Recession warnings

[Mercury]

There is a lot of talking up of the current bull market in stocks and bonds with concepts like the the "new normal" of ultra low interest rates (ZIRP/NIRP) and never-ending QE.  At the same time there is a lot of talking up of precious metals and the fantasy that Bitcoin will be the new asset du jour to take down Fiat currency because people no longer trust the policy makers around Fiat currency.  Seems like these two concepts are at odds.  The one thing that shatters all these narratives, chiefly, in my opinion, being peddled by those with vested interests in what they are saying being true, or perhaps more like they want the general public to believe it, is a significant recession or worse.  Recently Real Vision ran a few weeks of very interesting interviews under the banner of "recession watch"  if you haven't check it you your should, some of the material may be on their free access area.

https://www.realvision.com/free

I've posted on retail problems before, there are more out there, the retail situations just gets worse and worse.  Retail falls if consumers are concerned.  Manufacturing comes next and then services in a cascade.  The headline data is also late on this.  You have to look at the various factors rather than the headline.

I'd be interested in any content or forum users views on whether we re heading into, or perhaps are already in a recession just not yet declared (note recessions are declared after the fact not in advance).   Here is a video interview with Roubini, nicknamed Dr Doom for his dire warnings about the US house price boom from 2005, for which he was vindicated in 2007 of course where he is talking about an impending recession and indeed declares that the US is already in a manufacturing recession.  Doesn't have much good to say about Bitcoin either...

 

 

[Mercury]

Here is another view from a different Dr Doom...

https://www.youtube.com/watch?v=rfWVqrPEXEo

[dmedin]

29 minutes ago, Mercury said:

The one thing that shatters all these narratives, chiefly, in my opinion, being peddled by those with vested interests in what they are saying being true, or perhaps more like they want the general public to believe it, is a significant recession or worse

Can you explain a little further on who might have a vested interest in an economic downturn? 

[JamesIG]

Below gives a snapshot answer to recession worries.

Due to the recent trade war events, Goldman now estimates a cumulative drag on GDP of 0.6%, including a 0.2% drag from the latest escalation. You can also read more about Goldman Sachs slashing US GDP growth forecast as US-China trade war continues here.

[Mercury]

@dmedin, you misunderstood me.  I was suggesting that people who peddle the hype behind things like bitcoin taking over from Fiat and the never ending stocks bull or indeed those who recognise a fall is coming but position it as a "healthy" correction and anyway it wont come for another 2 years or so have a vested interest in keeping investors invested.  Money managers don't get paid if investors are not invested.  Worse even is the risk of a collapse of their funds a la Neil Woodford.  In short the turkeys don't vote for Christmas, which is why you rarely hear financial services firms, or even IFAs, telling you to get out.

 

 

[phillo]

real vision video https://www.youtube.com/watch?v=NA4MfGt3Gho

[Mercury]

Good summary of the Real Vision findings from their recession watch series @elle, As most stock market crashes start of really kick in during the Autumn months the timing projection is makes sense.  Price action over Aug/Sept may help unpick this for technical traders.

[dmedin]

And ... with the latest announcement from a Trump representative, all the fear is gone again.

 

[Guest phil]

Goldman do it again... one day after predicting trade war will not end until after Dec 2020, trade war de-escalates

[Guest Trader786]

Talk of recession overblown? When everything is going so well? Or is it? On the surface, the economy of the US and much of the world looks fine and dandy so there could not be a problem, could there? Certainly no inflationary pressure. Or political instability.  President Trump is the very model of stability and jurisprudence and president Xi is having no problems at all, not even in Hong Kong. UK is more than happy to exit Europe without a deal (because that's what they voted for apparently) and the EU is also a model of financial probity as is India, most of Africa and Latin America. Xi and Trump are going to kiss and make up and Iran is a mere storm in a tanker. 

Frankly the Bulls are right to believe limitless free money will always be repaid risk free, as no one will question where the free money is coming from, the economy will continue to expand exponentially as is only right. Cycles are for Micheal and mean less than any experts point of view, because, after all, what do they know? 

There is no such thing as pump and dump. 

Markets do not breathe confidence.

There will be a significant market correction and it will begin before the election, which Trump may not win. The market wobbled last year and recovered, do not be surprised to see the same again and may be a reckoning come the end of 2020 where outrageous optimism may be tempered by immoveable reality. What evidence do I have ? A strong gut feeling mostly and an understanding that what goes around comes around.

