Are we heading into a global recession?

[MrEarl]

I'll go with that infamous old phrase..."it'll be a soft landing"

I expect the US stock markets to step back by about 15% more this year, primarily led by the "growth" stocks, who have failed to make profits, or fly enough people to the moon etc. However, the "value" stocks will keep delivering, by in large, and paying dividends that satisfy investors, for another couple of years (by which time, interest rates will have increased to the extent that investors have moved more money into the Bond market, and the "value" stock businesses will be starting to either miss quarterly targets, or cut back on forecasts to the extent that they'll lose support, and start to drop in value.

Significant job losses will hit the States from early 2024 - primarily as a consequence of what's happening with companies referred to above. Once forecasts start looking shaky, it's cut and burn time, so the poor old employees will get it.

Much of the commercial property market will lose money, with more retail and office space becoming vacant, or attracting lower rents, in order to obtain / retain tenants. Online shopping, coupled with working from home, will be the cause.

Gold may increase, but not as significantly as its done in previous recessions - in part, because investors will still be putting money into all sorts of other "assets", be they cryptos, bottles of fine wine that later get drunk etc. Then, having lost a fortune at that, insist on keeping more of their remaining wealth in cash, rather than gold.

By the end of 2024/early 2025, many of the western economies will be in (technical) recession, albeit, it'll be less server given most governments have placed significant portions of their national debt on low rates, and over long terms.

Ireland, unfortunitely, will suffer worse than many other western economies, with a rediculously high cost base resulting in many of the MNCs relocating thousands of jobs to other counties. We're in for a miserable period, thereafter, as we struggle to find money to pay overly generous prensions to former state employees, made worse by having to watch reruns of RTE's 20 most hated programmes, presented by their Top 10 earners, who will then be earning about €6m a year!

I'm available to read tea leaves, on Wednesday afternoons, btw

 

[HyperionDayz]

A soft landing sounds oddly similar to transitory inflation. Maybe RTE should get Bertie in to tell everyone what he thinks and then we can do the exact opposite.

When it comes to residential property, we don’t seem to be at the Celtic Tiger level yet. Prices have risen to levels similar to 2008, but that was 14 years ago and average wages have risen from €34k to €42k in that time. Credit controls of 3.5 times wages are still in place with precious few exceptions. Construction volume is still way down with ~30k units vs 90k units. If you believe in the 18 year property cycle there’s still 4 years to go until the next peak in 2026. So the question then is: Are we in 2004?

Commercial property went bananas long before residential. There’s no way companies can justify a cost of 20-30k per employee to house them in glass and steel, especially when it seems that working from home is 13% more productive. Companies will always go with the most cost effective route, so if they’re close to lease renewal they’ll reconsider, but not so sure they’ll break leases. As MrEarl says, the high street will continue to be in trouble.

The stock market has completely detached from reality and I read somewhere that ~60% of all stimulus money in the US flooded into it. The valuations of many companies are outright comedy at this stage e.g Tesla is the most valuable car company that only makes 500k cars a year. Hard to make the argument that you’re saving the world with the cheapest model at €50k - The real experts in manufacturing are coming to eat their lunch. Having a minor increase in interest should not crash the market, but out of control inflation could. Timeline is anyone’s guess, but lots of the usual commentators are predicting a crash in Q2 2022.

Crypto is of course just a speculative asset with no inherent value. The HODL mantra would suggest this is not a currency and has more in common with a casino chip. Expect more peaks and troughs, but it is not a safe store of value.

If I knew the future I’d be fabulously wealthy, but unfortunately I’m not.

 

[Purple]

It is hard to tell the future.

Of course there will be a recession, but whether the will be next year or in a decade who knows.

Personally I was expecting inflation to soar after interest rates were slashed and CBs started increasing money supply in 2008, I am still waiting, maybe this year.

Inflation did soar, but not in the rich world. It soared where Labour was relatively cheap.

 

[joe sod]

(by which time, interest rates will have increased to the extent that investors have moved more money into the Bond market, and the "value" stock businesses will be starting to either miss quarterly targets, or cut back on forecasts to the extent that they'll lose support, and start to drop in value.

But surely if interest rates are rising investors will only be interested in buying the newly issued bonds at those higher interest rates, the value of the existing bonds especially those at negative interest rates will keep falling. This is the first sustained inflation trend since the early 80s.
As for value stocks they still have an awful long way to rise in order to get back to their long term values, or growth stocks still have a long way to fall

 

[newirishman]

Inflation did soar, but not in the rich world. It soared where Labour was relatively cheap.

