Market Moves Suggest a Recession Is Unavoidable (opens in new tab)

> How can something "suggest" a recession is "unavoidable." If its a suggestion, then by definition it isn't unavoidable.

Nonsense.

Say I have a coin that I suspect has heads on both sides. Instead of just checking the coin, I flip it ten times in a row and check the result -- ten heads. "Coin flips suggest 'heads' unavoidable."

The article is saying there is some situation in which a recession is unavoidable, and signs point to us being in that situation.

I agree that the attempts at prediction are fairly silly, but this specific phrase is perfectly reasonable. “Suggest” talks about the state of our knowledge. “Unavoidable” talks about where we actually are.

"Evidence suggests that the heat death of the universe is unavoidable."

Exactly. Every market correct feels like it's going to be the big one as its happening, and most of them pass.. By the time people start to feel like maybe it's over, market levels are usually well off the bottom and so everybody who wanted to "wait on the sidelines" miss their chance..

suggest - cause one to think that (something) exists or is the case.

That suggestion could be wrong, yes. But they're saying that there are indicators that even if everything was done right we still go into a recession.

And regardless, to your other point, if you always predict the opposite of the status quo, you'll eventually be right. That guy holding the sign saying "The End is Near", one day, he'll be right too.

So, yes, these articles are silly.

While the last couple of days have been particularly painful for me in the market, CNBC, Bloomberg, and financial news networks are the biggest pusher of fear out there. Fear sells, and they peddle fear better than anybody.

It's hard to buy, or even not sell during the last couple of weeks, but I'll reiterate a quote by Warren Buffet:

"Be fearful when others are greedy. Be greedy when others are fearful."

I was a freelance dev contractor in the 2008/2009 financial crisis.

To what you said above, both can be true. But it depends on the client's business.

I got completely crushed last time. But my clients were primarily in travel and fashion/lifestyle which both got hit hard early. And I was trying to bootstrap a social media startup at the time, which was also in travel. So I got destroyed.

Typically agencies and freelancers are the first to feel a recession. Vendors are more expendable than W-2 employees so contracts get stalled out or cancelled as soon as the warning signs hit the board room.

However... I've known of some people who actually did quite well last time around. Generally they were offering lower rates than the competition and specialized in maintaining software that was essential to recession-proof businesses (like entertainment, education, government etc). They had long-term contracts where they were essential to these businesses, and they lowered their rates to be competitive. This was eventually how I recovered as well.

Basically my advice is - prepare to shift from quality to quantity for a bit, diversify your client portfolio and put effort into building long term clients where you're essential.

Ultimately yes, as a contractor your continued employment in financially difficult times is going to be a hard sell. Of course, you could always take a permanent position for a time if that would give you more of a sense of security. Or, you could fall back on the additional savings you've been able to make as a contractor, that higher rem being the benefit of the hedge you were making in the first place.

That said, I've seen companies shed permies over contractors in difficult times, because if you form the view that said difficult times will stick around for a while, the permies look worse as aliability/drain on your projections than having contractors which, although they are higher cost, can be shed trivially. Depends on location though, areas with stronger protections against letting go of permanent employees are the ones where organisations see those same permies as more of a long-term liability. In right-to-work states, for example, it's just as easy to shed either group.

I would assume contractors are first to go. Work moves in house. In house staff gets cut. The remaining staff gets to work on what the contractor did and what the employees that left did. The company is not beholden to contractors as much as they are to their left over employees. Everybody has got to pay bill. The company will usually look out for their employees.

That's always what I've been told. This isn't apple to apples, but I've worked as a government contractor for the past 15 years. In my experience, when money starts to dry up, sub-contractors are the first to go, but sub-contractors who are particularly important get offered positions by the prime contractor. I've also seen across the board pay cuts go out rather than people getting cut, but that rarely ends well (as anyone who knows their worth will immediately start looking elsewhere).

In my experience, contracting has been a leading indicator with both contraction and expansion. Contractors get cut before full-time, but when things are still shaky later, contractors get brought on first before the company is willing to increase full-time headcount.

I got crushed in 2008-2010 when I was freelancer. There simply was no budget for anything in the companies I had worked with.

I am sure there is some business angle for freelancers to do well in a recession but I can't come up with one.

And with this mindset most people will not take any action until the big guys have taken an action. The timing could be the predicted time frame. But it is only too late by then and middle and lower class suffer. Top 1% controls around 40% of America's wealth.

Many banks saw 2008 coming. Now the fundamental reason for this inevitable breakdown was also very lucrative at the same time. This meant every bank would try to stay in the game for as long as possible because quitting too soon would have them fall behind.

In the end you get this game where two or more cars are speeding towards an edge and who breaks first loses.

That would assume everybody can interpret the information correctly and make an unemotional decision regarding their investments. In reality, everyone wants the party to go on indefinitely.

The author said as much himself:

> Yet, I wonder if it is possible to have a recession when so many people expect one. The worst recessions are the ones that people don’t see coming.

My hypothetical ability to predict the future does not mean that you're able to do the same.

That's not what happened ten years ago in many different countries.

Keep in mind that you'll see a corresponding increase in rents as more buyers in a given area hold off on buying. The demand ends up just shifting. That's been the effect in Boulder, CO.

It all comes down to this: If you are looking at housing as an investment, you are buying into a decades long market aberration driven by super low interest rates and government policies.

Otherwise, if you look at it in terms of the specific supply and demand curve in your geographic area, you can better steer your decision making. My area (northwest of Denver, CO near Boulder) has local government policies which have seriously constrained housing supply. That made me choose to buy despite a less favorable macroeconomic landscape to home ownership.