[Mercury]

Interest professional view on the current market conditions, responses, price action; what is not driving it but seems to be received wisdom, at least in the MSM and retail side...; and a warning of things to come.  Real Vision video on their free section:

 

https://www.realvision.com/tv/shows/trade-ideas/videos/the-myth-of-the-infallible-central-bank

[dmedin]

The questions being asked here are very significant; is limitless exponential growth possible?  Capitalism relies on it being possible.  So any downturn must inevitably be followed by a pick-up, unless some other economic system comes into play.  Interesting!  If you are a capitalist all you need to do it wait for assets to become cheap and buy them up.  In the meantime, sell your stocks and buy government debt.  Either way, there will always be people who owe you money.

[Mercury]

The real issue for capitalism is the reliance on population growth.  Western economies are experiencing population decline and demographic skewing to the older side, with the multitude of government and societal issues that generates.  Other economies like China are over populated and desperately trying to manage this with Western style economic and social practices like urbanisation.  All these economic models were born out of exponential growth of population and therefore demand and therefore economic expansion.  Pre 1929 it was industrialisation and electrification.  Post 1945 it was post war baby boomers and rebuilding and urbanisation.  Then we got the Tech boom, starting in the 1960s and still continuing.  But the problem that brings on top of population reduction is job losses as tech takes over.  Add to that short sighted Western politicos like Blair/Brown, pushing immigration to offset declining population, keeping the economy growing (temporarily) so that they can hold onto power,  and constant migration pressure from poorer countries, which still have exponential population growth but no prospects at home and you get a situation which is unsustainable.  This is a gross simplification of course but still...

Enter the central banks and QE and negative rates in a Quixotic tilt at keeping the models they are wedded to afloat and the ensuing divisive widening of the already enormous gap between rich and poor and people like Zuckerberg and the Democrats in the US talking up paying people a "basic" allowance (like we should listen to some guy who had an idea for a website in university!) and it all adds up to an end game.  BTW, watch or read SciFi The Expanse, if you want an idea of where the "basic" idea would likely lead us...  Barking mad!  Maybe Trump is not the megalomaniac we think he is?  Maybe he sees this and is busy pulling up the drawbridge?  Maybe it takes a megalomaniac to see it and take the necessary action?  Maybe Boris Johnson is the UKs version.  History will tell the tale.

We know that the planet has a max carrying capacity for humans we just don't know if we have reached it yet but the signs are that we have.  We MUST therefore have population decline, idiots who think we can manage the ecological disaster already under way without population reduction are living in LaLa land.  We will get population decline either through a naturally motivated mechanism or a catastrophe (Malthusian theory, but really just common sense).  Therefore you are right @dmedin that there would need to be a new model for economics under such conditions but human nature us such that we are never self aware enough and politically capable enough to take the necessary steps to manage these things effectively so inevitably it the current models have to die before we come up with a new paradigm.

This is the same reason why we never see the recession and the market crash coming because there are always enough people talking it up: "this time it's different"; "the new normal"; Trump wont let that happen in an election year (like he could actually stop it!); the central bank wont let that happen; "helicopter money to the rescue; just write off all the debt and carry on!  There are always enough people pouring scorn on people like Roubini who dare to challenge the received wisdom, name calling and and denigration and so on.  Just look at the interviewers body language when (and actual language) when interrogating (because that is what is was) Harry Markopolos on the potential GE scandal.  Whether it is the MSM, the politicians, the central bankers or the financiers they all have a vested interest in keeping the show on the road.  Only the outliers see it and comment on it but they are kooks so ignore them...

That means, to me, economically at least, a mega crash has to happen and only then can we reset this thing.  If you are prepared for that and have funds at the bottom you will do well.  If you hold on to outdated paradigms for investing you will get slaughtered, irredeemably so if you are anything over aged 30ish.

[Guest ChrisN]

Recent attention to a looming recession has come about due yield spreads turning negative - see FRED. 2yr v 10yr seems to be preferred. It's been a pretty good indicator in the past and for those that say "it's different this time" - I doubt it. Average time from inversion to recession is quoted at 17 months. If that's right then it puts it late 2020 possibly early 21. 

