The Most Reliable Recession Indicator of the Past 50 Years Has Started Blaring(slate.com)
slate.com
The Most Reliable Recession Indicator of the Past 50 Years Has Started Blaring
https://slate.com/business/2019/07/yield-curve-bond-market-recession.html
16 comments
This post is a good example of the kind of arrogance you find on this site- it's fittingly the top post as of right now. Yes, economics is not a "hard science" and that's OK. Neither are plenty of other respectable fields such as history, sociology, etc. It's disingenuous and arrogant to proclaim that any field that is not a hard science is akin to reading tea leaves.
I’m as happy as anyone to grant that economics is not a hard science.
But saying our only explanation for this predictor is “the market thinks” seems pretty off base.
- Yields are based on demand
- Yield inversion indicates heightened demand for long term safe stores of value, reduced demand for short term stores of value
- This pattern maps well to our understanding of investor psychology
- Recessions generally happen when investors are gloomy about short to medium term prospects, leading to a reduction in investment, leading to a reduction in aggregate demand
But saying our only explanation for this predictor is “the market thinks” seems pretty off base.
- Yields are based on demand
- Yield inversion indicates heightened demand for long term safe stores of value, reduced demand for short term stores of value
- This pattern maps well to our understanding of investor psychology
- Recessions generally happen when investors are gloomy about short to medium term prospects, leading to a reduction in investment, leading to a reduction in aggregate demand
Your reasoning sounds really seductive, which is on point for economics. The next step is actually giving solid reasoning (preferably backed by hard evidence - this means numbers) for why this is the truth and not some other equally seductive line of reasoning. Without this, you're just reading tea leaves and explaining them well.
Early age CS, math, science enthusiast here that left undergraduate with 3 classes left.
I have no respect for what passes as university education. Obfuscation and book burning is the MO - and it is most prevalent in these 'economics' classes (hint: always read the original works+history for your math classes) . Econ is not science or math - don't dare conflate the dogmas of modern science (or the copy errors of your mathematics curriculum) with the utter nonsense of university economics. It is pure gaslighting dogma of inconsistent and erroneous dogma. The courses serve nothing more than to demonstrate how not to build a model and how improper definitions and first principles lead to nonsense. This is the crown jewl of post modernist institutions:
1 Comoditize and sell shitty models. 2 rigorous tests to see if you remembered erroneous definitions and concepts. 3 refuse to acknowledge inconvenient evidence 4 worship figures that engage in plagerism and open dishonesty. 5 hide the true power in upper level math courses after brainwashing population to despise math. Bonus points if public university endorses purposefully confusing high school curriculum. 6 distract from the fact that real science is a constructive discipline - like CS without the cargo culting. Remove constructive math from high school and erroneously claim foundational texts such as Euclid's elements are obsolete. Back up said claims with dishonest translations. Don't forget to memorize the periodic table without question or further discussion. Define stupid shit like Electrons are point particles and make up some cloud bullshit. Always confuse territory and maps.
Edit: claim that the dragon book is obsolete. Never expose students to it's insights into logic, modeling, and language. + Attempt to have a discussion on economics without understanding banking and government. It's like trying to have a discussion of CS without discussing binary or other bases.
1 Comoditize and sell shitty models. 2 rigorous tests to see if you remembered erroneous definitions and concepts. 3 refuse to acknowledge inconvenient evidence 4 worship figures that engage in plagerism and open dishonesty. 5 hide the true power in upper level math courses after brainwashing population to despise math. Bonus points if public university endorses purposefully confusing high school curriculum. 6 distract from the fact that real science is a constructive discipline - like CS without the cargo culting. Remove constructive math from high school and erroneously claim foundational texts such as Euclid's elements are obsolete. Back up said claims with dishonest translations. Don't forget to memorize the periodic table without question or further discussion. Define stupid shit like Electrons are point particles and make up some cloud bullshit. Always confuse territory and maps.
Edit: claim that the dragon book is obsolete. Never expose students to it's insights into logic, modeling, and language. + Attempt to have a discussion on economics without understanding banking and government. It's like trying to have a discussion of CS without discussing binary or other bases.
"As of this week, the U.S. Treasury yield curve has now been inverted for a full quarter"
Just in case you don't want to be clickbaited.
Just in case you don't want to be clickbaited.
I am surprised the inverted yield is not the natural state of affairs. In the options world, short expiry contracts pay a higher premium than long term contracts. Long term loans are like wholesale as short term loans are to retail. Shouldn’t short term interest rates be higher ?
Man, The Indicator is going to go nuts.
Seriously though, this boom has been interesting for me - because I don't feel like there's been a huge psychology feeling of "Times are really good". It still feels like we're being squeezed - which doesn't make me think we're at the peak of a bubble. But then you look at IPOs and the stock market and some of the more egregious examples of bubble style valuations (WeWork for example) maybe this recession is more focused on the stock market and less far reaching than the last one (as far as it can be). It'll be really interesting to see whether the deficit comes back as a topic in the US.
