Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Recession Is a Psychological Thing: It Will Happen When We Say It Happens

Economics / Recession 2020 Jun 04, 2019 - 12:15 PM GMT

By: Jared_Dillian

Economics

We haven’t had a recession in a while in the United States.

The last one was pretty bad, so it stands to reason we might want to avoid a repeat of that experience.

President Trump is working very hard to ensure that we do not have a recession (at least until the 2020 election). The Fed no longer seems to believe that inflation is the greater risk. We are basically running the economy at full speed all the time.

It is hard to have a recession when monetary and fiscal policy have buried the needle.


A Psychological Phenomenon

Over time, the business cycle has been getting longer and longer. We have gone ten years without a recession.

The record, currently held by Australia, is 28 years. Who’s to say that the US can’t go 28 years without a recession? If you think the bears have a bad reputation now…

Spend any time listening to some bearish folks and the message is that a recession is right around the corner. People (myself included) like to call this economy “late cycle,” but it has been late cycle for a while now.

Anyway, in my 20 years on Wall Street, I have yet to see a recession prediction model that works. I am observing one in real time that might.

My guess is that recessions are a psychological phenomenon, much in the same way that inflations are a psychological phenomenon.

It will happen when we say it happens.

A Tech-Driven Economy

The next recession will probably happen when Silicon Valley blows up.

Back in 2008, I made a bullish call on Amazon. In 2012, I changed my mind and turned bearish on the stock, right before the blast-off. But the original bullish call was pretty smart.

You see, in 2008, I wanted to get long companies without debt. And Amazon was basically without debt. I also wanted to get long companies that were remote from the wave of regulation that I knew was coming. Amazon was without regulation.

Plus, Amazon was growing rapidly—and this was when it was mostly books and records, before the push to become The Everything Store. I had more vision than most—nobody was interested in Amazon at the time.

But in 2012, I failed to see that a company such as Amazon can get pretty big by running at an economic loss in a zero cost of capital world. I have a pretty big imagination—but not that big.

When Silicon Valley goes into a recession, the rest of the country will. And inflation will probably go up, among other things.

Look at the top holdings of any major index ETF—all tech companies. We have a tech-driven economy. If you thought the banks drove us into recession into 2008, and camped out in a park for two weeks about it, wait until Silicon Valley unravels. Because someday, it will.

Some Silicon Valley luminaries, like Marc Andreessen, have recently received approval to form a Silicon Valley Stock Exchange. It is intended to be for companies who need more time to become profitable.

The stock market tolerated 23 years of losses at Amazon. It is just now beginning to show profits (but not in its core business). There are dozens of profitless dot-coms.

All of this raises an interesting question: how long should the market wait for a company to become profitable? 50 years? 100 years? 200 years? Maybe a good business is profitable in the short, medium, and long-term.

The Big Idea

Take any of the last few recessions and you can point to a specific reason as to why it started:

2008: Housing

2001: Dot-com

1991: Commercial real estate

1982: Interest rates

Recessions don’t just happen. There is a cause. Recessions happen when overinvestment turns into malinvestment, which turns into losses, which are transmitted throughout the economy.

Look around and it is not too hard to find the malinvestment. I like to pick on the scooter companies.

The scooter companies are worth billions. In a just world they are microcap stocks with an $80 million market cap. Not every business has to revolutionize something or change the world.

Scooters are just scooters.

Free Report: 5 Key ETF Trading Strategies Every Investor Should Know About

From Jared Dillian, former head of ETF trading at Lehman Brothers and renowned contrarian analyst, comes this exclusive special report. If you’re invested in ETFs, or thinking about taking the plunge into the investment vehicle everyone’s talking about, then this report is a clever—and necessary—first step. Get it now.

By Jared Dillian

© 2019 Copyright Jared Dillian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in