Many indicators indicating a recession coming in 2016

[FrugalSaver]

Including one that has occurred in each of the last 10 recessions.

Much of the world is already in recession and this time we have $100T in debt across the planet to contend with.  Sometimes the market just wants to keep going up (easy example is the beginnings of the recession under Clinton in his last term in 1999-2000). 

The average recession sees the S&P go down by 37%.  It will be interesting how the Mustachian community weathers the next recession, whenever it comes. 

Staying disciplined, especially if you're a buy and holder, is extremely difficult in the face of losing 40% or more of your net worth.

No one can guarantee when the next recession comes, but we haven't seen this many indicators of one wince the 2007-2008 period which saw more than 50% in losses from peak to trough.

If you have powder dry, great opportunities may be coming.

[Indexer]

Thanks for the advice if a recession actually happens. I feel predicting this with any certainty is just about impossible.

The guy who has normally been one of the best at predicting this sort of thing, Professor Robert Shiller, will tell you that predicting a recession within a given year is just about impossible. Even his models only help in predicting what the market returns might be over a ten year period. If the CAPE PE ratio gets high it doesn't signal a crash in that year or the following. It just implies lower expected returns in the following 10 years. Sometimes that comes with a crash within the first few years, sometimes not, but again it is just about impossible to predict that a recession will happen in X year in the future.

So my question would be which indicators are predicting a recession?

[Markywalberg]

Well the fed is raising rate so that is a good first step but we will have to see how the market reacts but typically keeping rates at zero for 7 years causes a bubble somewhere. I don't think it is housing but prices are definitely higher then I feel justified and I do see people getting mortgage loans for a house they cant afford so that's kinda a first step in the wrong direction. Also aggressive stocks might take a hit mostly talking unicorns here but I think that will be the first crack in the next bubble

[FIRE_Buckeye]

People have been calling for a recession since 2011.
It'll happen eventually, but there's nothing to suggest a recession in the immediate future.

[AZryan]

Staying disciplined, especially if you're a buy and holder, is extremely difficult in the face of losing 40% or more of your net worth.

Actually, I'd contend that a 'buy and holder' is exactly the investor that does face a crash without doing something stupid like selling at a bottom. That's what gives them the 'hold' part of the name.

No one can guarantee when the next recession comes,-

And that understanding probably should've just told you everything you need to know. If not, maybe just change the can't 'guarantee' to an even clearer can't 'know' when a recession will hit.

Sorry, but this has been addressed a million times already. Short term predictions are purely guessing games 'cuz they don't follow much logic or any real discernible pattern.

The concept of 'dry powder' had also been addresses a ridiculous amount of times here. Statistically, it probably won't work to much or any advantage (unless you happen to get lucky), so investing 'the earlier, the better' is typically the best strategy rather than sitting on cash waiting for the next perfect opportunity to arise (meaning: timing the bottom of a big crash).

And I say this as someone who pulled out some money I needed when the market was still high early in the year, and put some that got saved up back in at the exact very lowest point late in the year. Just happened to get lucky twice, and in the big picture it really didn't add up to much.

No one would've been surprised by a crash in '15 either, but instead it kept going up, and then came down a good bit, came back up some, down a little, and ended pretty much dead flat. All we know is '16 won't be the same 'cuz the market never does the same thing two years in a row (though, it still could).

[Retire-Canada]

Have a plan that accepts market crashes and surges. Stick to it.

As someone who is still adding to my investments whenever I hear "recession" or "crash" talked about I equate that with "sale prices" or "opportunity".

For folks that are living off their investment income I realize you'd have a different perspective.

Personally my most likely FIRE path is going to involve  moving from full-time to part-time work so this scenario concerns me less even as I think forward to that phase as I will have an opportunity to draw down my investments less or even start adding to them again by grabbing some extra work.

[FIRE47]

Have a plan that accepts market crashes and surges. Stick to it.

As someone who is still adding to my investments whenever I hear "recession" or "crash" talked about I equate that with "sale prices" or "opportunity".

For folks that are living off their investment income I realize you'd have a different perspective.

Personally my most likely FIRE path is going to involve  moving from full-time to part-time work so this scenario concerns me less even as I think forward to that phase as I will have an opportunity to draw down my investments less or even start adding to them again by grabbing some extra work.

