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Recession on the horizon?

Hello everyone!

So, everyone at work seems to be pretending to be an economist lately, saying they are all waiting for the stock market “bubble” to burst and the US to enter a recession. I want to get peoples thoughts from this forum, thoughts from people who might actually be aware, or have information to back up their argument.

Are you moving your investments to more defensive companies, or investing aggressively and taking advantage while you can?

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If you put all your money in stocks at the height of the 2007 stock market and held onto your position until today, you still would have doubled your money in 10 years. There is always a possibility that some unforeseen event might trigger a market downturn at any time. However, any gains you might have from trying to predict the timing of this downturn will likely not justify the opportunity cost of not using your capital in the mean time.

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- Everyone

dont worry about recession if you have high quality companies with wide moats that generate high cash flows

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How is it a bubble when literally everyone says it’s overvalued? I echo Ohai point. I’m a long term investor, so I’m not concerned. I do allocate to countries that are relatively cheaper passively outside my retirement, but that is because I believe in the mean reversion of country valuations. Historically cheaply valued countries outperform 

markets are cyclical yes? http://multpl.com/shiller-pe/

there you go. lol.

its overvalued.

short term rates are expected to rise ~75bps/year. long term rates are surprisingly falling. yield curve getting flatter, in 3 years assuming just short term rates rise, ****’ll be inverted. anyways if rates rise, ppl will shift to risk free assets, but yes interest rates are still abnormally low. 

I love my cheese. I got to have my cheddar.

Couldn’t Schiller PE also decline when earnings increase?

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

as BS would say, sell cyclicals when PE is low and buy when its high.

factcheck can we get a factcheck here please

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RIP

ohai wrote:

Couldn’t Schiller PE also decline when earnings increase?

Yes. GAAP rules have also changed over time, impacting the comparability to historical periods. Last I heard Schiller was attempting to make a new index that adjusts for that 

i think now is the time to make sure your asset allocation is proper. if you’ve drifted to 90% equity over the past nine years but you should really be at 60/40, rebalance.

a near term recession or market crash is unlikely given US ISM Manufacturing just came in at a 13 year high. maybe a recession will start 9-12 months from now but as it stands, we’re firing on all cylinders. you could see a 5-10% pullback while the economy is roaring but it would be historic to see a market crash while the economy is roaring.

sort of agree with mla, i think you should be at proper balance at the maximum, but you can go more defensive if you want. there is no point in being greedy right now, if you were greedy at the market bottom, you are close to tripling your ****.

ism is bad when peaking, just fyi. so the fact thats its a 13 yr high is bad.

https://goodfinancialcents.com/when-leading-stock-market-indicators-...

https://advisorperspectives.com/dshort/updates/2017/10/02/ism-manufa...

economy and earnings are no longer correlated. earnings more important. and earnings have done pretty well since 2016, but price increase increased a lot more. so valuations have crept up.  

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Ea...

I love my cheese. I got to have my cheddar.

Yea, it’s like the what goes up must come down. As you all know trying to predict when the market will pull back/crash will drive anyone crazy. What I think is a good idea is allocating some capital to non-cyclical stocks that have a low downside risk. If you can’t afford to lose your capital then have a cash position as well. As was said if you held through the last bubble you would still be up so it isn’t the end of the world if the market crashes, but it would be awesome if you didn’t faceplant during that time. For me, I  traded some of my upside potential for companies that can weather the storm of a market crash.

Nerdyblop wrote:

sort of agree with mla, i think you should be at proper balance at the maximum, but you can go more defensive if you want. there is no point in being greedy right now, if you were greedy at the market bottom, you are close to tripling your ****.

ism is bad when peaking, just fyi. so the fact thats its a 13 yr high is bad.

https://goodfinancialcents.com/when-leading-stock-market-indicators-...

https://advisorperspectives.com/dshort/updates/2017/10/02/ism-manufa...

economy and earnings are no longer correlated. earnings more important. and earnings have done pretty well since 2016, but price increase increased a lot more. so valuations have crept up.  

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Ea...

the article you posted as evidence that the ism being high is bad was posted in April 2010. not the best indicator clearly. ism peaks don’t indicate market crashes, they indicate weak markets ahead. but what is a peak? maybe we go 10% higher on the ism before peaking. can’t tell at this point.

the best indicator for recession is the stock prices of TSM, INTC and MU. when the semi purchases or purchase outlook falls, true business spending on somewhat discretionary purchases is likely falling and the business outlook is likely deteriorating.

Looking at the market that way, no wonder many bears are throwing in the towel. For the first time, money managers who rank as the most skeptical in a weekly survey by the National Association of Active Investment Managers also report being almost fully invested in stocks, according to Bloomberg News’ Lu Wang. Normally, the least bullish rung in the survey contains a bunch of managers who are short the market, but last month they were 90 percent long. Elsewhere, a quantitative model developed by Morgan Stanley shows hedge funds are more optimistic on stocks than at any time since the global financial crisis, Wang reports.

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RIP

“Bear market managers”. All these guys do is make money selling earthquake insurance after it has already happened.

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

A poem inspired by this thread:

They said the market was sure to crash,

That people would lose all there cash,

Why can’t we stop this wild ride,

It seems we need to look deeper within.

And once the people have learned a soul is worth more than the almighty doller they will stomp their feet and start to yell, for the time wasted never to return.

