Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

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.


© 2005-2022 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