December 16th, 2018
The upside of predicting a downturn in the economy is that eventually you’ll be right. The downside is that while the party’s still in full swing you’re just the grouchy guy in the corner, scowling at the other guests.
I’ve been calling for the current stock market sell-off for a couple of years now, and if you’d listened to me you would have missed out on at least a 20% plus gain in your investment portfolio. But this market “correction” is surely overdue: there’s only so long that people are willing to pay $225/share for a company that makes overpriced cameras masking as smartphones (or is it overpriced smartphones pretending to be cameras?) before somebody blinks, or some bad news pops. Apple shares are down 30% from their recent October peak; the much-lauded trillion-dollar-plus company is now worth roughly $800 billion. (September 12, 2019: Back to a trillion.)
So are stocks a bargain right now, or, if you sell this week could you be protecting yourself from a further drop of 10 or 20 or 30 per cent? It’s your call.
The stock market isn’t necessarily a proxy for the broader economy. Stock markets often move independently of other economic trends. It just that the current market swings are the broadest we’ve seen in a while, which got me thinking about where the economy is headed. At what point does the economy blink the way the stock market is blinking? In other words, when does the broader economy return to a recessionary state, last seen a decade ago, and how will that impact the publishing industries that I follow on this blog.
I’ve been re-reading Frederick Lewis Allen’s excellent Only Yesterday: An Informal History of the 1920s. Published in 1931, just after the events described, Allen’s insightful book reads as if he had the benefit of years of highsight in preparing his account of a decade “when dizzying highs were quickly succeeded by heartbreaking lows.” In this decade some 90 years later we’ve been enjoying the dizzying highs. How much heartbreak are we facing in the next round of lows? Or maybe things will be OK; it could be just a blip. Maybe this time it’s different.
Call me a contrarian: I collect bad reviews of the economy. I’ve got a folder called “Next Recession” nested in a broader basket I call “Current Economics.” Fifty clippings are contained within, with titles like “Another Economic Downturn is Just a Matter of Time” and “Here’s What Could Make the Next Global Recession Even Worse.” Many date back to mid-2017. Those are nearly all optimistic, stating that a recession is nowhere in sight. In early 2018 the forecasts remained sanguine, most predicting that we’re in the clear at least into 2020. In a May economist roundup by the Wall Street Journal the consensus was also 2020, with nearly a quarter of the group looking out to 2021. John Mauldin’s May survey of “seven smart market thinkers” suggested less optimism, with an average prediction for recession in the second half of 2019. But an October article on CNN puts the recession two years out, to the summer of 2020.
The Duke University/CFO Global Business Outlook December survey of the folks holding the corporate purse-strings tallied half of CFOs expecting a recession by end of next year. Of course predictions like this can be self-fulfilling: as Peter Boockvar points out, “While the CFO’s surveyed could be very wrong in their predictions, for the sole reason that they think there is a good chance of recession coming, they will act accordingly, aka, more conservatively.”
A FoxBusiness story published yesterday is headlined “Why the US economy will likely fall into a recession next year.” It features an interview with the chief investment strategist at Charles Schwab who actually doesn’t think we face an economic recession next year.
So there you have it. The next recession is due some time next year or the year after that or maybe in 2021.
It’s your call.
• • • • • • • •
Why am I bothering with this exercise in recession-mongering? Here’s my use case: even if the next downturn is two years away, publishers should be putting contingency plans in place now. Things could get ugly.
In the next blog entry I’ll look at the historic impact of recessions on the varied publishing industries. Recession-proof? We’ll see.
Some additional recession-related predictions/analysis published after this blog post:
- The chance of recession in the next 12 months rose to 23 percent in the CNBC Fed Survey (CNBC).
- How Close are We to The Start of the Next Recession? (Seeking Alpha)
- Next US recession will be ‘much worse’ than the last: Euro Pacific Capital CEO Peter Schiff (FOXBusiness).
- Why are markets falling, and are we heading for global recession? (The Guardian).
- As Markets Tumble, Tech Stocks Hit a Rare and Ominous Milestone (New York Times)
- Several important points in this article:
- “The tech-heavy Nasdaq… has officially entered a bear market.”
- “Bear markets in stocks are rare but have the power to spread gloom through the economy.”
- “The stock market is still well above where it was even at the start of 2017.”
- Several important points in this article:
- Bloomberg, December 30: “U.S. Stocks End Worst Year Since Financial Crisis.” But there’s been a solid bounceback in the last week. Could this be (using my all-time favorite stock market term) a Dead Cat Bounce?
