Recession Incoming?
How does everyone feel about this stagnant period?
Thoughts?
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If you think a recession is not imminent I'd like some of that good good pls. Hopefully it's a quick one...
Already feels like a white collar recession but yes I think we’ll have a legit recession by the summer.
Anyone who doesn't think a recession is coming is willfully blind. The signs are all over the place - esp. if you have proprietary indicators / sources of info not from the MSM.
I would argue and say that the MSM has been suggesting an incoming recession for the last year and a half.
But to your point, yes it sure seems like a recession is on its way.
What’s the MSM?
I think the reason why a lot of people are confused is because (1) we have had a bull run for 10+ years. Many of these analysts and investment pros have no experience in a downturn (2) we have so much more media and info available to us than back in 08 so now you have a lot of these sources feeding you stuff and you don’t know how to process/decipher it all (3) this recession feels like it is being forced by the Fed raising rates. Other than that, there is no systemic risk in the markets, no major event outside of the Russian war that has had a major global impact (4) overall unemployment still seems to be relatively low and labor is strong. Layoffs seem to mainly be impacting white collar firms who overhired in 2021 (i.e Facebook, Amazon, Goldman, etc)
No systemic risks? Everyone is levered to the tits with debt like never before. Every financial institution is increasing its bad debt writeoffs at an unprecedented pace and levels. Is it normal and sustainable for people to pay for GROCERIES with buy now pay later? Stay tuned to find out.
Wait until you find out about Buy Now Pay Later ABS. Yes, they exist and have already been issued into the market!
I can make the argument that’s more due to corporate greed. In other words, too many middle class people aren’t being paid a wage by their companies that’s capable of affording them a decent quality of life.
Then they wouldn't be middle class, right?
I’m not gonna go too deep because you comment on everything and you seem to be pretentious. The economic/financial standing of the middle class has deteoriorated over the past 50 years. They are not well off enough to afford the luxuries that the previous middle class could (think 50s and 60s) but they have too much to qualify for govt. assistance (people who make less than 50% AMI).
I'm not pretentious, I was being sarcastic. However, I am more intelligent than you and don't feel the need to hide that to salve your fragile ego, which is probably what you're picking up on. Using big words isn't pretentious, pal.
Take this post, for example. It's completely unrelated to any point that was being made. It's just the same verbal diarrhea that you'll hear on any media outlet on any given day; portentous enough to sound dire, vague enough to "apply" to almost any situation, vapid enough to be meaningless in almost every context. You've made an absurd argument, done no work to support it, and treated it as though the mere act of saying it proves some deeper point.
Oh, and federal assistance kicks in at least 60% of AMI (I don't pretend to know all forms of federal assistance), so the one hard data point you tried to reference was also completely wrong.
Lmao recession is defined as two consecutive quarters of GPD decline.
We have been in a recession if it weren’t for the Ukraine war. All that is propping up our GPD and preventing the official classification of a recession.
That's not how the Fed defines recession.
I think we are still tracking for one, but the soft-landing scenario probability has definitely increased this year. I would put it at a 50/50 shot. A few more good inflation prints, and continued labor market resilience and we could be home free.
We are floating between GR 2.0 and GD 2.0. This is going to be very very bad, we need an absolute restructuring. Banks need to get back onto a footing where they can be risk on in lending again.
For those of you who are unaware, we are in the middle of the biggest dollar shortage since 2007/2008. The dollar demand is absolutely through the roof and we have a banking regulatory structure that makes it damn near impossible to fix this supply/demand problem.
Why is dollar shortage such a problem?
It is a problem because it causes economic growth to slow. Leads to yeild chasing in massive malinvestment projects, and most critically causes banks to hord all of the quality collateral.
The real risk however comes from the lack of clarity on who actually owns the collateral. I am no expert but it wouldn't shock me if something like 70 - 75% of all of the "base collateral" used in global finance is merely phantom collateral. An example would be a treasury bond. If you are bank 1 in the chain and you own the treasury itself you then create a derivative product and that lands in bank 2 then bank 3, bank 4, etc. etc. Now if that was all that was happening it is technically possible to unwind the string and get back to the base asset. The issue is that these collateral items have been used to create counter risk products, underwrite contracts, etc. etc. All of these items claim to have a claim to said asset. How does one litigate that when the same collateral has been used in say a SLBC, and the insurance product underwriting the SBLC itself? Who gets paid? The firm that holds the SBLC or the reinsurance company who underwrote the SBLC? It is estiamted that the claims on dollars vs the actual dollars themselves can be levered up into the low 5 figure range. So say for example you have $1B in "dollars" the derivative claims could be as high as $10T+. If that house of cards starts to unravel the bottom of the hole will never be discovered.
