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Recession is coming...

Joy Pathak

Swaptionz
Mostly see that people still talk about programs/etc on this forum.. figured I would try to get a different discussion going.



thoughts?

market is definitely pricing like late 2019 recession but market has been wrong.
 

pingu

Well-Known Member
how do you define recession?

I see a vol spike that will benefit certain strategies.
 

JamalTheTrader

Active Member
C++
Well I wouldn’t be overly concerned in the long run. Recently the business cycle has been more mild than decades past. https://www.nber.org/cycles.html
We're now often seeing 100+ months of economic expansion compared to ~50 months periods after WWII.
Although there was a mini recession in the energy sector around 2016, we had such a long period sustained growth.
 

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hak

Member
Mostly see that people still talk about programs/etc on this forum.. figured I would try to get a different discussion going.



thoughts?

market is definitely pricing like late 2019 recession but market has been wrong.

Some in markets have started talking about a Fed rate cut in 2020 which basically means that we may be heading towards a recession in early 2020. But difficult to point out where it will come from. Everything looks good with the US economy.

Next global recession may be coming from my backyard in China but it is hard to say when. Asset price bubble in China appears even bigger than it was in Japan in late 80's. Chinese authorities were fine tuning policies in recent years towards deleveraging. The recent slowdown in China has been largely because of it's deleveraging efforts and impact of trade tensions, if any, may actually begin to be felt only in 2019. China now is shifting away from deleveraging policies and will likely pursue fiscal as well as monetary stimulus going into 2019 but it will only postpone economic slowdown and further intensify systemic risks (i.e. leverage in the system).

We may also be heading towards another Eurozone crisis with economy growth appears to be slowing down. Eurozone economy is also quite exposed to global trade cycle and there is little ECB could do in terms of monetary stimulus if there is slowdown. Political landscape in Europe is also becoming messy with bent toward populist policies and growing differences between member states. Leadership at several EU's top position will change in 2019 (European Commission, EU Council, Parliament and the ECB) while heads of governments in several key countries could change as well. Markets could again begin to question the future of Euro.

It is unlikely that the US will be the epicentre of a global recession this time around but next year is likely to be quite eventful. Have been seeing so much market activity this close to holiday season..any other year, this will be very quite time for traders.
 

Joy Pathak

Swaptionz
Some in markets have started talking about a Fed rate cut in 2020 which basically means that we may be heading towards a recession in early 2020. But difficult to point out where it will come from. Everything looks good with the US economy.

Next global recession may be coming from my backyard in China but it is hard to say when. Asset price bubble in China appears even bigger than it was in Japan in late 80's. Chinese authorities were fine tuning policies in recent years towards deleveraging. The recent slowdown in China has been largely because of it's deleveraging efforts and impact of trade tensions, if any, may actually begin to be felt only in 2019. China now is shifting away from deleveraging policies and will likely pursue fiscal as well as monetary stimulus going into 2019 but it will only postpone economic slowdown and further intensify systemic risks (i.e. leverage in the system).

We may also be heading towards another Eurozone crisis with economy growth appears to be slowing down. Eurozone economy is also quite exposed to global trade cycle and there is little ECB could do in terms of monetary stimulus if there is slowdown. Political landscape in Europe is also becoming messy with bent toward populist policies and growing differences between member states. Leadership at several EU's top position will change in 2019 (European Commission, EU Council, Parliament and the ECB) while heads of governments in several key countries could change as well. Markets could again begin to question the future of Euro.

It is unlikely that the US will be the epicentre of a global recession this time around but next year is likely to be quite eventful. Have been seeing so much market activity this close to holiday season..any other year, this will be very quite time for traders.

this is the most bullish season for rates since great depression...you would think the treasury is not gonna issue any more long bonds. lets see how todays fed tone goes. Any less then a strong Dovish hike and we see bear flattening in the curve... i think market is overdone.. and it iwll be tough for the fed to match the markets expectations.

woohoo.
 

hak

Member
this is the most bullish season for rates since great depression...you would think the treasury is not gonna issue any more long bonds. lets see how todays fed tone goes. Any less then a strong Dovish hike and we see bear flattening in the curve... i think market is overdone.. and it iwll be tough for the fed to match the markets expectations.

woohoo.
Dovish hike indeed but far less than market expectations. Rates market is not fully implying even one rate hike in 2019. I believe such expectations will normalise in early 2019 in absence of any downward surprise in US data.
 

ApolloChariot

Well-Known Member
Dovish hike indeed but far less than market expectations. Rates market is not fully implying even one rate hike in 2019. I believe such expectations will normalise in early 2019 in absence of any downward surprise in US data.

Turns out the stock market doesn't do well when 50 billion is sucked out every single month while rates are rising.

Too bad there's no historical parallel. Will be VERY interesting to see when the Fed stops rate hikes and scales back quantitative tightening. Wonder how many quarter point hikes there will be after today, would be ominous if the supposedly doing great US economy can't handle fed rates of 3%........
 

longgamma

Well-Known Member
C++
My main worry would be geo political risks going into next year. I am not supporting or dissing on any party/movement but trying to be objective here.

Most of the fundamental analysis assumes the underlying liberal policies holds well into the future - things like trade agreements, no tariffs or full blow currency wars. Even five years ago, no one though of things like Brexit happening. If the probability of EU disintegration increases next year, then of course markets would be even more jittery.

Also, the two speed recovery - US vs rest of developed market really is a little scary at this point. If the US consumer demand declines because of domestic issues, then who would be the driver of global growth? Really need EM countries to step up and hopefully add some counterweight.
 

CrNaRuKa

Active Member
C++
Some in markets have started talking about a Fed rate cut in 2020 which basically means that we may be heading towards a recession in early 2020. But difficult to point out where it will come from. Everything looks good with the US economy.
Prediction came true.
Recession in early 2020.
 
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