The purpose of this thread is to discuss macroeconomics and the financial markets. It will cater towards longer-term fundamental based traders, but everyone is welcome to participate. 
Self-sufficiency is the greatest of all wealth. - Epicurus
Manufacturing suggest the US is on the verge of recession. Yesterday I shared this chart in another thread:
ISM Manufacturing Export Orders is a leading indicator for ISM Manufacturing and its showing something reminiscent of a recession. Today, Chicago PMI (a leading indicator for ISM PMI) came out well below expectations at 43.2:
ISM comes out tomorrow and it'll probably be pretty bad judging from the above.
ISM Manufacturing Export Orders is a leading indicator for ISM Manufacturing and its showing something reminiscent of a recession. Today, Chicago PMI (a leading indicator for ISM PMI) came out well below expectations at 43.2:
ISM comes out tomorrow and it'll probably be pretty bad judging from the above.
Self-sufficiency is the greatest of all wealth. - Epicurus
- #5
- Edited 11:03am Nov 1, 2019 9:28am | Edited 11:03am
- Joined Feb 2016 | Status: Trader | 1,018 Posts
Unfortunately, I am not at liberty to disclose - due to signing an NDA. But it's related to related to risk and growth The issue with indicators they are just that and there are many things that drive the S&P But there are other indicators/data that I can talk about that are very useful. Obviously, yield curves (inversion) being one. These have been discussed elsewhere that have been used to predict recessions Looking at these directly; 3M and 10y - inverted for 5 months this year with the exception of about two weeks in July 3M and 5y has been...
You make a good point about Trump and trying to avoid a recession. As it stands the US is already forecast to add a lot of fiscal stimulus next year so that could push back a recession. Right now my base case is recession, but I'm going to have to try to disprove it and this will be one factor I look at.
Also, totally understood on the NDA. I wouldn't say anything under those circumstances either.
Self-sufficiency is the greatest of all wealth. - Epicurus
{quote} Hi EF5 According to the chap that discovered the yield curve inversion in 1986 he has said that its 7/7 in the US. I believe he was looking at the 3mth -10 year curve as opposed to the 2s10s that is more commonly used. Looking at the Feds position there is talk of QE lite and that it is the expansion of the balance sheet that has got traders attention. In respect of the dollar index - its looks as though a further drop is not out of the question. This could make US equities more attractive Obviously, timing of the recession is an issue but...
The 3m-10y curve first inverted on March 22nd, 2019 so based on the above chart our recession could start anywhere between September 2019 and August 2020. That's broadly in-line with what I'm expecting.
Self-sufficiency is the greatest of all wealth. - Epicurus
I've shared this elsewhere before, but housing is a leading indicator of the economy and it's remarkable how well everything has fallen into place since the housing peak.
(source)
It's no sure thing that we get a recession next year, but the stars seem to be aligning for it. This is my base case and when I get some time I'll attempt to disprove it. (Failing to disprove is more effective than attempting to prove.)
(source)
It's no sure thing that we get a recession next year, but the stars seem to be aligning for it. This is my base case and when I get some time I'll attempt to disprove it. (Failing to disprove is more effective than attempting to prove.)
Self-sufficiency is the greatest of all wealth. - Epicurus
- #14
- Edited 12:34am Nov 6, 2019 12:22am | Edited 12:34am
Hypothesis: A global recession will start by the end of June 2020.
Supporting Evidence
1. The Yield Curve inverted in 2019 which preceded all modern recessions.
2. Initial Jobless Claims have stopped declining.
3. Job Openings have trended lower.
4. ISM Manufacturing PMI is below 50.
5. The VIX bottomed in 2017.
6. Existing Home Sales peaked in 2017.
Contradictory Evidence
1. ISM Services PMI is doing relatively well. (Services represents a much larger share of the economy than Manufacturing.)
2. Heavy Weight Truck sales haven't turned down.
3. TED Spread isn't indicating any financial stress.
4. New Home Sales have recently hit new cyclical highs.
Reasons I may be wrong
Supporting Evidence
1. The Yield Curve inverted in 2019 which preceded all modern recessions.
2. Initial Jobless Claims have stopped declining.
3. Job Openings have trended lower.
4. ISM Manufacturing PMI is below 50.
5. The VIX bottomed in 2017.
6. Existing Home Sales peaked in 2017.
Contradictory Evidence
1. ISM Services PMI is doing relatively well. (Services represents a much larger share of the economy than Manufacturing.)