As someone who hasn't just held US Equity ETFs through 2015 I've already received quite the beating and volatility through last year and have had to adjust my plan ( I hold a lot of Canadian stocks and EAFE as well as commodity stocks). I learned that my risk tolerance was not as high as I thought it was so I have been changing up my AA to add a bit more diversity as well as fixed income instead of 100% equities. I am also handing over control of part of my money to a robo advisor and making it automatic.

[bacchi]

There's something forming in my crystal ball...


The Fed is happy about the economy and more Americans are more optimistic about their jobs than in a long time. When that happens, spending increases. It'll be a good year.

[FrugalSaver]

It will be interesting to see how the market does with earnings coming up.  How many companies meet?  beat?  fall short?

Will go forward estimates contract? expand?

Obviously if you've got a 40 year time horizon, you don't concern yourself with things like this.  Most of us shouldn't concern ourselves with any of this.  I fall more in that camp.

It is interesting to evaluate what is happening in the world and try to take advantage where one can, but that's not for everyone.

We are coming off the worst first week of the year in the markets in US history.  Monday will be bad, but maybe it reverses intraday.  I'm more concerned with the macro numbers, many, if not most look pretty bleak, especially when looking at the global perspective on those numbers.  This may not be the Bush recession of 2007/2008. 

This may not be the Clinton recession of 2000/2001.

It is interesting to note that the markets are up in total ~12% from the highs under Bush in 2007 and we're about $15T more in debt.

So in 8 years and 3 months, we've printed more debt than 44 previous presidents / administrations combined and for all that we've had annualized returns of 1.5% per year without dividends included.

That's not normal after a recession.

I have no crystal ball.  I know that when you look at a lot of factors, it does not look good.  I have no idea how all this unwinds, but I don't believe it can continue to expand year after year simply by printing money and having fewer and fewer people working (as we now have fewer people working than we've had in ~40 years).

We all know that markets can continue to expand well beyond when they should.  The market in late 1997 or so was way overvalued and it continued to roar higher for another 24 months.  The same could happen here, but hard to see how the markets over the next 2-3 years even match historical returns for the S&P without some radical change.

I'm open to thoughts and opinions as data can be interpreted many ways. 

I do know that the market since 1999 has returned barely over 4% per annum, dividends included.  That's one of the 8 or so worst 16 year periods since 1872.

Make of that what you will.

[TheNick]

I'm a buy and hold dividend investor.  I got a ways to go to retire so a stock market drop won't bother me...I'll just ride it out, invest dividends, and throw more money in along the way.  My strategy won't change much either way...I tend to just shop around beat down sectors for quality bargain stocks.  Lately I've been putting money into energy and material stocks...if we get a big market drop it just means I'll have more variety to pick from.

[Tjat]

conversely, I'm also seeing bullish signs like an escalating "fear" index" on wall street and strong signs from the US economy. People are overreacting to China now that their artificially construct balloon is finally popping. For years, China has propped up an economy that prioritizes building empty mega malls than actual investment/infrastructure.

[FIRE_Buckeye]

So my question would be which indicators are predicting a recession?

Second largest economy on earth (China) riding the struggle bus with no clue how to stabilize their market, stagnant wages over the past 25 years, collapse of the American middle class, and the elephant in the room, the millions of Boomers that are now retiring, and as a result, pulling billions of dollars out of the stock market to re-balance into more conservative ports.

The last point could be one of the bigger issues going forward. With boomers retiring and leaving the market (to one degree or another), coupled with the aversion of Millennials to invest in the market, is going to leave Mr. Market with a major cash flow imbalance in the years to come.

[TheNick]

The last point could be one of the bigger issues going forward. With boomers retiring and leaving the market (to one degree or another), coupled with the aversion of Millennials to invest in the market, is going to leave Mr. Market with a major cash flow imbalance in the years to come.

I don't think this will be a major issue.  In theory if boomers pull a ton of money out of the market and millennials don't put any in...wouldn't that just drive down share prices and drive dividend yields through the roof?  There is going to be a balance point somewhere where the market becomes worth the extra risk for boomers to stay in and collect dividends vs safer investments like cds, and such a sweet deal that millennials become a little more willing to invest.  I think we'll probably just see a couple decades of below average growth in price per share as this goes on but dividends will continue to do nicely.

