The Tenth Man

In Search Of Divergence And Anomalies In Capital Markets

Meltdown Alert

17 October 2018

https://www.bloomberg.com/news/articles/2018-09-13/jpmorgan-sees-liquidity-wildcard-in-gauging-depth-of-next-crisis?utm_content=business&utm_source=facebook&utm_medium=social&utm_campaign=socialflow-organic&cmpid=socialflow-facebook-business

8 October 2018

5 October 2018

Economists predict a 2020 recession; don’t take it as gospel

Economists historically have had a terrible record of accomplishment in predicting recessions. This could be due in large part to the conflicting signals that oftentimes accompany an economic peak. For this reason alone, we should be circumspect about a 2020 recession. Lately, the profession has become more pessimistic.

According to a recent National Association of Business Economists (NABE) survey, two-thirds of economists queried expect the onset of recession by the end of 2020. The cause? The most prevalent downside risk cited was international trade, where 41 percent of forecasters worried that the U.S.-China bilateral retaliation could cause a recession.

What is second? It is the actions taken by the Federal Reserve, but, here, it only accounted for 18 percent of the worries. There are many other possible downside scenarios, such as a hard landing in China, but NABE did not highlight them. So is the economists’ consensus right?

The Treasury yield curve is telling us yes because it is on track to invert within the next quarter or two, and after that happens, a 2020 recession is a real possibility. After all, the yield curve has a relatively unblemished track record forecasting recessions. The yield curve may soon be on the same side as the consensus of economists.

However, there are a couple of other factors for investors to consider. For starters, recessions typically do not occur when nearly everyone expects them. This is largely due to psychology. Business cycles often end after periods of excessive optimism created during an expansion.

If, however, individuals and businesses are more cautious in their investing and spending plans, it is likelier the economic cycle lasts longer.

The fact that cumulative real GDP growth on a per capita basis has massively lagged previous business cycles tells us that households and firms have not been overly optimistic in their economic and financial decision-making. If they were, we would have experienced faster growth over this expansion.

Then there is the aforementioned ability of economists to predict economic turning points. It is not very good. This is evident from the Anxious Index, a series created by the Philadelphia Fed that measures economists’ probability of a contraction in real GDP in the ensuing quarter. Collectively, economists simply do not know when the economy is going to shrink.

In the last business cycle, only 17 percent of economists were “anxious” about negative GDP in the fourth quarter of 2007, which happened to mark the peak in the economy. The recession began in the first quarter of 2008.

Then, in the third quarter of 2008, when Lehman Brothers went bankrupt, only 47 percent of economists thought growth would be negative the next quarter. That was not a very prescient call considering the fact that growth fell at a stunning 8-percent annualized rate. This actually leads to our final point.

If consensus of economists does not know with much certainly if the economy is going to decline in the next quarter, how can they possibly know what is going to happen two years from now. They cannot.

https://thehill.com/opinion/finance/410073-economists-predict-a-2020-recession-dont-take-it-as-gospel

3 October 2018

Two-thirds of business economists in the U.S. expect a recession to begin by the end of 2020, while a plurality of respondents say trade policy is the greatest risk to the expansion, according to a new survey.

About 10 percent see the next contraction starting in 2019, 56 percent say 2020 and 33 percent said 2021 or later, according to the Aug. 28-Sept. 17 poll of 51 forecasters issued by the National Association for Business Economics on Monday.

Forty-one percent said the biggest downside risk was trade policy, followed by 18 percent of respondents citing higher interest rates and the same share saying it would be a substantial stock-market decline or volatility.

https://www.bloomberg.com/news/articles/2018-10-01/two-thirds-of-u-s-business-economists-see-recession-by-end-2020

30 September 2018

GOOGLE Trend – increasing worldwide interest over the term “Recession”

Google_Recession_30092019.png

27 September 2018

US recession in 2020, warns Zurich Insurance

Guy Miller, chief market strategist and head of macroeconomics at Zurich Insurance, thinks a US recession will come in 2020 due to a lack of spare capacity. Miller says in this late-cycle phase US markets will continue to do reasonably well, along with emerging markets, especially China, which he argues is now attractively valued.