We now have the longest bull market ever recorded and it's been driven by massive injections from the central bank needle. Drugs work until they don't. This fits with my motto "It doesn't matter.....until it does!" Remember this bull, rising since the GFC, has risen primarily on "bad" news ( i.e.the needles comin'). Any hint it will be withdrawn is met with the screaming abdabs. It's effectiveness is diminished after each fresh dose. You need more and more to achieve the desired effect. The US having the least smelling pile, now has rates at 2%. It's reckoned you need 3% -4% minimum to fight a recession and why, ideally, the Fed wants it higher.  The firepower for easing in that situation isn't there. So more Quantative it is.

Bull markets die on euphoria. It doesn't feel quite like that yet so I'd say we're in a wave 4 which will be exited on the next QE dose. The Fed will probably paint itself into a corner and be unable to fight the next recession with rate cuts when it comes. All boats (equity and bonds) rose on this last tide so expect the opposite by which time all thought of central banks being the great panacea will have evaporated.

[dmedin]

@ChrisN

When one drug stops working, it's always possible to switch to another.

The headline in Reuters Markets today is a rally based on hopes of stimulus - more government spending. 

 

[Guest ChrisN]

41 minutes ago, dmedin said:

When one drug stops working, it's always possible to switch to another.

Not sure what you have in mind with that remark.Unless you know of a more powerful force than that unleashed by QE 1,2 &3?

As for drug replacements I'd refer you to the on going antibiotic concerns.

[Mercury]

Not sure I follow you on the wave 4 point @ChrisN, can you throw up a chart to illustrate?

[Guest ChrisN]

Sure Mercury....how about this?

[Mercury]

Ah I see where you are coming from now @ChrisN.  You are deeper into EWT than me perhaps; I have chosen to ignore the more unusual structures.  I stick to a standard A-B-C form where the move does not penetrate above the previous high (i.e. the 3 top in this case).  I have seen published analysts/traders use these kinds of structures in the past but they rarely work out because they are not the norm.  That said these are not normal times so maybe...  And it is hard to get a decent wave fit on the US large caps rally up to the ATH.  For now though I favour an ending channel scenario that may or may not produce another ATH on US large caps but I feel that any breakout of my channel to the downside will spell the end of the Bull.  Obviously in your scenario a wave 4 would be below the channel (similar to your red trend line I think)?

 

[Guest ChrisN]

Sorry for delay ....dental appointment! 

There is also a potential larger triangle for wave 4. Wave A & C often tend to equality. I'm drawn to this current wave being C down but it could fall short as a wave E. Stimulus or trade agreements being the likely catalyst.

[dmedin]

1 hour ago, Mercury said:

You are deeper into EWT than me perhaps; I have chosen to ignore the more unusual structures.

 

lol.

Which ones?  EWT is full of them.  I have tried half a dozen times to read Prechter and Frost's book and I still only understand a tiny fraction of it. 

The basic gist seems to be, the market moves in 5-3-5 waves - except when it doesn't.

[Mercury]

That may depend on which market you are referring to when you say "the market".  Agri commodities basically seem to move in ranges but within those ranges they may move in broad 5s or 3s.  As for FX, Indices and metals I have found that they do conform to the basics.  Don't know what you mean by "except when it doesn't", could you be looking at it incorrectly?  Maybe you could give us an example...

[Guest ChrisN]

I'm sorry but I cannot rise to that bait. No comment

[dmedin]

7 hours ago, Mercury said:

could you be looking at it incorrectly

That's highly probable ...

 

[Guest ChrisN]

15 hours ago, Mercury said:

I have chosen to ignore the more unusual structures.  I stick to a standard A-B-C form where the move does not penetrate above the previous high (i.e. the 3 top in this case). 

Mercury, of course, how you label your wave counts is entirely up to you.

Corrective waves (according to EWT) are in the following form:

ZigZags, Flats (Regular & Expanded) & Triangles. Complicated corrections are usually a combination. A common one is a double Zig-Zag. Triangles can often found in wave 4 or B but never wave 2.

Motive waves are usually pretty simple to spot even for a novice. The problem always occur with corrections in my experience. Knowing the substructure count is critical in that respect. ZigZag (5-3-5), Flat (3-3-5), Triangle (3-3-3-3-3). There is often an alternative count (although one will always be preferred) and only subsequent price action reveals which is correct.

