Market Sentiment - Recession Length

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I'm not selling. I sell once a year in January as always - :)
 
I have no idea or comment on the OP.

What I do find interesting is that, like almost everything else out there, we can't seem to even agree on something where the definition is clearly unambiguous. We seem to now live in a world where we are swamped with information yet no one can agree on what the facts are.

Our opinions have become our own personal facts.

Sorry, my 2 cents. Two Marts in.
 
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I think the recession IS coming - probably official end of this quarter (2nd quarter of negative growth) AND I think it's gonna be deep because we haven't rung out the various excesses of the past several years (and especially the helicopter money of the past two years) for a very long time. Finally, with all the things that are wrong, I believe the key is energy costs. Until that's shaken out (likely by a deep recession) we won't get back to anything like normal.

What do I base this on - nothing more than my gut - and having gone through it big-time back in the 70s/80s. I HOPE I am wrong.

Place your bets 'cause YMMV.
 
daylatedollarshort said:
The Fed has been saying they may take interest rates into "restrictive territory", which means restricting economic growth. Is that another way of saying recession? I looked up the definitions of recession and "restrictive territory" and they looked pretty similar.
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I think what the Fed means there is rates that are high enough to slow down the economy and get inflation to fall. An economy that goes from "a lot" of growth to "a bit" of growth is slowing, but not necessarily contracting, which is what I understand as the usual definition of a recession. As an analogy, applying the brakes will slow a car down, but depending on what the engine is doing and whether the car is going downhill, it may not stop it or put it into reverse.

daylatedollarshort said:
That is really the elephant in the room, isn't it? Volker took interest rates to 4% above inflation to finally get it to end. That is a huge spread from where we are now. Interesting times.
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I think the history is a bit different between then and now. From my trying to educate myself on the history of inflation about a year ago now, Volker was dealing with entrenched and probably higher inflation that had been building (and shoved under the rug) for 20 or 30 years. Powell and crew are dealing with inflation that is not as high and has only been around for a year or so, and is occurring after about 20 or 30 years of relatively low inflation. It seems plausible to me that the range of necessary actions might be different since the contexts are different. YMMV.
 
Koolau said:
I think the recession IS coming - probably official end of this quarter (2nd quarter of negative growth) AND I think it's gonna be deep because we haven't rung out the various excesses of the past several years (and especially the helicopter money of the past two years) for a very long time. Finally, with all the things that are wrong, I believe the key is energy costs. Until that's shaken out (likely by a deep recession) we won't get back to anything like normal.

What do I base this on - nothing more than my gut - and having gone through it big-time back in the 70s/80s. I HOPE I am wrong.

Place your bets 'cause YMMV.
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Unfortunately I don't think you are wrong but I hope you are... However, I do believe that energy cost is one of the biggest problems we are facing now.. But that's just today.
 
marko said:
I have no idea or comment on the OP.

What I do find interesting is that, like almost everything else out there, we can't seem to even agree on something where the definition is clearly unambiguous. We seem to now live in a world where we are swamped with information yet no one can agree on what the facts are.

Our opinions have become our own personal facts.

Sorry, my 2 cents. Two Marts in.
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It's a meaningless discussion. I could care less if NEBR has yet to declare that we are in a recession. That happens after the fact, and statements that "well, we aren't in a recession" are quite honestly irrelevant to the majority of people. What is important is that we are deteriorating, quite quickly (one might even saying at an accelerating rate) across a number of fronts. We have deteriorating macro numbers, falling GDP estimates, incredibly high inflation (and still accelerating), rising credit card debt, Ford announcing today that they are seeing higher payment delinquency, tons of companies announcing hiring freezes, surging interest rates (including a couple momentary no-bid situations on MBS), and yet we still have tons of people saying essentially that everything is fine and arguing that we aren't in a recession.

Things are not fine, and they are getting even more not finer by the day.

This is not the America of 1982, when the inflation shock could be handled by super high rates. At that time we were not a debtor nation, had a fantastic manufacturing base. We are not that country anymore and instead have tremendous federal government debt which these >>>>> (I had to edit myself) have let it go from long term to short term (about 65 months as of Jan. 21).

As interest rates rise, interest on that debt impacts the federal deficit. According to this: https://www.crfb.org/blogs/how-would-higher-interest-rates-affect-interest-payments, each 0.5% increase in rates impacts the budget by $94 billion. As our debt grows, and interest rates increase, the impact on the federal budget grows dramatically.

But hey, everything is fine.
(ETA: One IPA in. :) )
 
Gumby said:
I beg to differ on that particular point. The National Debt in 1982 was $1.142 trillion. The ratio of debt to GDP was much lower than it is now, but we were most assuredly a debtor nation in 1982.

https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287
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I agree the reference was confusing. I think @(c)1997r was meaning to refer to the trade deficit, not the national debt. We went from a positive balance of trade to a negative balance of trade sometime in the late 80's or early 90's IIRC.
 