[FIRE_Buckeye]

I don't think this will be a major issue.  In theory if boomers pull a ton of money out of the market and millennials don't put any in...wouldn't that just drive down share prices and drive dividend yields through the roof?  There is going to be a balance point somewhere where the market becomes worth the extra risk for boomers to stay in and collect dividends vs safer investments like cds, and such a sweet deal that millennials become a little more willing to invest.  I think we'll probably just see a couple decades of below average growth in price per share as this goes on but dividends will continue to do nicely.

There lies the issue for those of us (most of this forum) who want to retire early.
Share prices being driven down (general market decline) + "a couple decades of below average growth in price per share" would set most on here back considerably when it comes to reaching that goal.

[bobechs]

Without going into exhaustive detail about the particular incidents, and without delving into the particulars of the current situation which I know I am not qualified to expertly evaluate, I will observe that throughout my own personal adult life -which is now running on fifty years or so- there has been a drumbeat of exactly this sort of prognostication which, as far as I can recall, has not been well-coordinated with actual economic downturns.

Yes, there have been some fairly grim times during that span and by continuously predicting next year is going to be pretty bad (and because of yada-yada, will be somewhat uniquely bad or at the very least uniquely unique) one is assured of being right about recessions some of the time.  Blind  pigs and so on...

I do remember a very big-selling book(although I don't have the title in my forebrain) of the early nineties that confidently forecast that the disastrous economic policies of the Clinton administration guaranteed at least the ten coming years were going to be very, very bad for the economy, investors workers, etc. etc. and that would in turn drag down the world economy. Oh,and how one could profit from knowing so.

[sol]

The average recession sees the S&P go down by 37%.  It will be interesting how the Mustachian community weathers the next recession, whenever it comes. 

I'm keen for a recession, because I'm still buying stocks.

There will be another recession eventually.  It could be this year or 20 years from now, but it's guaranteed to happen again like it always has before.  It's a normal part of the cycle, and the goal is to stay invested through all parts of it.

And as someone with a stable job who makes regular stock purchases, I'd MUCH rather that collapse in stock prices happened now than happened right after I retire and start drawing down those assets.  Low stock prices now mean I get to buy more when they're cheap and then retire into a period of higher than average market performance.  That's perfect.

So I'll be quietly rooting for a hard and fast recession.  Maybe a 20-40% drop for six to twelve months, followed by a rapid recovery and then seven more years of 15% growth after that.

[FIRE_Buckeye]

I do remember a very big-selling book(although I don't have the title in my forebrain) of the early nineties that confidently forecast that the disastrous economic policies of the Clinton administration guaranteed at least the ten coming years were going to be very, very bad for the economy, investors workers, etc. etc.

Probably not the worst prediction ever; -9.5% over the following ten-year span

[bobechs]

I do remember a very big-selling book(although I don't have the title in my forebrain) of the early nineties that confidently forecast that the disastrous economic policies of the Clinton administration guaranteed at least the ten coming years were going to be very, very bad for the economy, investors workers, etc. etc.

Probably not the worst prediction ever; -9.5% over the following ten-year span

And yet, I somehow don't remember those years as one continuous grimscape of year-on-year economic pain as the authors said it would be. 

Let me pick the endpoints of any retrospectinve series of years and permit me further to dwell only on the endpoints, and I suppose I could outdo that chart, if I cared to.

[TheNick]

I don't think this will be a major issue.  In theory if boomers pull a ton of money out of the market and millennials don't put any in...wouldn't that just drive down share prices and drive dividend yields through the roof?  There is going to be a balance point somewhere where the market becomes worth the extra risk for boomers to stay in and collect dividends vs safer investments like cds, and such a sweet deal that millennials become a little more willing to invest.  I think we'll probably just see a couple decades of below average growth in price per share as this goes on but dividends will continue to do nicely.

There lies the issue for those of us (most of this forum) who want to retire early.
Share prices being driven down (general market decline) + "a couple decades of below average growth in price per share" would set most on here back considerably when it comes to reaching that goal.

http://www.multpl.com/s-p-500-dividend-yield/table

Check that out man...dividend yields have pretty much been at a low point for the last 20 years.  Would a decade of below average price per share growth really hurt you that bad if during that same time average dividend yields climbed from 2% to 5-6%?  If you are retired you just get fatter dividend payments, and if you are still in the accumulating phase reinvesting your dividends will give you more bang for your buck.

[Retire-Canada]

I'm keen for a recession, because I'm still buying stocks.