2. Heavy Weight Truck sales haven't turned down.
3. TED Spread isn't indicating any financial stress.
4. New Home Sales have recently hit new cyclical highs.
Reasons I may be wrong
- There is no solid case for a recession. There's no housing bubble or tech bubble about to collapse this time so what's the trigger? Does there need to be a trigger?
- Fed has cut the target Fed Funds Rate 3x and started QE lite.
- The US is expected to provide a fiscal stimulus in the near future.
- 2020 is an election year and Trump may do whatever it takes to postpone a recession.
- Housing may provide an economic tailwind if it makes a new leg higher. Higher prices could come as a result of lower mortgage rates.
In future posts, I'll explore the reasons I could be wrong in more detail.
Self-sufficiency is the greatest of all wealth. - Epicurus
- #15
- Nov 6, 2019 1:09am Nov 6, 2019 1:09am
- Joined May 2019 | Status: iTrade | 1,838 Posts
Great thread Ef5.
There is no solid case for a recession. But there's no solid case for continued growth either. The trend of the data is pointing to a slowdown. It's been a little overshadowed because of Germany and China's issues. The slowdowns elsewhere may be a little deeper than in the US. Maybe we don't go into a recession. But we are long overdue for a correction. 
Reasons I may be wrong
- There is no solid case for a recession. There's no housing bubble or tech bubble about to collapse this time so what's the trigger? Does there need to be a trigger?
- Fed has cut the target Fed Funds Rate 3x and started QE lite.
- The US is expected to provide a fiscal stimulus in the near future.
- 2020 is an election year and Trump may do whatever it takes to postpone a recession.
- Housing may provide an economic tailwind if it makes a new leg higher. Higher prices could come as a result of lower mortgage
...
- The stock buyback programs have inflated the heck out of the stock market. 20 years ago companies used to spend on research and development. Now, it's all about how much money they can pump back into the stock, increase the stock price, and secure the CEOs job.
- The Fed hasn't left much room if we do need to cut rates aggressively. This could greatly exacerbate a downturn. If QE ever becomes the main instrument or tool the Fed uses to calm markets, we may be headed towards a liquidity trap.
- Housing isn't going to come down like it did in the last recession. The wealth effect is too important to maintain because of how dependent our economy is on consumers feeling they have the money to spend, and keep spending.
- It's the stock market that's going to see a pretty drastic correction. I'm not sure when. These rate cuts could push it back. It's amazing to me that there's investors, money managers, etc that have 10+ years experience and have never experienced a correction. A lot of them probably don't believe it's coming. The rest have no idea what they're in for.
One thing I noticed after what seemed like some 'irrational exuberance' after today's ISM Non-Manufacturing PMI was the trend of the data. The highs keep getting lower and it's looking like we are trending towards contraction numbers.
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Great thread Ef5.
There is no solid case for a recession. But there's no solid case for continued growth either.
One thing I noticed after what seemed like some 'irrational exuberance' after today's ISM Non-Manufacturing PMI was the trend of the data. The highs keep getting lower and it's looking like we are trending towards contraction numbers. {image}
Self-sufficiency is the greatest of all wealth. - Epicurus
In economics, something called a "liquidity trap" was first imagined by a bloke whose name was Keynes. Much of his stuff has been utterly misused and misunderstood. Not for discussion. What he did say was "There is the possibility...that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest....
You make a great point about a liquidity trap, but I'm more optimistic about the potential of monetary policy even at zero interest rates. Something Bernanke said has always stuck with me:
...money issuance must affect prices, else printing money will create infinite purchasing power. Suppose the Bank of Japan prints yen and uses them to acquire foreign assets. If the yen did not depreciate as a result, and if there were no reciprocal demand for Japanese goods or assets (which would drive up domestic prices), what in principle would prevent the BOJ from acquiring infinite quantities of foreign assets, leaving foreigners nothing to hold but idle yen balances? Obviously this will not happen in equilibrium. One reason it will not happen is the principle of portfolio balance: Because yen balances are not perfect substitutes for all other types of real and financial assets, foreigners will not greatly increase their holdings of yen unless the yen depreciates, increasing the expected return on yen assets.
Basically, monetary policy has to be effective because the alternative is central banks could buy every asset in the world. Instead, enough QE will create inflation and inflation alone can boost the economy through increased profits on inventories, reduction of the real value of debt, the wealth effect, and an increased urgency to spend by the public.
Self-sufficiency is the greatest of all wealth. - Epicurus