SecondCor521 said:
I think what the Fed means there is rates that are high enough to slow down the economy and get inflation to fall. An economy that goes from "a lot" of growth to "a bit" of growth is slowing, but not necessarily contracting, which is what I understand as the usual definition of a recession. As an analogy, applying the brakes will slow a car down, but depending on what the engine is doing and whether the car is going downhill, it may not stop it or put it into reverse.
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They said they may have to go from "neutral territory" to "restrictive territory". Fed Governor Christopher Waller says he's prepared to take rates past 'neutral' to fight inflation (cnbc.com)

Restrict means restrict economic growth, neutral means neither restricts nor fosters economic growth. So I'm not sure what the difference is between "restrictive territory" and a recession, but it is my understanding restrictive growth doesn't mean even a little bit of growth.
 
All I know is, we live in interesting times.
 
marko said:
I have no idea or comment on the OP.

What I do find interesting is that, like almost everything else out there, we can't seem to even agree on something where the definition is clearly unambiguous. We seem to now live in a world where we are swamped with information yet no one can agree on what the facts are.

Our opinions have become our own personal facts.

Sorry, my 2 cents. Two Marts in.
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When stock indexes drop into bear market territory (down 20% or more) a bunch of people start looking for that recession they are convinced that the stock market has predicted. Bear markets don’t always predict recessions.
 
audreyh1 said:
When stock indexes drop into bear market territory (down 20% or more) a bunch of people start looking for that recession they are convinced that the stock market has predicted. Bear markets don’t always predict recessions.
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If you look at my post history, I've been saying that inflation would be a problem as soon as we started the stimulus (and rate cut to 0%).

Time will tell, and each of us has to place our bets as we deem appropriate. All I can say is that I wish I were a lot more negative in terms of my allocation changes at year end - I did sell some things near the end of 2021 but nearly not enough.
 
daylatedollarshort said:
They said they may have to go from "neutral territory" to "restrictive territory". Fed Governor Christopher Waller says he's prepared to take rates past 'neutral' to fight inflation (cnbc.com)

Restrict means restrict economic growth, neutral means neither restricts nor fosters economic growth. So I'm not sure what the difference is between "restrictive territory" and a recession, but it is my understanding restrictive growth doesn't mean even a little bit of growth.
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As far as I can see, nothing in what I wrote, or in the article you cited, or anything I've ever heard any Fed official say, lines up with your second paragraph above. To my reading, the last two paragraphs of the CNBC article seem to support my view.

<shrug> I guess we'll have to agree to disagree.
 
SecondCor521 said:
As far as I can see, nothing in what I wrote, or in the article you cited, or anything I've ever heard any Fed official say, lines up with your second paragraph above. To my reading, the last two paragraphs of the CNBC article seem to support my view.

<shrug> I guess we'll have to agree to disagree.
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I didn't make up the definitions, I just looked up what they meant online -

Neutral - The Neutral Rate of Interest - Dallasfed.org. "The neutral rate is the theoretical federal funds rate at which the stance of Federal Reserve monetary policy is neither accommodative nor restrictive. It is the short-term real interest rate consistent with the economy maintaining full employment with associated price stability."

Restrictive -
And "Fed officials signal rates may head to 'restrictive' levels - Federal Reserve officials agreed when they met earlier this month that they may have to raise interest rates to levels that would weaken the economy as part of their drive to curb inflation, which is near a four-decade high." https://abcnews.go.com/Business/wir...signal-rates-head-restrictive-levels-84975284

"Two ex-Federal Reserve officials, now freed from having to set economic policy and be accountable for it, are warning the U.S. central bank will have to raise interest rates more than expected and the outcome could well be a recession - cautions neither voiced before leaving their posts a few months ago......Clarida, now returned to academia as an economics professor at Columbia University, said on Friday the Fed will need to raise interest rates well into "restrictive territory" to slow economic growth and curb inflation. Quarles, who has returned to the Utah-based investment firm he co-founded, chimed in earlier in the week that a recession was now "likely." https://www.reuters.com/world/us/fo...harp-us-rate-hikes-warn-recession-2022-05-06/

"The Deutsche Bank economists said that a recession will be unavoidable as the Fed pumps the economic brakes, warning that price stability will only be "achieved through a restrictive monetary policy stance that meaningfully dents demand." They forecast a mild recession that will begin in the final quarter of next year and continue into the first quarter of 2024, with unemployment peaking above 5%." https://www.fox29.com/news/deutsche-bank-predicts-us-recession-in-2023-due-to-fed-rate-hikes

As best I can tell, it sure sounds like restrictive territory and restrictive monetary policy are euphemisms for recession.
 
I dunno.

Restrictive may mean more than lifting the lead foot off the gas pedal. It could mean moving the foot to the brake pedal.

It does not necessarily mean putting the gear in reverse.

I think I need to give Powell a call for a clarification. He has not answered my text message. :angel:
 
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NW-Bound said:
I dunno.

Restrictive may mean more than lifting the lead foot off the gas pedal. It could be moving the foot to the brake pedal.

It does not necessarily mean putting the gear in reverse.