If you want to learn more about this start with something called the "eurodollar". It is a wild story and believed by me and others to be the actually cause of the current global economic woes that have plagued the economy since 2008.
I think we are already in a recession
I don't see things getting too much worse, I think economy will keep chugging along. In the event of a slowdown, Fed has room to drop rates.
re: inflation - this is what happens when you increase money supply 30%. It will take some time for the economy to absorb that cash and get back to a reasonable level of velocity.
I don't know what happens to the banks that went all-in on low-yielding product when they felt inflation would be high and a cash balance would get eroded quickly, but are now underwater on yields. Unfortunately, it seems like everyone moved in lockstep on that front.
What do you mean, you don't know? Were you asleep throughout March? This happened to SVB, to First Republic, to Signature Bank... major financial institutions.
And by what definition do you say we're already in a recession? Also, depending on that definition, why does it matter? If jobs numbers and wage growth stays strong, and inflation comes in, then there won't be a major issue, because consumer spending will stay strong. So far all of those things are true, which is why you see more and more predictions of a soft landing.
Also, a short recession wouldn't be the worst thing in slowing down a massively overheated economy. Trump's outrageous tax cuts followed by outrageous amounts of stimulus money led to insane valuations in pretty much every corner of the market - creating a small puncture to let the air out of that now, rather than risk waiting for a massive blowup, is arguably a good thing.
I don't know what happens if every financial institution is balls deep in bonds yielding -1% to 3%. If a few companies go tits up, that's one thing. What happens if every single major endowment fund, SWF, pension fund, central bank, etc. are all in the same boat? Its not like everyone can go tits up at the same time, unless you think the biggest financial meltdown of all time is incoming. If you do think that, please send through screenshots of your SQQQ position.
2 consecutive quarters of real GDP contraction. It's not that I think it matters a huge amount, but the title of the thread is asking about it. Soft landing would be nice but bifurcation in economy seems more prevalent now than before COVID, which I don't think is a good thing. Savings amounts and credit balances are, on average, equal or worse than pre-COVID.
Agree that economy was overheated... but pretty sure 30% increase in money supply did much more harm than tax cuts in 2018
I would argue we have been in a proto recession since 2007. It all depends on how you measure growth. We have lost trillions of dollars in global GDP if you look at comparitave growth trends pre and post GFC. The argument can be made, and I think made well, that we never really left the depression/recession that started in 2007. If you compound the growth at a just a 1% differential for 17 years that is an absolutely MASSIVE difference. In reality think the average GDP growth rate difference is closer to 1.27% in the previous 17 years vs the following 17 years.
Also 10 years of fed money printing, and outrageous increase in entitlements
Was going to say the same, we are already technically in a recession. Now people want to change the definition, it's a tough time since the labor market is strong but we are seeing layoffs for the past few months at minimum, hiring slowing, and inflation increasing at a slower pace. A tough time, but we're moving through it and maybe we will avoid a very bad recession.
Someone mentioned to me that even the GFC was only 18 months long, this will be no where close to that and it's already started.
Not sure about general recession specifically, but RE will probably have another 2-5 years of price discovery / credit tightness. Gonna be pretty ugly for a while…
It would be surprising if this were the one time a deeply inverted yield curve didn't signal a recession.
Though it does seem like the worst is over - inflation is down and fed has room to cut if needed. Though I wonder if that would trigger the CPI to spike again.
For a soft landing, its necessary that ir has peaked. If ir remains high, how many operators who took debt at historically low ir can refi at 3x the rate.
I think the WSJ does a good job illustrating the likelihood of a recession in this article: https://www.wsj.com/articles/where-financial-risk-lies-in-12-charts-792…
Particularly it looks like the commercial real estate market might once again drag down the broader economy. Also, with rates as high as they are now, a "soft landing" does not seem likely to me.
Also think that SVB's impact has not been fully realized yet, especially with the likely bankruptcy of First Republic.
I just don't see how the commercial real estate market is going to drag down the broader economy. Last time, banks had far more risk exposure because leverage was so much higher. Banks with high %'s of office loans may be at risk, but I think some recent articles talking about the demise of commercial real estate seem to think that office is the only asset class that comprises it. Certain markets will have distress in multifamily, but not most places. I haven't gotten a whiff of distress in industrial unless we are talking about a few select markets that saw a lot of supply. The combination of all of these just don't seem large enough relative to the overall US economy to cause a recession.