- January 3: Apple shares slide after iPhone maker issues rare revenue warning (Reuters).
- January 3: Chinese Consumers’ Confidence Sags, Casting a Pall Over the Global Economy (NYT)
- January 3: Delta Spurs Plunge Among Airlines After Cut to Revenue Forecast (Bloomberg).
- January 4: A generally optimistic forecast from the World Economic Forum.
- January 5: A very good overview from The Economist: Whoosh: What the market turmoil means for 2019
- January 7: The Wall Street Journal thinks “Signs Point to Strong January for Stocks” while
- January 8: The Guardian reports “Analysts: Recession risks have increased” with one analyst suggesting that “The German economy has likely hit a (technical) recession.”
- January 10: The Wall Street Journal again: “Economists See U.S. Recession Risk Rising.”
- January 15: 9to5Mac.com: “Chief economist says AAPL share price predicts a trade recession in China.”
- January 20: New York Times: “Three straight weeks of gains in the new year on Wall Street have erased nearly all of 2018’s losses. It’s the best start to a year since 1987.”
- January 22: New York Times: “Stocks Sink on Growth Fears and Possible Snag in Trade Talks.”
- January 22: The PwC 22nd Global CEO Survey: “CEOs’ curbed confidence spells caution.”
- January 22: The Economist: “The euro area is back on the brink of recession.”
- January 25: Paul Krugman in the New York Times: “The conditions for such a slump are now in place, in a way they weren’t even a few months ago.”
- February 24: The Wall Street Journal: “Resurgence in Cyclical Stocks Pushes Dow Industrials Toward New High”
- February 24: Bloomberg: “How to Identify a Bear Market Rally”
- February 28, Observer: “Hedge Fund Legend Ray Dalio Is Changing His Mind About the Next Recession” Quote: :Dalio said he’d lowered his odds of a recession by 2020 to 35 percent [from 70 percent].”
- March 17, WSJ: “Stocks and commodities are on the verge of rallying to highs that have eluded them during recent upswings, a breakthrough that investors say would likely fuel further gains.”
- March 22, NYT: “Stocks Fall as Bond Market Flashes a Recession Warning… It’s one of Wall Street’s favored predictors of a recession, and it happened on Friday.”
- April 9, Bloomberg: “Guggenheim Says Chance of Recession in 24 Months Has Doubled”
- April 10, CNBC: “Goldman Sachs says chance of a recession is now just 10%”
- April 16, Harvard Business Review: “How to Survive a Recession and Thrive Afterward”
- Apr 18, Marketwatch: In the latest edition of the Duke survey described above, CFOs are not as pessimistic as they were three months ago, although “the recession predictions are closer than usual, with a greater magnitude.”
- April 24, New York Times: “The Stock Markets Hit a Record High”
- April 27, The Economist: “Rising oil prices could prevent a world economic rebound: the risk of an oil-price shock is increasing.”
- May 3, New York Times: “U.S. Added 263,000 Jobs in April…the unemployment rate was 3.6 percent, the lowest in half a century… a fresh sign that the recent fears of a slowdown were overblown.”
- May 9, New York Times: “Stock Market Rout Extends to Fourth Day as U.S. Prepares to Raise China Tariffs.”
- May 13: Financial Times: “US stocks fall sharply as US-China trade war escalates.”
- May 14: MarketWatch: “Stocks close higher as market regains bullish form in wake of trade-sparked rout.”
- May 15: Wall Street Journal: “U.S. Economy Lost Some Steam at Start of Second Quarter: Retail sales and factory output declined in April, data show”
- May 23: Wall Street Journal: “Stocks, Bond Yields Fall Amid Flare-Up in Trade Tensions.”
- May 23: The Economist: “The joys and pains of investing in a mature business cycle: Investors fear that a recession cannot be far off.”
- May 28: Wall Street Journal: “Global Bond Yields Fall Near Multiyear Lows: Investors increasingly concerned the long post-crisis expansion could be nearing an end.”
- June 5: Wall Street Journal: U.S. Crude Oil Enters Bear Market Due to Global-Growth Fears.
- June 5: The Globe & Mail: “U.S. stock market still an accident waiting to happen.” Quoting from a Capital Economics report.
- June 7: Reuters: “The weakness of retail sector numbers stood out in a monthly U.S. employment report that fell well short of expectations overall…”
- June 15: Business Insider: “Trump warns of a ‘market crash the likes of which has not been seen before’ if he loses 2020 election.”