I think I need to give Powell a call for a clarification. He has not answered my text message. :angel:
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I'm not sure anything would be clearer even if he answered your texts. As someone on the thread on the .75% rate increase pointed out, today he said, "Clearly today's 75 basis point increase is an unusually large one and I do not expect moves of this size to be common,” Powell said, adding that he expects the Fed will raise rates another 50 to 75 basis points in July."
 
Well, from what Powell said to reporters, if a recession will happen, it's not intentional.

Federal Reserve Chairman Jerome Powell said Wednesday that the central bank hopes to avoid a recession after ratcheting up its pace of interest rate hikes.

“We’re not trying to induce a recession now, let’s be clear about that,” Powell told reporters after the policy-setting Federal Open Market Committee raised short term rates by 0.75%.
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joesxm3 said:
Lately I have been starting to think that this recession will continue at least until the end of the year and probably into 2024.

....

Any thoughts?
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Yes. I think you are assuming facts not in evidence. That is, there is no declared recession. I gather you think there is one and it will probably last 18 months.

I do think there is a good chance there will be recession (which I do not believe has occurred at this time). The average recession lasts a bit less than a year. Occasionally longer and occasionally shorter.

My guess (which is only a guess) is that if there is a recession it will be on the shorter side rather than the longer side. But, this is affected by many outside events that are not under the control of anyone in this country so who knows.

daylatedollarshort said:
That is really the elephant in the room, isn't it? Volker took interest rates to 4% above inflation to finally get it to end. That is a huge spread from where we are now. Interesting times.
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I think that was an entirely different situation and not remotely comparable to today. Many of the actions, though, of the Fed is because they don't want to end up in that kind of situation. They are looking ahead. Trying to tame inflation without a recession (I think very difficult) or, failing that, ending up with a mild recession. As mentioned above some factors are beyond their control or the control of anyone in the US (international events) so it can be hard to project what will occur.

Personally, I was happy of the .75 increase today and kind of hope they do it again next month. I guess I think that taming inflation is more important than the risk of a recession. And, I think that if they are too afraid of a recession that they then dither around and then it becomes harsher and more difficult later. Better to deal with it sooner.
 
daylatedollarshort said:
As best I can tell, it sure sounds like restrictive territory and restrictive monetary policy are euphemisms for recession.
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No. "Restrictive" refers to the Fed's interest rate posture. It is not describing the state of the economy.

It is a posture that they expect ro reduce growth, but that does not mean growth is automatically negative when they change their posture.
 
joesxm3 said:
Lately I have been starting to think that this recession will continue at least until the end of the year and probably into 2024.

Looking at the thread with the charts of other market drops compared to this one, I am getting the feeling that we might be just at the start of the decline and will go down for several or more months before things start to go back up.

I am of the opinion that as things progress, a lot of solid companies will have stock at extremely attractive prices that in a few years will look like absolute steals.

I was wondering if others were thinking along these lines.

Wanting to increase my equity allocation from the 22% or so I had, I probably rushed in too early as I was watching the tech stocks do what seemed to be a significant drop.

I still have conviction in these names, but I am considering selling a portion of my holdings (at a loss) with the idea of buying them back at a lower price down the road. I realize that I run the risk of selling them just as they go up, but I am talking about maybe 20% of a given stock holding and my general trend would be to accumulate as we move through the recession and the lower market prices.

An alternative to selling might be to do like NW-BOUND and sell a covered call to either grab the premium or to sell the underlying if it goes up.

At the moment I am about 34% equities and I still have a sizable chunk of cash in reserve. I am starting to think that if we see a deep drawdown and I can be patient enough that I may want to increase my equity exposure up to as much as 50% or 60%.

I do plan to keep about 2/3 of my equity exposure in SPY and VTI so I do not run off the cliff like a crazy person.

Any thoughts?
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I think you mean the bear market, not a recession since all your comments are about stock market. And as several have said, we are not in a recession as far as we know. Further, stock market returns are not tied directly to the economy (recall 2020 when they economy was on its heels but stocks rallied).

My guess is the bear market will last 12 months or so and the decline from top will be 30-40 pct. I do not think we need to do anything heroic except stay fully invested and take the opportunity to improve your portfolio by.adding great companies which represent reasonable values, trim lower quality positions which have run their course, and stick with individual treasury bills/notes and begin building a ladder or otherwise executing your strategy on the fixed income side (continuing to limit duration) in what will be a more typical rate environment.

I agree there will be some great buys to be had. The market will overshoot to the downside.

Good investing!
 
Montecfo said:
No. "Restrictive" refers to the Fed's interest rate posture. It is not describing the state of the economy.

It is a posture that they expect ro reduce growth, but that does not mean growth is automatically negative when they change their posture.
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Well, in the Reuters article above, three ex-Fed members were all a bit more blunt than the current members as saying recession likely. Powell says "soft landing", but "Bill Dudley, who ran the New York Fed until 2018, also says the Fed has been late to raise rates and that a recession will result." So I guess time will tell who is correct.
 
Ah, we have survived numerous recessions.

What's another one, to notch another mark on our belt?
 
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