Are we heading for a global recession?

[RDMcG]

I take a fairly dispassionate view of the world, but the confluence of events recently has left me very pessimistic about the immediate future:

(1) Pre-Virus we had stock market at record levels that was not supported by earnings.
(2) Personal debt in many developed counties was at record levels
(3) The Trump tariffs had a dampening effect on global trade
(4) Growing left-right polarization around the planet

Then came the virus.

I am in no position to make an intelligent assessment of this disease but it happened at a very bad time. We are already seeing airlines beginning to park equipment, companies cancelling travel, conferences being cancelled and so on. More importantly there are many smaller companies in China who will not survive this downturn. This is before a widespread outbreak. Also, consumer demand in China was already tanking. If this occurs things will get a lot worse. Global supply chains are already being disrupted.

I know that there are views that this may be overblown and it will be a three- month phenomenon. I am aware that there will likely be central bank intervention to cut rates but it seems inadequate in the teeth of the current developments.

I am not in a funk, just concerned. Am I seriously misinterpreting the situation?...Does anyone have a prediction as to how the global economy will look by year-end?

[Condi]

There is a st load more cash in the global economy than 10 years ago, that's what's fuelling the stock markets and that cash, while put in safer havens now, will soon start looking for somewhere to earn a return. If central banks cut rates (some of Europe has still got negative IR iirc) then leaving it as cash is a bad idea, so where will it go? Back into stocks, probably, at least in the medium term.

IMO this is a huge over reaction, a lot of people booking profits after a very good 12 months of increasing value. I was looking at a company which owns resturants in airports and the like. While it's Asian business was down massively, the rest of the world was still fine and their turnover so far was down 0.5% of last year's total and yet stock was down 26% in a few weeks. It's very much a fear driven market, rather than any rational decision making.

So in answer to your question - maybe. I suspect it depends how bad this thing gets. The biggest risk is not losing 2% of the population, but more the disruption to supply chains, stopping the very basis of manufacturing working well.

[mike74]

Nope.

They'll just fire up the printing presses and drop IR's even lower and all will be well again.

[greygoose]

Trump will want to get re-elected and will do anything to keep Americans feeling the economy is growing so lots of cash will be pumped in to keep it going.
My own uninformed view is that the markets are still overvalued and are only sustained by the money pumped in, having said that interest rates are incredibly low still and show no signs of going up in the next few years. When Buffett starts spending his huge pile of cash then valuations may be on a more reasonable footing.

[bitchstewie]

Posted on another thread but if you listen to the news you'd think we'd been set back a decade.

This is what how global markets look as of a day ago.

[Derek Smith]

It's not as if sub-prime mortgages will ever start again in the US. Obama brought in sensible legislation to prohibit it.

[JuanCarlosFandango]

Unless you believe we will never have another one we are always heading for a global recession. It's predicting when and how that is difficult.

[mikeiow]

JuanCarlosFandango said:

Unless you believe we will never have another one we are always heading for a global recession. It's predicting when and how that is difficult.

Exactly this....is it a temporary blip, or more of a trough....20:20 hindsight in 2 years will tell us!

My *guess* is that we may have somewhat of a trough for a while. Markets (broadly speaking) have been heading up and up and up for a long time.....which makes it overdue a correct.

That said, valuations have for a long time been nuts by "traditional" measures, and with 'regular' interest rates so low, the money continues to swill around the market, so perhaps it will only be a brief jolt.

OP, what do you think?

[RDMcG]

My Swansea is yes. I think we will see significant supply chain disruptions and a big downturn in the travel market that will last some time. There was already some worry over travel shaming /thunberg.
My guess is serious Chinese contraction. Their consumer market was already in trouble. US consumer market next. The virus is beginning to show up there and if their consumer spend craters then we are in trouble. Lots of personal debt there also. Interest rate cut is likely but I doubt if it will be enough.

I hope I am completely wrong but this feels different.

[GroundZero]

I don't think the global market has ever really got over the crash in 2008.
Since then interest rates have been silly low, to the point that it encourages people, businesses and government to do their affairs in constant debt.
Sustainable only if interest rates are kept silly low with a likelihood of going in to negative rates. And that surely can't be good for the capitalist free market.

I think we may be going in to a small(ish) recession globally, because as you point out there are too many tensions in the world at the moment for stability.
Stability is the key to growth in many companies and investors.

At the moment obviously the pandemic is a factor, but then once that is finally realised that it is nothing to be hysterical about and also once Trump secures his 2nd term along with the UK sorting out its trading relationship with the world, I think then at least there will be stability in the west.
Which then leaves the tension between the usual suspects. The middle east, Russia and China.