In Palo Alto, we have been seeing softening real estate prices for a month or two. My guess is that sellers are concerned that tech stocks will tank (as they have) and that potential buyers will dry up. I am personally waiting on the sidelines to trade up because I'd rather sell for less and buy for less in order to lock in the lower property tax rates. Most realtors I've spoken with seem to think a pause/dip in Palo Alto area real estate is inevitable in the next 6-12 months, and we're starting to see it already.

Lots of factors in play, you'd need to bet correctly that the recession will actually affect prices that way in your area.

Also, the yield curves just inverted within the last week, and the average time-to-recession from that point is 12 months. So you may want to wait longer than a year.

Or... just buy something and be done with it, as long as it fits your budget and your income is stable, it's just housing and in the long run it'll probably work out fine anyway. Timing the housing market isn't any easier than timing the stock market.

Interest rates rising will lower prices a bit (in the end, a buyer taking out a loan will likely be paying the same, because what ever drops in house prices goes to the bank in interest). I dropped my home's price (undesirable neighborhood) pretty aggressively in the last 6 months before hiring a property manager to rent it out. I would recommend just keeping your eye out for deals. Right now is off peak season (in the US) so you might find someone desperate and get a bargain.

This is where I am right now. On the one hand, waiting allows me to save up more, and put more thought into where exactly I'm buying. On the other hand, waiting for a recession to buy is timing the market which is notoriously difficult to do.

If your area is already a buyers market, then you should just go ahead, and buy some place you like.

Depends on the area. Like here in Portland prices were already way lower than surrounding areas so prices have increased a lot over the last couple years. It's been a shock to people that are in their little bubble and don't realize it's still cheaper than Seattle, SF, LA.

If people here really knew whether or not that was a good idea we would be billionaire rock-star investors. Trying to time the market is a fools errand for most folks.

My Econ game isn't as strong as it used to be, and this is by no means financial advice, just some spitballing...

I'd guess interest rates will rise, hopefully not like they did in the 80s, but I think Trump has been running the economy too hot... meaning inflation and your payments will go up. We want people to save (invest) not spend (consume) to fix this upcoming case (if I understand it correctly). As a result, I doubt lending will freeze since interest rates are likely to rise so getting a loan really shouldn't be too difficult if you've got good credit and a downpayment...

To be honest, I'd say it likely won't matter as recessions of some kind are fairly common and generally relatively benign with even moderately good economic policies. I highly doubt we'll see anything like the 2008 recession...

/shrug

those laws (actually policies, I think) are meant to keep homes and other property from burning, not to encourage forest growth. wildfire suppression is rarely practiced in true wilderness areas in the US

You gather with friends and find solutions together

I think it's interesting to note that those companies were born out of a recession, and their IPOs could mark the end of a boom.

A handful of IPOs won't stave off a recession. (It's entirely possible to cancel an IPO, too.)

If I were a big pre-IPO company, I'd probably want to go IPO before the recession, in order to get operating capital to survive it.

Isn't them rushing to an IPO a signal that they think there will be a downturn?

If you are in the USA and have capital gains look for an opportunity zone investment. Incredible new upside of the Tax Cut and Jobs Act of 2017.

* defer your capital gains that you owe today * pay no capital gains on any returns if you comply with terms of opportunity zone investments (10 year holdup of capital requirement) * earns a 15% discount on your original capital gains taxes owed

Depends on your time horizon. If you have over 20 years before retiring the broad stock market is still likely going to outperform pretty much any other investment but it will be a bumpy ride.

Why would you invest just before a recession? Keep your cash and invest when the market is down.

The bond market, and international stock market are less correlated with US large cap stocks. Historically though you are still better off investing in the S&P 500 or similar, it is virtually impossible to know what the market will start falling and when to sell, or when it is at the bottom and to start buying again. Time in market beats timing the market.

I'm playing the cannabis market right now and i'm bleeding.

not just because of the slow growth of the canna industry, but the fear in Trumps trade wars and volatility in commodities is affecting every asset class.

Honestly, I would keep my hard cold cash. sit on it until the opportunity arises.

If you're investing for the long term, why not just find a spot you're comfortable with on the way down and invest money in an index fund while the market is down? A recession is the perfect time to invest, isn't it?

If you have a good long term strategy you shouldn't be worried about timing the market. I invest in a few ETFs, 80/20 stock to bond ratio, a mix of domestic USA / international.

I probably won't make massive gains but in the long run I'll make ~5% steady.

I think if you value steady returns over wild swings you can do well with Vanguard ETFs - the low overhead offsets the les returns than day trading / active buying and selling

If it were my money, I’d be all in with stocks that have exposure to China trade war fears. When the current strife passes, they’ll rocket back up. I tend to buy the fear and sell the joy (if I sell at all.) But that’s just me.

if you think the market will go down you should short it...

In the spring of 2008 I bought gold. It worked quite fine.

investing should always be based on your age, not market conditions

over 60? lower risk...it may take longer for riskier assets to recover than you have to live

under 30? higher risk...the markets have always done well over a multi-decade timeframe

Into a piece of yellow metal.

Edit. More background on that:

In 2014, after years and years of my parents droning "think about buying a house," I finally decided to teach my parents a lesson, and show them just how bad their investment advice is.

So in the end, I lost around 53 thousand dollars in total from FX, fees, lawyers, drop of property value, and my ability to sleep well at night.

And in 2016, I got kicked out of Canada, as my employer was unable to secure me an LMIA after trying 3 times.

The only thing that prevented me from hitting the bottom was that I was also saving gold since I was 15, when I first bought few crumbs from semi-legal gold prospectors from China.

Agreed. Typical financial market herd psychology BS.

He also said "the worst recessions are when nobody sees them coming" and asks if a recession can happen if everyone is saying it's happening.