover into a financial crisis via CMBS. I doubt that this recession will be primarily about tech, although it might hit tech harder than 2008 did. I doubt it changes anything fundamentally about the tech sector though other than clearing out some unsustainable companies with high debt-to-equity ratios.
- osigurdson 4y agoNormally, the stock market is a leading indicator. It is down 20% bit from all time highs but still has a bit to go even to get down to where we were pre-pandemic. Also, since the recession is being created by rate hikes, there will be plenty of room to cut rates in a recession/deflationary environment. It seems that there could be a natural feedback loop to this.