[Agammemnon]

GroundZero said:

Since then interest rates have been silly low, to the point that it encourages people, businesses and government to do their affairs in constant debt.

Debt is only a problem if you can't service it. Debt is sometimes called wise use of other people's money.

[GroundZero]

Agammemnon said:

GroundZero said:

Since then interest rates have been silly low, to the point that it encourages people, businesses and government to do their affairs in constant debt.

Debt is only a problem if you can't service it. Debt is sometimes called wise use of other people's money.

True.
But I also think in many cases much of western business and affairs have laidened themselves up with too much debt, to the point that they can only just service it, and would be truly bu99ered if interest rates were to rise back to a useful(1) level.


(1) useful in three main areas, one being that it gives government a meaningful financial lever to control with regards to the economy, and useful also to those who have money in savings. Finally for businesses to be less reliant on the banks and stand more on their own feet.

There are other 'useful' aspects such as asset and property prices would stop being artificially inflated too.

[Agammemnon]

GroundZero said:

True.
But I also think in many cases much of western business and affairs have laidened themselves up with too much debt, to the point that they can only just service it, and would be truly bu99ered if interest rates were to rise back to a useful level.

Those rises are unlikely to come suddenly; there would be some time to rearrange one's affairs (whether that would be enough is debatable).

[Fundoreen]

This is a bit like a communications network faliure where you suddenly see all the diverse routing runs through one point of failure.
At lest 50% of everything should be done elsewhere than China.
Without all this pointless travel we seem to get back and forth. Have they not heard of a telephone or email?

[Art0ir]

Just wait another fortnight until the containers from China stop arriving and supply chains fail. Normally suppliers would be back at 100% by now after the Chinese NY, but I know of several of businesses looking at further delays for product with no end in sight. On the IT hardware side of things in the past week, I've already seen numerous commercial products normally in stock in the UK with a 2-3 month wait time.

[Murph7355]

Art0ir said:

... On the IT hardware side of things in the past week, I've already seen numerous commercial products normally in stock in the UK with a 2-3 month wait time....

Ditto.

The knock on implications of this sort of thing will roll on for a while too...

[Terminator X]

RDMcG said:

I take a fairly dispassionate view of the world, but the confluence of events recently has left me very pessimistic about the immediate future:

(1) Pre-Virus we had stock market at record levels that was not supported by earnings.
(2) Personal debt in many developed counties was at record levels
(3) The Trump tariffs had a dampening effect on global trade
(4) Growing left-right polarization around the planet

Then came the virus.

I am in no position to make an intelligent assessment of this disease but it happened at a very bad time. We are already seeing airlines beginning to park equipment, companies cancelling travel, conferences being cancelled and so on. More importantly there are many smaller companies in China who will not survive this downturn. This is before a widespread outbreak. Also, consumer demand in China was already tanking. If this occurs things will get a lot worse. Global supply chains are already being disrupted.

I know that there are views that this may be overblown and it will be a three- month phenomenon. I am aware that there will likely be central bank intervention to cut rates but it seems inadequate in the teeth of the current developments.

I am not in a funk, just concerned. Am I seriously misinterpreting the situation?...Does anyone have a prediction as to how the global economy will look by year-end?

Classic case of the media scaring the horses which in this case is "stupid" people and the stock market. Why oh why the media can't report the news along with some context fk knows. They can still make it scary to sell their papers but then also include "whilst 100 people have caught the Wuhan Flu we expect that 80 of them will simply get cold like symptoms, 18 of them will get ill and then recover whilst just 2 poor souls who were ill anyway may well die".

TX.

[fido]

It's possible this will be a technical recession i.e. we loose 1 month of output per quarter for the next two quarters but then everything ramps back to normal by Q3. Some weaker companies will go under as a result, but like their human counterparts, they were looking a bit iffy anyway so this has merely speeded up their departure. My main worry is that the iPhone 12 will be delayed - it's looking okay though as FoxConn are getting back on track.

[Murph7355]

fido said:

...My main worry is that the iPhone 12 will be delayed...

Is that because your v11 is scratched or your work for Apple?

Facetious question perhaps, but if we're assessing market health on that sort of basis we really need to adjust our metrics. The runway is running out for new versions of products that are incremental at best but the price of the product goes up far greater. Users will stop buying into the annual nonsense IMO. Companies like Apple need to reassess their cadence and get back to being genuinely innovative. (Not a dig at Apple alone. The whole industry has created itself a monster that will burn out).

[Smollet]

Are we heading for a crash?
Yes
No
Whatever




Take whatever stance suits your current agenda