The thing that is hard for someone that came into the market post-GFC is just how cowboy shit was pre-2008. The owner of my company rarely put money into deals. Lots of condo projects. CMBS debt. Mezzanine debt. All of that still exists to some level today of course, but nowhere close to as much. If private values declined 30%, most bank loans would still be in the money. I think you are going to see some debt funds get jammed real bad, however, but that is basically equity that is being wiped anyways.
Yeah, this is worth noting. Lending standards were so lax that you'd see 100% LTV loans, just on the assumption there would be 20-30% appreciation. Not saying you can't lever up your capital stack, but that kind of shoot from the hip lending doesn't exist in the same way. So yeah, maybe assets lose 30% of their value... but the lender is still made whole. or the senior lender is, anyway
I think the economy will be booming next year and onwards.
I’d love whatever you’re on
What are the catalysts?
I actually agree. Unemployment is low and corporate earnings have fared pretty well. Yes there have been layoffs, but that’s mainly the FAANG-MBB-IB companies that wayyyyy overtired in 2021.
I’m optimistic about the future of this economy.
Shit is going to hit the fan me thinks
Do you think Georgetown or NYU would be better for a master's in real estate? My Sig Chi dawgs are headed to GT, but my Sig Nu homies are going to NYU. Need advice my man
Anytime you flip on cnbc the narrative is Commerical real estate is doomed. This has a huge psyche impact on the investor.
Capital is the lifeblood of our industry and you’re going to see new capital raising get decimated.
without new capital coming in the door you are going to start seeing people in this industry that you know who will be out of a job.
we are in a recession
the media will proclaim its a recession when gop wins in 24 (if they do).
Recession is here.
On the other hand, 2 years out of college here myself. Not that I’ve really experienced a recession, but I must say it doesn’t feel like a recession. (Just making this statement based off pure “how it feels”, not data). Is this what a recession feels like ?
Some parts of the economy (housing / PMIs) have already turned over. Overall financial conditions have tightened and the recent stress in regional banks will likely restrict access to credit in certain areas of the economy. The key area holding up well is the labor market, which is why it is important watch data like JOLTs/weekly claims/payroll. If the labor market turns, it will be pretty hard to avoid a recession (using the technical definition) by the end of the year. If you talk to some businesses, they would say we already there. I think some are confusing stock market resilience driven by megacap tech with economic resilience. The YTD QQQ performance has largely been driven by multiple expansion and not strong growth. For example, even though Apple stock is up big YTD, it just announced a YOY revenue decline of -3% and even larger declines in Macbooks. The equal weight S&P 500 index or IWM tell a very different story than QQQ.
The worst is yet to come. More layoff is pending. This is 2008 all over again. Bounce back will not happen until 2025 at best. May be even 2026 or 2028.
Why do you say this will be 2008 all over again?
My guess is that bank lending is going to ground to a halt from end of Q1 through the end of the year. Banks had huge loan growth in 2022 with noticeable deposit runoff, and slower but still decent loan growth in Q1 of 2023. I don't know to what degree bank lending drives the economy, but it's a simple math problem--banks can't grow their loan portfolios anymore with deposit runoff as there isn't the cash to fund loan growth. So, if a recession is just slight negative GDP growth, you don't need catastrophic trends to bend the economy into negative territory. This will probably have a notable capital investment impact, particularly in states that have seen strong growth recently (e.g., Georgia, Florida, Texas).
100% this. my bank has already relayed the message that we need to shrink the balance sheet for this exact reason. We are declining deals left and right based on returns not hurdling. If you can get credit, you're going to pay up for it one way or another (deposits, significant increase in fees, spread increases, etc.)
I genuinely, honestly dont understand the bull case for the next 12 months, possibly 24 months. People point to new non-farm payrolls last week for example -- ok? Well they revised the numbers for March by like 150k (350k reported in march, beating 330K expectations.) It was revised down to 180(!!!!)K.
I've been bearish for awhile because of a number of macro factors underlying the system. However I'll be honest that I initially wrote-off the SVB and Signature Bank failures as just mismanagement. It's clear now that this problem is not going away. Just the banking system alone could pull this down (Anonymous Director of Private Credit hit on it too). I'm not even going to touch on other possibly systemic problems (wave of refinancings, unknown and hard-to-quantify credit risks in private equity and private lending, etc.)
Explain this argument:
I don't want to spread doom and gloom to cause panic, this is just genuinely how I see it. We've gone from ZIRP to 5% rates in a year. The wave of refinancings is going to destroy asset prices across real estate, public equity, private debt, corporate debt, high yield...
We're going to hit that brick wall at 100mph. Would really like for someone to point out where I'm wrong.
Really insightful thank you! Curious on what type of opportunities you think will be coming up in this environment?
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