Seriously though, this boom has been interesting for me - because I don't feel like there's been a huge psychology feeling of "Times are really good". It still feels like we're being squeezed - which doesn't make me think we're at the peak of a bubble. But then you look at IPOs and the stock market and some of the more egregious examples of bubble style valuations (WeWork for example) maybe this recession is more focused on the stock market and less far reaching than the last one (as far as it can be). It'll be really interesting to see whether the deficit comes back as a topic in the US.
Not so positive other things to think about.
Auto loan defaults are near record and are bundled similar t mortgages in 2007.
Student loan debt is at record high with stagnant wages over the last 10 years.
Personal loan and mortgage debt is similar to 2007.
Stock buybacks and allocation of capital away from workers is spiking after the 2017 tax cuts.
Plus, those tax cuts are counter to some schools of thought on raising taxes in a good economic period to pay back the last or save for the next economic downturn. All this with increasing spending and record increases in the deficit. The deficit has become a left wing talking point no as previous deficit hawks have walked or are no longer the opposition party.
Auto loan defaults are near record and are bundled similar t mortgages in 2007.
Student loan debt is at record high with stagnant wages over the last 10 years.
Personal loan and mortgage debt is similar to 2007.
Stock buybacks and allocation of capital away from workers is spiking after the 2017 tax cuts.
Plus, those tax cuts are counter to some schools of thought on raising taxes in a good economic period to pay back the last or save for the next economic downturn. All this with increasing spending and record increases in the deficit. The deficit has become a left wing talking point no as previous deficit hawks have walked or are no longer the opposition party.
I believe global economies have fundamentally changed post GFC, so previous indicators may no longer be relevant. Interest rates have already gone below historic levels so it's not clear how economies will be turned-around. One of the few suggestions I've seen is https://www.smh.com.au/business/markets/the-world-needs-shoc...
This is one of the strongest arguments for a higher inflation target. Wealth concentration and an older population have driven interest rates down to the point where the natural nominal interest rate in goods time is near 0, and almost certainly sub zero for any type of recession.
A higher inflation target(3-4%) gives centrals banks the much needed wiggle room to correct a recession. Unfortunately once you're in a recession it's too late to adjust the inflation rate.
A higher inflation target(3-4%) gives centrals banks the much needed wiggle room to correct a recession. Unfortunately once you're in a recession it's too late to adjust the inflation rate.
The news is that consumers are running out of money. That can be called a market warning if you like, but it is pretty damn obvious without a new economic analysis.
I see way more worrying signs with much more immediate real world effects. All suggest the coming of the prophesized "long winter" in the tech industry:
1. PCB makers deferring new equipment installation: https://www.digitimes.com/news/a20190702PD205.html
2. Highlights of the day: Semiconductor inventory piling up: https://www.digitimes.com/news/a20190626VL202.html
3. Chipmakers likely to post disappointing 2H19 results: https://www.digitimes.com/news/a20190702PD203.html
This was for long talked about by economists in the "Big Semi," and I tend to trust those guys. The semiconductor industry employs very serious economists.
1. PCB makers deferring new equipment installation: https://www.digitimes.com/news/a20190702PD205.html
2. Highlights of the day: Semiconductor inventory piling up: https://www.digitimes.com/news/a20190626VL202.html
3. Chipmakers likely to post disappointing 2H19 results: https://www.digitimes.com/news/a20190702PD203.html
This was for long talked about by economists in the "Big Semi," and I tend to trust those guys. The semiconductor industry employs very serious economists.
The first article mentions specifically weaker sales for smartphones (as well as US/China tensions) as the culprit. Makes sense that this industry is underperforming no? The (high-end) smart phone market has become saturated, and there is no need to buy smart phones anywhere near as quickly as phone manufacturers want us to, and especially not at flagship phone prices.
Seems more the case of market saturation than signs of a recession.
> However, network communication- and server-related applications are likely to continue seeing growths, Lee added.
Other markets seem to be doing just dandy
Seems more the case of market saturation than signs of a recession.
> However, network communication- and server-related applications are likely to continue seeing growths, Lee added.
Other markets seem to be doing just dandy
So what is the difference between saturation and recession? To me it seems like you're going to invest and pile on until you hit saturation, in which case you have to cut back because the demand isn't there. That cut back is recession (for that market), no?
Articles like this will be followed by "This time, it's different" articles. Here's one.
https://www.ocregister.com/2019/07/03/inverted-yield-curve-a...
https://www.ocregister.com/2019/07/03/inverted-yield-curve-a...
They should probably go back to reading tea leaves, or ask octopusos to choose a box like they do in football. They’ll be more honest.
Europe is seeing negative interest rates for months now, which is supposed to be an anomaly. And there’s still no inflation, which is also abnormal with those interest rates. New monetary theory explains that debt doesn’t matter, and an internet company with 2 billion users is launching its official currency together with visa.
I think now would be a good time for people in the field to start to be honest with themselves and publicly declare what in their work is science, and what isn’t.