- June 18: New York Times: “Global Economic Growth Is Already Slowing. The U.S. Trade War Is Making It Worse.”
- June 18: WSJ: “Stocks Surge After Trump Says He Talked With Xi.”
- June 20: New York Times: “Stocks hit a record high a day after the Federal Reserve opened the door to interest rate cuts.”
- February, 2019: Fathom Consulting: “Since 1988, the IMF has never forecast a developed economy recession with a lead of anything more than a few months.” (Harper’s Magazine pointed to this post in its July issue.)
- June 29, 2019: The Economist: “The global economy is on a knife-edge… the mood has taken to whipsawing between gloom and optimism.”
- July 1, 2019: New York Times: “Stocks rose on Wall Street, following global markets, as investors were buoyed by a thaw between the U.S. and China.”
- July 1, 2019: New York Times: “Consumers Are Spending. Businesses Aren’t. Who’s Right About the Future?”
- July 1, 2019: New York Times: “America’s economic expansion became the longest on record today.”
- July 13, 2019: The Economist: “As these years of growth have dragged on, it has become increasingly easy to find people sure they will soon come to an end. And yet they have not.”
- July 29, 2019: New York Times: “A Recession Is Coming (Eventually). Here’s Where You’ll See It First.”
- July 31: Wall Street Journal: “Fed Cuts Rates; Stocks Fall As Powell Signals Caution.”
- August 12: Reuters: “Wall Street falls on geopolitical tensions, recession fears.”
- August 13: New York Times: “U.S. to Delay Some China Tariffs; Markets Soar.”
- August 14: Wall Street Journal: “Stocks Skid as Bonds Flash a Warning… the drops erased optimism of a day earlier…”
- August 14: New York Times: “Deutsche Bank analysts predicted that the (German) economy would continue to shrink in the current quarter, meeting the technical definition of a recession.”
- August 19: Wall Street Journal: “An Economic Warning Sign: RV Sales Are Slipping…The RV industry is better at calling recessions than economists are.”
- September 1, 2019: New York Times: “A decade of historically low interest rates has begun to warp our economy.”
- September 4, 2019: New York Times: “A Recession Isn’t Inevitable: The Case for Economic Optimism.”
- September 13: AP: “The U.S. economy is sending some worrying signals about a possible recession, yet the stock market has gone on a what-me-worry ride toward record heights.”
- September 15: Wall Street Journal: “Resilient U.S. Growth Propels Stocks as Trade Fears Ease.”
- September 24: Wall Street Journal: “Renewed Growth Fears Push Down Stocks, Ending Recent Lull.
- October 7: Associated Press: “Business Economists Foresee Slowdown in US Growth… a sharp slowdown in economic growth this year and next, raising concerns about a possible recession starting late next year.”
- October 21: The Guardian: “World economy is sleepwalking into a new financial crisis…”
- October 25: Paul Krugman in the New York Times: “…while there will eventually be a nationwide recession — the business cycle has not been abolished — it’s not at all clear that we’ll have one before next year’s election.”
- November 5: Wall Street Journal: “Investors’ Multitrillion Dollar Cash Hoard Could Push Stocks Higher.”
- November 8, 2019: New York Times: “Recession fears are receding. That doesn’t mean they were unfounded.”
- November 17: Wall Street Journal: “Stocks’ latest records are a testament to one thing: Investors aren’t worried about a recession happening soon.”
- November 19, Financial Times: “Is the global economy about to rebound?… The IMF and other forecasters expect 2020 to be better than 2019…”
- December 6: Wall Street Journal: “Strong U.S. Hiring Eases Concerns About Economy”
- December 12: New York Times: A Recession Hasn’t Arrived (Yet). Here’s Where You’ll See It First.
- December 21, 2019: Slate: “Why Everybody Stopped Worrying About a Recession.”
- December 31, 2019: CNBC: “Don’t look now, but Goldman Sachs is saying the economy is nearly recession-proof”
- January 2, 2020: The Financial Times: “The US economy is not recession-proof”
- January 10, 2020: Wall Street Journal: “Dow Industrials Pull Back After Crossing 29,000 for First Time” (But re-crossed 29,000 on January 15, and continued rising.)
- January 11, 2020: The Economist: “Monetary policy will not be enough to fight the next recession.” The same issue reports a prediction that the chance of a recession in 2020 at only 20%.
- January 17, 2020: Barron’s: “The Method Behind the Melt-up: Why the Dow Won’t Stop at 30,000”