Arguably, inflation soared also in the rich world - specifically for those that have to count the pennies.
There's some discussion going on reg. below article but to quote one of the headlines:
- M&S ready meal for 2 has been £10 for the last 10 years (zero inflation)
- "[...] Last year the Smart Price pasta in my local Asda was 29p for 500g. Today, it is unavailable, so the cheapest bag is 70p; a 141% price rise for the same product in more colourful packaging."

We’re pricing the poor out of food in the UK – that’s why I’m launching my own price index | Jack Monroe

A whole section of society is being cut adrift by the rising cost of supermarket shopping

www.theguardian.com

 

[MrEarl]

But surely if interest rates are rising investors will only be interested in buying the newly issued bonds at those higher interest rates, the value of the existing bonds especially those at negative interest rates will keep falling. This is the first sustained inflation trend since the early 80s.
As for value stocks they still have an awful long way to rise in order to get back to their long term values, or growth stocks still have a long way to fall

Hello,

We agree 100% on the point about Bonds - I didn't specify, but took it as read, that newer, shorter term, higher rate bonds would be bought, for the next while.

For me, it's a notable drop on the price of growth stocks, rather than an increase in the price of value stocks, that's coming. Most equities are priced at fairly aggressive yields, and this will become more and more a concern, as the world see's interest rates start to rise.

 

[joe sod]

The environment now seems to be a cross between the early 2000s and the early 70s. The similarities with early 2000s are because of the huge valuations in the tech and growth stocks, the 25% drop in Facebook shares yesterday is almost identical to what happened then. However investors could go back into bonds at 4 or 5 % interest rates back then , they can't do that now with ultra low interest rates.

It's like the early 70s because of the energy crisis and Russia using energy like OPEC did back then. Inflation on the rise and becoming embedded and interest rates about to go back up. However the energy , financials and the tobacco and alcohol stocks are doing very well now

 

[roker]

The era of cheap money is over. The global economy is very fragile with very high government debt, inflation, bloated stock markets what gorged themselves on that cheap money, high energy prices and the risk of war in Europe. Are we about to have another crash?

The energy crisis could ease if Iran starts producing oil on the open market. The USA is in advanced talks over the nuclear issue

 

[joe sod]

The energy crisis could ease if Iran starts producing oil on the open market. The USA is in advanced talks over the nuclear issue

it might take some of the heat out of it temporarily but demand has risen much faster now that covid has receded than supply has come on stream. The fundamental problem is that the big oil companies have not been investing in new reserves to replace existing ones due to the depressed oil prices and due to the fact that "big finance" is not investing in oil and gas due to them not being ESG compliant.
Unfortunately this looks to be completely premature as 85% of our energy still comes from oil and gas and this is only going to reduce slowly while our total energy consumption is only going up, therefore all those lovely renewables will be swallowed up but also total oil consumption will continue to rise aswell. The modern world is becoming more and more energy dependant not less. We are not moving away from fossil fuels for a very long time yet

 

[roker]

Whatever happened to peak oil? When I was working in S Arabia, half the plants on the oilfield were shutdown because there wasn't enough demand for production

 

[Purple]

The energy crisis could ease if Iran starts producing oil on the open market. The USA is in advanced talks over the nuclear issue

Their infrastructure is very out of date due to the trade embargoes. It would take years to get them up to standard and because of the downturn the oilfield services companies and reduced their capacity and much of their supply chain has either gone or pivoted into other areas.

 

[Purple]

it might take some of the heat out of it temporarily but demand has risen much faster now that covid has receded than supply has come on stream. The fundamental problem is that the big oil companies have not been investing in new reserves to replace existing ones due to the depressed oil prices and due to the fact that "big finance" is not investing in oil and gas due to them not being ESG compliant.
Unfortunately this looks to be completely premature as 85% of our energy still comes from oil and gas and this is only going to reduce slowly while our total energy consumption is only going up, therefore all those lovely renewables will be swallowed up but also total oil consumption will continue to rise aswell. The modern world is becoming more and more energy dependant not less. We are not moving away from fossil fuels for a very long time yet

Yep, as I've said many times nuclear is the only viable green energy.
We should forget about fusion and concentrate on the new fission technologies that are clean, safe and work.

