The coming recession


#1

Did the title get your attention? :wink:

We’re already in a bull market and heading for a recession in the next 8-12 months. Central banks might try to intervene, but in any case their hands are tied given their massive balance sheets and the fact that interest rates are already low. In addition, the long-term debt cycle points to a natural correction.

If the above sounds crazy to you, then move on to another topic and hang on tight to your 7 shares of Amazon.

If it doesn’t sound crazy to you, then let’s talk. I’m curious to hear some strategies. What hedges do you have in place? How much cash on hand when the fire sale begins?


#2

The recession might also come in 4 months, or 16 or 52…


#3

counterpoint: central banks hands are not tied. there is no sign of inflation so they might simply continue QE and expand their balance sheet even more


#4

Even if you could expect coming recession this year, what avarage passive investor can do different than wait it over? Going cash is nuts and doesn’t work 90% of the time, buying hedge funds is not worth the cost, doing yourself long/short strategies requires too much resources (and would trigger capital gain taxes).

The only reasonable thing coming to my mind is reducing a bit equities exposure and increasing bond/gold/cash exposures. But I’m not interested in that. It overcomplicates things and I’m in favor of simple long-term investments.


#5

If the street is already discussing “recession”, then you can be certain that all the big fish have already priced it in.

Hedges? I’m a little underweight US and heavily overweight EM. Otherwise business as usual.


#6

It’s been since i have started investing in 2016 that i read that a recession is coming. Maybe this time is the real one, maybe it is not. But it will for sure come, the only thing is nobody knows exactly when.

One sure is clear however: as long as i am not retired, I will welcome down markets, because then most actors behave too emotionally and some assets are on sale for a big discount. In that sense, December had some very good opportunities (hints: CVEO, DNXCorp).

I still have 5 to 6 years to FIRE, buying when it is cheap will only accelerate the process. Of course if i had to unplug soon, i’d be a little bit more worried. Maybe I’d structure my portfolio in the spirit of Millenial Revolution’s yield shield as a protection against sequence of returns risk. But right now i do not care at all.

Even for passive investors, the lesson should be the same: there is no harm buying when it’s on sale, as long as we are in the accumulation period.


#7

The central banks will do as usual “whatever it takes” ( © imagine Draghis :wink: ), so on the balance sheet side, there is no limit.
On the interest rates side, people are relatively docile, the limit is IIRC at -2% before they begin cashing out their accounts (need to find again the study about it). So the Fed has 4.5% room to make the markets great again, other central banks have much less room for sure. But if cash is restricted or completely removed, probably the limit is even lower than -2%.


#8

My sentiment exactly and really, this was were I was going with this thread.

For many years now I’ve take your approach and not complicated things. Passive investing has done me well.

Yet… hmmm, I reaaaaaally never wanted to hear myself say “this time things are different” but… well, 2008 was different. Sometimes surely things are different! Even if we ignore the sad fundamentals of every global market, and the perilous state of the US market, is there not logic pointing to the long term debt cycle and acknowledging that a few adjustments can make a big difference to your portfolio?


#9

So what are you recommending, when and why?


#10

Completely agreed. While I would like to think that there’s no more appetite for QE, in reality they’ll probably do whatever it takes. This is why I’m not suggesting anything radical. Just wondering what small adjustments could potentially have a strong upside if recession comes, yet small downside if it doesn’t.

Of course, reduce equities, gold, bonds, cash etc.

Just wondering if anyone else had other ideas…


#11

That’s my problem: I don’t pretend to have any better ideas than the usual (reduce equities, buy some gold, bonds, etc.).

We could talk about how much, but then it’s just a conversation about risk appetite, no?

Wondering if I’ve missed something.