Recession and inverse yield

We’re in recession for six months already. Another recession after a brief boom? Or recession is prolonged and severe? Or high unemployment which is usually associated with recession would happen in a few months?

What is a recession? I view it as consecutive two quarter of negative GDP, so is nation measurement. Many things happen in a recession, the academic question is do those things define a recession? Or those things might or might not happen, but usually happen together with recession.

It does not matter when and where it started. If history is correct and if it repeats, the zero day starts now when yield curve inverted. Here is the nice discussion, I share from reddit.

Most of us are fearful of recession because of the possibility of losing our job. If that is not the case, who care whether we’re in recession or recession about to start.

Investors are fearful of recession only because the stock prices would usually decline a lot, if that is not the case, who care whether we’re in recession or recession about to start.

My implicit question was are you saying there would be high unemployment and stock prices would continue to tumble?

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When businesses (small scale, medium and large) are stressed with rate hike, they will reduce expenses to maintain profit or avoiding bankruptcy. It is part of economy. The DOMINO effect is the one which we do not know how deep is.

Regarding stocks prices, it is unpredictable as usual. Big Funds/Banks may have good analysts to forecast the future and they take lead in bearish and bullish drive.

IMHO, we retailer are poor to follow them.

This is just 2020 when Yield curve inverted and when stocks reacted, we never know when and how they do.

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Guess reduce expenses include laying off employees. From what I read so far, those employees find another job easily :slight_smile: There are more jobs than people willing to work :rofl: Caveat, I am not in the job market :blush: so I don’t know the true picture.

When everyone lays off (demand will be reduced) where the jobs will be? It is like 2008 when millions of home on sale, no buyers for six months.

Thanks @Jil. Wonder another possibility is that whenever rate hike happens it just takes time for 10 yr to catch-up.

There’s still 1.8 jobs per unemployed worker.

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Fed wants to induce a recession to make it 1 job per unemployed worker.

That 1.8 number in perspective:

It has been way above pre-Covid level since mid 2021, and is still comfortably higher. We need this number to cool down a bit for the Fed to turn less hawkish. It is a good development.

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Job openings. It’s still way, way higher than pre-Covid trend.

Is USA the only nation that think too many jobs are bad?

Can’t help to think why not get more immigrants and outsource the jobs overseas?

Ofc, long term is to increase productivity.

It’s bad when it causes inflation. We probably should increase immigration of people who have the right skills to fill the jobs.

I am waiting for the recession results. So far there is a shortage of labor. Prices going up. Can’t find trades people. Can’t even get timely service at restaurant. Shortages of everything. Stagflation coming?

It is mostly driven by market, which has big funds/banks etc.

When big funds like Cal Pension fund changes asset allocation from 75% stocks, 25% treasury to 60% stocks and 40% Treasury (all hypothetical ideas), you will see such effect.

See here, when market drowned nicely, 440B California pension funds are having -6.1% (YOY), they hedge, revise asset allocation…etc

Before them, we - retailers - are tiny !

https://news.calpers.ca.gov/calpers-announces-preliminary-net-investment-return-of-6-1-for-the-2021-22-fiscal-year/

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The people running CALPERS are idiots, and they consistently pay higher fees for worse than market returns.

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In my industry everybody is job-hopping for higher salaries making it ridiculously hard for companies to get any work done. Even though valuations have crashed, companies still have to fight tooth and nail for decent talent.

Speaking as a manager, I would very much welcome higher unemployment.

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Fortune: A housing recession is the first step to a Fed-induced recession. Here’s where the housing market goes next

https://archive.ph/9Xg5r

Historically speaking, the Federal Reserve’s inflation fighting playbook always starts with housing. It goes like this. The central bank begins by applying upward pressure on mortgage rates. Not long afterwards, home sales sink and existing home inventory spikes. Then homebuilders begin to cut back. That causes demand for both commodities (like lumber and steel) and durable goods (like windows and refrigerators) to fall. Those economic contractions then quickly spread throughout the rest of the economy and, in theory, help to rein in runaway inflation.

“The most frequent way we enter into recession is the Fed raises rates to fight inflation. The leading indicator for this type of recession is housing,” Bill McBride, author of the economics blog Calculated Risk, tells Fortune. “It [housing] is not the target, but it [housing] is essentially the target.”

We are not in a recession, yet, but we will be in one soon. Fed will most likely over tighten.

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They will over tighten, because they were VERY late to start it. Now they have to over correct. Even Powell said there’s a lag between a rate increase and the impact on the economy. That’s why I think rate increases will stop sooner than most think. Inflation has the potential to unwind VERY quickly given the inventory situation. Companies keep using the “supply chain” excuse for poor sales. Soon, we will see who’s swimming naked and lying about it. Target and Walmart already confessed to having massive inventory levels that need corrected.

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Still debate whether we are in recession or not without defining what is a recession? Obviously we are in a recession! Two quarters of negative GDP = recession regardless of whether the usual effects are present or not.

Market thinks Dec is the last one. Sep 0.5% Nov 0.25% Dec 0.25%. Pause.

Without a recession, he predicts U.S. house prices will remain flat while significantly “overvalued” housing markets, like Boise and Phoenix, could see house prices fall 5% to 10%. If a recession hits, Zandi predicts significantly house prices in “overvalued” markets could fall 15% to 20% and nationally prices could fall 5%.

5-10% price decline considered done. I’m waiting for the 10-15% decline to start buying :money_mouth_face: Current development indicates possible bottom in Oct-Dec.

Based on past history, McBride says, it’s likely we’ll soon see something similar to what occurred during the early 80s. On a nominal basis, he predicts U.S. house prices will be flat over the coming year. In the subsequent years, he expects a period of “stalled” nominal house price growth and falling “real” house prices (i.e. inflation growth minus nominal house price growth). If that occurs, McBride says, we’d see “the fundamentals” return closer to historic norms.

So McBride is saying housing is a bad investment for the next few years. What if rental yields keep up with inflation?