I suspect that frankybarnes is Palantir.
-JBrowntown

Claim: Doxxing soapbox from liberal who begged AF to help remove online presence ironic.
TRUE
- FactCheck

Palantir ...resurfaced as frankybarnes. Sad!
-ohai

Forget recession, I think this is near the all time high, right before everyone flees, the end of America and the S&P500. They know it’s over, that’s why they are so desperate to keep it propped up for this one last run. 

pa what do you think about the chinese gov taking a piece of some corporations. good/bad?

"You want a quote? Haven’t I written enough already???"

RIP

"You want a quote? Haven’t I written enough already???"

RIP

purealpha wrote:

Forget recession, I think this is near the all time high, right before everyone flees, the end of America and the S&P500. They know it’s over, that’s why they are so desperate to keep it propped up for this one last run. 

Alphie- What’s the S&P 500 going to run to before it crashes?  Call a number, and I’ll give you an additional “150-point buffer” – and a chance to destroy all those you doubt you.

#LikeMyself

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RIP

StageRight wrote:

So, everyone at work seems to be pretending to be an economist lately, saying they are all waiting for the stock market “bubble” to burst and the US to enter a recession.

We’ve had similar thoughts that a recession is right around the corner.  In late 2015 / early 2016, the US essentially experienced a corporate recession while the market tanked on oil and China fears.  We thought then that things would start to get really interesting and some great buying opportunities would emerge.  It did sort of for the public markets, which are up nearly 40% since Feb 2016 lows.  It’s hard pill to swallow knowing that we missed a substantial run in the equity markets.  However, valuations then and now look quite expensive.  Private market valuations also really didn’t budge so we weren’t really ready to jump in.

You can thank central banks across the globe for propping up asset prices and staving off a more meaningful correction.  BoJ is the #1 equity shareholder across many large Japanese firms now.  ECB’s corporate bond binge.  The Fed still being fairly accommodative.  Despite all the rhetoric of cracking down on leverage, China’s central bank continues to inject liquidity into the system.

That all said, it’s hard to see where the distress will come from.  Leverage hasn’t reached the dizzying heights of 2007 (though it is creeping up and underwriting standards are loosening; some sectors actually have higher financial leverage than before such as Energy and Utilities) and the economy is growing.  Probably the biggest near-term risk is an unexpected spike in interest rates.  I would pin a potential default wave from soaring Chinese debt as the next biggest potential shoe to drop.  

It’s really difficult to time these things though.  However, what you can do is not overpay for assets.  As such, I’m mainly looking at idiosyncratic ideas where the risk is limited and I’m not paying a premium.

I don’t have much conviction on it, but I suspect the 60/40 allocation is going to be awful. I’m much more comfortable being long equities. If you want to talk about overdue bear markets, bonds certainly have had quite the run for quite some time. Owning the actual bonds is probably OK, but being exposed to anything that has to meet liquidity requirements of withdraws could be a nightmare 

were there bond etfs in 2007, wonder how they did.

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oh yea. im curious. how did they do? i was still in hs. were there liquidity issues?

I love my cheese. I got to have my cheddar.

depends on what kind of bonds you’re talking about. HY, prefs and floaters got killed because they are risky assets. govies did very well. IG acted crazy because we thought the financial world was collapsing and that many IG companies were potentially insolvent. that quickly changed and IG got bid up over time. so in sum, bonds that act as a true portfolio anchor (govies) and risky assets acted as expected. IG was a little different than expected but not crazy compared to other market collapses. no liquidity issues in particular. risky assets were in freefall and i think the ETFs tracked that freefall fairly well.

there is no such thing as a bond bubble wrt to interest rates. anything with a maturity cannot be in a bubble wrt to interest rates. you have certainty of principle and you are making a bet of YTM which is certain, versus inflation, which is unknown. you can say that credit spreads are too thin and there is a bubble in risky bonds, similar to a bubble in other risky assets like stocks, but saying bonds are in a bubble because rates are low and you think they’re going to go up doesn’t make sense. i can get 2.5% guaranteed over 1 year versus inflation at less than 2%. how is this a bubble? unless we see an insane spike in inflation, it’s a guaranteed real return over a short period of time.

don’t let the bond “bubble” mantra make you take too much equity risk. govies and CDs remain effective in a portfolio.

What about an Auto ABS Credit Event? Record number of loans are in default, record number of cars also coming off leases. In regards to the US Economy itself? It’s only strengthening from here. Would need some type of Black Swan event. As mentioned in this thread, opportunity cost of holding cash and waiting probably would result in you missing out on further gains. 

hashtag wrote:

purealpha wrote:

Forget recession, I think this is near the all time high, right before everyone flees, the end of America and the S&P500. They know it’s over, that’s why they are so desperate to keep it propped up for this one last run. 

Alphie- What’s the S&P 500 going to run to before it crashes?  Call a number…

The US will try to pump themselves up to a zillion, cause they know this is the last bull market. 

Hella long A-shares and loving it. laugh

I’m not selling because I suck at timing these peaks and troughs. I’m ok with a modest average return over a long period. As long as it beats leaving my cash under the mattress.

Agreed. I plan on cost averaging monthly over the next 30 years.

Hey Hamilton, have a holly jolly Christmas.

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RIP

I think there is a sideways move coming, flat for 10-30 years. Dollar cost average into THAT suckers! laugh