Are we already in a recession? When do you think we exit a recession?

I'd mistakenly thought the rule for recessions was 2 consecutive qtrs are declining GDP but apparently this is just a rule of thumb. Some people are saying we're already in a recession right now, but not sure whether that's true or not. What do you all think?

Also when do you think we exit such a recession? Seems historically most start to clear up from 8 months - 20 months. Do you think we leave the recession behind mid 2023 or late 2023? 

Working in markets, it's ridiculous how much growth stocks have been punished. Lot of fantastic companies that were trading at punchy but still reasonable valuations are down 60-70%. Can't imagine how much lower this goes, S&P is down -20% from highs now as well. Long run historical avg of S&P is around 14-15x NTM P/E, right now we're at 16x so arguably not too much downside from here given forces affecting us are more transitory vs. structural. Though who honestly knows...

Comments (7)

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Jun 20, 2022 - 2:41pm
thebrofessor, what's your opinion? Comment below:

couple things here

  • recessions almost always include high unemployment, we're not there yet, so while I do believe we're in a recession, the worst economic times may not have arrived yet
  • just because things are trading at fair value doesn't mean shit, markets almost always overreact positively and negatively, I'd expect the "bottom" to be at below average valuations (save CAPE), doesn't mean you shouldn't buy, but it means you shouldn't call the bottom. take a look at peak to trough PE and CAPE and the path to get there, if this is like the great depression or the 1970s,  the bottom isn't in at fair valuations, it's in at rock bottom  (think single digit PE, like 8 or 9x earnings)
    • lehman went bankrupt at a great time to buy but markets still fell ~45% after that (from ~1190 to 666 in march 2009) after barely falling 20% from january through the day of bankruptcy. hell, warren buffett's NYT op-ed was published when S&P was at ~950 so even the great one took a bath for a little while.
      • in short, be ready for more downside, so if you buy (I am), hold your nose and keep some extra cash to buy MOAR
  • all of that said, sentiment is in the absolute shitter, confidence readings on small business worst in 40 years, consumer confidence readings as low as they were in 1980 and 2008, which while this can be a bottom economically, not necessarily in the market
  • down 60-70% from being super overvalued doesn't mean much without considering pre-crash valuation. high quality like GOOG down 25% looks better to me than NFLX down 70% because one has lots of cash flow and little debt and the other has little cash flow and lots of debt

all of that said, I'm still a buyer because it's impossible to forecast and if this turns out to be 1980-1982 instead of 1966-1982 we're about done with the market rout even if the economic pain isn't done. if I'm wrong, I continue to earn money so will buy more, and since I'm not using leverage and live below means I can afford to wait even though my income is down (my paycheck is denominated in AUM) and inflation moved my expenses up. focus on quality, dollar cost averaging, living below means, having cash on hand, not using margin, and you should be OK long term 

Jun 21, 2022 - 7:45pm
Sequoia, what's your opinion? Comment below:

Great stuff. Curious what your asset allocation mix these days is looking like (if you don't mind sharing) for equities / bonds / real estate / cash / gold / crypto / etc

Personally am all-in on equities (some cash). Will probably diversify much more post-30 but right now not sure it makes too big a difference. Hard to hold one's nose and buy RE these days anyway and REITs seem brutally tough in an environment of rising rates. Doesn't seem like there's a safe haven anywhere, unless maybe select CBRE for the inflation protection 

Jun 21, 2022 - 10:38pm
Sequoia, what's your opinion? Comment below:

No love for RE! Think the steady CFs aspect is quite attractive (much higher yield vs bonds for only a modest increase in risk). Though you do have illiquidity and unless you're a pro, you're not going to be getting consistently strong appreciation. Dunno, the thread you had posted on understanding RE was pretty enlightening -- from a cash on cash perspective the asset class does seem to make sense. Question is when to enter perhaps 

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Jun 22, 2022 - 7:00am
thebrofessor, what's your opinion? Comment below:

Over the long term reits have inferior performance to stocks and the volatility is about the same, this even persisted during the last inflationary period (1945-1980), so they're not the best inflation hedge like everybody believes. Maybe over a 5-10y timeframe they are, but my time Horizon is longer and I don't believe in market timing so that's not relevant to me

EDIT: this is incorrect, the performance over very long time periods is essentially the same, while the vol is different. my memory was talking about house prices (case shiller), in which case performance is far inferior to stocks long term but that's only a small slice of RE

i don't need any more income

i look at total return so the fact a large chunk of the return comes from income means nothing to me

if you're talking direct versus buying REITs, direct re investing would mean I wouldn't be diversified and I'd have to break one of my cardinal rules: no leverage

therefore, I pass

EDIT: just wanted to confirm my data - S&P 500 has done 10.5% per year versus 9.8% for S&P US REIT (data only back to 1989 on my zephyr), which includes the worst 10y period for S&P 500 (2000-2010), only time periods REITs outperformed were 20 & 25y (bc of tech bubble mostly). vol for full time period was ~14 SD for S&P and ~18 for REITs, and expense ratio on the largest ETF tracking it is 50bps versus 3bps on VOO

if I stretch it back to 1979 the only NAREIT index outperforming S&P is NAREIT all equity and that's only by 15bps with a worse max drawdown, and I cannot find a single ETF that tracks it, USRT tracks a different NAREIT index

so yes, while it appears REITs are closer to stocks over very long time periods in terms of performance (I consider 10.5 & 9.8 to be essentially the same), they're definitely not superior

Jun 22, 2022 - 8:42am
financeabc, what's your opinion? Comment below:

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