There are a few rules, but really not many, and some guidelines. With respect Mercury there is no rule nor guideline that I have ever seen that says "the move does not penetrate above the previous high" for a corrective wave!!

For those that don't have the time nor inclination you can subscribe to various services. In the hands of an expert, when combined with Fibonacci ratios, trend lines and sentiment indicators it is, IMHO, a powerful tool. 

[Mercury]

Thanks for that @ChrisN, I am aware of it and practice the complex retrace tracking myself too.  What I was referring to was that the classic A-B-C corrective wave has the entire correction below (or above) the previous turn in my approach.

I do use the classic A-B-C (5-3-5 internal wave profile) and also the complex retrace with the 3-3-5 internals and that one can get pretty tricky.  There is also a version of this that can be 3-3-3.  I also use the A-E Triangle form (3-3-3-3-3) for continuation consolidations and I find it especially useful for ending channels, I had a perfect one to set up my recent Shorts on US large caps.  However in all classic retrace cases (A-B-CsI do not allow the wave B to eclipse the previous motive wave high.  I am aware that some EWT analysts do use this mechanism. 

As a matter of simplicity I kind of reject the notion that a wave 3 (motive) top can be eclipsed by a wave B top in a retrace move.  It would seem to make more sense in the classic 1-5 that the wave 3 is the peak and the next major peak would be the wave 5 but only after the retrace is completed.

This is all a matter of personal choice of course, for me creating a trading and analytical method from existing technical analysis methodologies is about selecting the aspects of several that fits your psychology and testing it to ensure it works well.  A key factor is understanding when it doesn't work, one example would be where one of the more exotic EWT retrace scenarios takes place.  So I am aware but I do not use it in my methodology.

Naturally I agree with your assessment of the power of the tool-sets but like anything it requires extensive study, practice and failures to learn how to use it best within the context of ones own psychology.

[trade247]

20 hours ago, ChrisN said:

 Average time from inversion to recession is quoted at 17 months. If that's right then it puts it late 2020 possibly early 21. 

Question, is that specifically referring to the turning point, or the 'technical' recession value after the technical 20% drop?

45 minutes ago, TrendFollower said:

Is there any data or credible source that proves that using EWT and Fibonacci in your trading strategy increases your chances of a successful trade or improves the odds and probability of you making more / higher profits than not using them?

Arguably the only 'data' there is on the success of trading strategies is to buy a low cost diversified index tracker and compound your divs. Trading is about the intellectual stimulus about beating the market.

[Guest ChrisN]

36 minutes ago, Mercury said:

As a matter of simplicity I kind of reject the notion that a wave 3 (motive) top can be eclipsed by a wave B top in a retrace move.  It would seem to make more sense in the classic 1-5 that the wave 3 is the peak and the next major peak would be the wave 5 but only after the retrace is completed.

OK I think I see what you are saying but applying your own rules/interpretation of EWT isn't following the discipline. EWI is probably the best authority on this. They have plenty of free resources that can be very helpful with a free subscription.

 

51 minutes ago, TrendFollower said:

Is there any material that one can look at which demonstrates or proves that it is worth including in your trading strategy?

Ah! We all want proof in this world. Who doesn't? I won't be drawn into a us v them on this subject - been there done it - many years ago. It seems pointless to me preaching and I don't see it as my job to do so. In religion/politics/philosophy etc you have your preferences. So be it.  Proof would destroy all of then. There are plenty of resources available and then draw your own conclusions. I'll leave it at that.

[Guest ChrisN]

19 minutes ago, cryptotrader said:

Question, is that specifically referring to the turning point, or the 'technical' recession value after the technical 20% drop?

My understanding is that refers to the period from the inversion point to the start of the recession.

[Mercury]

Thanks @ChrisN, you are right of course but then again if something doesn't feel right or sit well it is pointless using it or indeed debating it.  We can happily both do things in our respective ways and live and let live.  Would be interesting to hear how you get on with this set up though, please continue to share progression as and when you feel it could be instructive, if you have a mind to.

 

24 minutes ago, cryptotrader said:

Trading is about the intellectual stimulus about beating the market.

Agree @cryptotrader, it is an intellectual exercise and the markets are complex structure.  Simplicity is all well and good but the professionals I see interviewed or read about seem to be anything but simplistic in their approach.  Everyone needs to find their own methods and make it work on their own but there is no harm in learning new things, if one is truly open to it...