 

[joe sod]

Whatever happened to peak oil? When I was working in S Arabia, half the plants on the oilfield were shutdown because there wasn't enough demand for production

They are probably still offline because Saudi Arabia is a swing producer, they control the oil price again now. They always have substantial excess capacity but the fact that the western oil companies are cutting back on production is moving the power balance back towards Saudi Arabia and Russia. Probably one of the main reasons for putin's actions in Ukraine is to keep the upwards pressure on global energy prices

 

[Purple]

They are probably still offline because Saudi Arabia is a swing producer, they control the oil price again now. They always have substantial excess capacity but the fact that the western oil companies are cutting back on production is moving the power balance back towards Saudi Arabia and Russia. Probably one of the main reasons for putin's actions in Ukraine is to keep the upwards pressure on global energy prices

Plus the oil service companies are relocating manufacturing to Saudi Arabia at the insistence of Saudi Aramco, the biggest and most profitable company in the world, as well as other lower cost countries. Europe couldn't be doing more to undermine it's own energy independence. At least the Americans have massive oil and gas reserves, even without counting the almost limitless amount of oil they'll get from Fracking. We are going out of our way to be energy, and therefore economically, dependent on Russia.

 

[Purple]

Energy prices are soaring, the price of metals is going through the roof, inflation could be in double digits this year. We have unprecedented levels of debt. It seems likely that we are now heading into a recession. How well positioned are we to deal with it?
I found this interesting.

 

[PebbleBeach2020]

Energy prices are soaring, the price of metals is going through the roof, inflation could be in double digits this year. We have unprecedented levels of debt. It seems likely that we are now heading into a recession. How well positioned are we to deal with it?
I found this interesting.

I don't know. What do you think yourself Purple? Are/Were you a teacher, you love asking questions without providing any answers.

 

[Steven Barrett]

Energy prices are soaring, the price of metals is going through the roof, inflation could be in double digits this year. We have unprecedented levels of debt. It seems likely that we are now heading into a recession. How well positioned are we to deal with it?
I found this interesting.

I was talking to someone about this yesterday. It does appear like we have entered a period of stagflation. But why aren't people freaking out like in 2008? Jobs. People are as busy as always. In 2008, building sites shut overnight. There were mass redundancies and massive pay cuts across the board.

Also we are more experienced. We haven't loaded up on debt. We didn't put all our savings into Indian equities or some geared property fund in Bulgaria. As well as still having our job, we kept cash on hand and invested in more diversified assets with lower risk (unless you bought crypto or nfts).

The worst thing the ECB can do now is increase interest rates to control inflation and slow down the economy.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Raey]

I was talking to someone about this yesterday. It does appear like we have entered a period of stagflation. But why aren't people freaking out like in 2008? Jobs. People are as busy as always. In 2008, building sites shut overnight. There were mass redundancies and massive pay cuts across the board.

Also we are more experienced. We haven't loaded up on debt. We didn't put all our savings into Indian equities or some geared property fund in Bulgaria. As well as still having our job, we kept cash on hand and invested in more diversified assets with lower risk (unless you bought crypto or nfts).

The worst thing the ECB can do now is increase interest rates to control inflation and slow down the economy.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

I disagree.

The freaking out will come soon if peoples buying power continues to erode.

Without wage inflation, the jobs you refer to become worth a lot less. With wage inflation we get into an inflationary spiral - the 1970s had a wage inflation and it was not pretty.

Additionally, all this inflation will erode the cash on hand you mentioned people having.

Raising interest rates is the best (only?) solution available. It's not perfect but it is certainly better than the alternative.

 

[Purple]

I don't know. What do you think yourself Purple? Are/Were you a teacher, you love asking questions without providing any answers.

I don't know. If I had to guess I'd say that we are.
Rising energy costs will cause inflation across the board. The first and fifth biggest grain exporters in the world are at war so that will have a serious knock-on effect on global food costs. Ukraine alone produced enough grain to feed 400 million people.
The world has unprecedented levels of debt and quantitative easing has resulted in a higher proportion of wealth being concentrated in capital rather than labour than at any time in modern history (the main reason housing is so expensive). That all means that there's a bigger mountain to fall on us all as "growth" really means wealth created through labour.

If we increase interest rates that will further reduce economic activity but if we don't we'll see higher levels of inflation.
Both are recessionary factors in the medium term.
I wonder if we'll be having discussions about sovereign debt defaults in places like Italy and Greece again soon.

It's safe to say that I'm not optimistic.

 

[Firefly]

Energy prices are soaring, the price of metals is going through the roof, inflation could be in double digits this year. We have unprecedented levels of debt. It seems likely that we are now heading into a recession. How well positioned are we to deal with it?
I found this interesting.

I think governments are in a real bind given how much debt they are carrying....if interest rates rise to combat inflation, then government debt financing will rise and could create a debt spiral - borrowing to make interest payments. Some of us here have been warning about the national debt for years, but it's always been explained away that it doesn't really matter once the rate of growth is larger....but what happens if growth slows/stops...we can't then just magically disappear the debt. Others have repeatedly offered that the government should borrow even more as rates are so low.......I don't hear those arguments of late.....