Many experts are forecasting a recession in less than two years, including Guy Miller, chief market strategist and head of macroeconomics at Zurich Insurance, who told IGTV’s Victoria Scholar that he believes a US downturn will hit in 2020, due to a lack of spare capacity. He says that in this late-cycle phase, the country’s markets will continue to do reasonably well, along with emerging markets (EMs). He also argues that China is now attractively valued and in the medium term is unlikely to have a hard landing. However, the US-Sino trade tensions could last a lot longer than previously thought.

When looking for warning signs, many analysts look to the bond market, in particular the US treasury yield curve. An inverted slope with 10-year yields falling below 2-year yields is a phenomenon that has preceded previous recessions. However, while the curve has certainly been flattening, it is yet to fully invert. IG’s chief market analyst, Chris Beauchamp, points out that ‘on average the yield curve inverts 19 months before the next recession. We still do not see any warnings signs of a near-term recession. We’re not even in the amber stage of warning’.

Elsewhere, the tit-for-tat global trade spat initiated by US President Donald Trump’s administration, along with its steer towards protectionism has raised questions about the impact of US politics on global growth. The Organisation for Economic Co-Operation and Development’s (OECD’s) chief economist Laurence Boone warned that ‘uncertainty created by rising protectionism is a danger for investment and productivity looking forward’.

Beyond this, investors are closely watching the US Federal Reserve (Fed), which has been on a rate hiking path for three years. This has prompted questions about the risks of a recession induced by a central bank, if monetary policy is tightening too quickly.

https://www.ig.com/au/trading-opportunities/us-recession-in-2020–warns-zurich-insurance-180927

16 September 2018

Next global financial crisis will strike in 2020, warns investment bank JP Morgan

Global meltdown could be sparked by automated trading systems, according to analysts 

Analysts say the recession in two years’ time will be less damaging than the 2008 crash, which saw markets plunge worldwide and has been described as the worst in history.

It is predicted that US shares could drop by 20 per cent, well below the 54 per cent tumble in the S&P 500 index a decade ago.

https://www.independent.co.uk/news/business/news/next-financial-crisis-2020-recession-world-markets-jpmorgan-a8540341.html

13 September 2018

US ‘set for RECESSION by 2020’ warns hedge fund chief – ‘It will be WORSE than 2008 crash’

A BILLIONAIRE hedge fund chief has warned the United States is highly likely to plunge into recession over the next two years.

Ray Dalio, who heads-up the $150 billion Bridgewater Associates hedge fund, warned that this latest economic downturn could be even more devastating than the world crash of 2008.

He told news agency Bloomberg that the likelihood of a recession in the United States by late 2020 was very high.

Mr Dalio said: ”In two years, the time will come to start to worry. It will be more of a dollar crisis than a debt crisis and I think it will become more of a political and social crisis.”

https://www.express.co.uk/news/world/1017295/us-economy-recession-2008-economic-crash-ray-dalio-hedge-fund

4 September 2018

JP Morgan’s top quant warns next crisis to have flash crashes and social unrest not seen in 50 years

  • J.P. Morgan’s top quant, Marko Kolanovic, predicts a “Great Liquidity Crisis” will hit financial markets, marked by flash crashes in stock prices and social unrest.
  • The trillion-dollar shift to passive investments, computerized trading strategies and electronic trading desks will exacerbate sudden, severe stock drops, Kolanovic said.
  • Central banks will be forced to make unprecedented moves, including direct purchases of equities, or there could even be negative income taxes.
  • Timing of when this next crisis will occur is uncertain but markets appear to be safe through the first half of 2019, he said.

https://www.cnbc.com/2018/09/04/jpmorgan-says-next-crisis-will-feature-flash-crashes-and-social-unrest.html

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