There will be another recession eventually.  It could be this year or 20 years from now, but it's guaranteed to happen again like it always has before.  It's a normal part of the cycle, and the goal is to stay invested through all parts of it.

And as someone with a stable job who makes regular stock purchases, I'd MUCH rather that collapse in stock prices happened now than happened right after I retire and start drawing down those assets.  Low stock prices now mean I get to buy more when they're cheap and then retire into a period of higher than average market performance.  That's perfect.

So I'll be quietly rooting for a hard and fast recession.  Maybe a 20-40% drop for six to twelve months, followed by a rapid recovery and then seven more years of 15% growth after that.

I'm not going to go so far as to say I am "keen" for a recession simply because watching my asset values decline and living with all the gnashing of teeth around me in the wider society isn't super fun. Even though I know logically it's a great time to be buying.

I'm going to downshift to part-time regardless of the market on a specific date and let my investments coast until full FIRE makes sense. So I am even more immune to the worry about a crash than the typical all or nothing FIREr. At least at this point my feeling about a +/- 50% change in the duration of that part-time phase is pretty is pretty unconcerned.

My mistake during the 2008 crash was not super charging my savings/investments. I won't make that error again.

[MustacheAndaHalf]

I do remember a very big-selling book(although I don't have the title in my forebrain) of the early nineties that confidently forecast that the disastrous economic policies of the Clinton administration guaranteed at least the ten coming years were going to be very, very bad for the economy, investors workers, etc. etc.

Probably not the worst prediction ever; -9.5% over the following ten-year span

Your chart begins in 2000.  The 1990s and the Clinton administration do not begin in the year 2000.  Between 1993 and 1999 investing $10,000 turned into $36,000.  After that, 2000-2005 is flat from the "dot com crash".

[FIRE_Buckeye]

I do remember a very big-selling book(although I don't have the title in my forebrain) of the early nineties that confidently forecast that the disastrous economic policies of the Clinton administration guaranteed at least the ten coming years were going to be very, very bad for the economy, investors workers, etc. etc.

Probably not the worst prediction ever; -9.5% over the following ten-year span
[IMG]http://i63.tinypic.com/30hyq2s.png[/img

Your chart begins in 2000.  The 1990s and the Clinton administration do not begin in the year 2000.  Between 1993 and 1999 investing $10,000 turned into $36,000.  After that, 2000-2005 is flat from the "dot com crash".

Your "gotcha!" post is ironic in that I'm not sure you're completely comprehending what we're both reading.
I've rebolded the key point above, economic policies of the Clinton administration guaranteed at least the ten coming years, as in the ten years following the Clinton administration. Economic policies never have an immediate affect on economic performance due to time lag. Read about that here:
http://www.economicshelp.org/blog/glossary/time-lags/

And yet, I somehow don't remember those years as one continuous grimscape of year-on-year economic pain as the authors said it would be. 

Let me pick the endpoints of any retrospectinve series of years and permit me further to dwell only on the endpoints, and I suppose I could outdo that chart, if I cared to.

So the range I chose wasn't an arbitrary range at all (nor was it posted to really make any sort of point either, I just found it interesting that the quote actually had some merit to it). It was the ten year period beginning the year Clinton left office. I don't know what there is to argue there you guys.

[bobechs]

You are such a tool.

The book I referred to (which I still unfortunately cannot recall the title of) argued that the ten years just coming -not some knock-on period many years yet to come, decades away- were going to be economically horrendous.  That is what sells books and the same thesis, How to Survive and Thrive in the Coming Economic Apocalypse, is always for sale.

Pick a year, go to the bookstore and you will find a similar book (or go to the internet since that became a thing) that forecasts the immediate economic future is dire.  The elements of the recipe are the same old ingredients: debts of all kinds, balances of payments, interest rates, commodity supply and demand with occasional newish stuff thrown in to spice it up.

Vey occasionally those scary stories are told -and sold- just before the boogeyman appears; generally the boogeyman stays away.

It happens that the nineties, which is what this type of book published in 1993 or thereabouts was about, was unambiguously in the no boogeyman here folks category.

My request.  If you are going put on a clueless act in the first instance, don't be a smug and preening jerk in the second round.  They look bad together.

[AZryan]

FIRE-buckeye,
We can all see you desperately want to push this idea of Clinton having ruined the 2000-2010 economy as an artfully subtle attack ad worthy of The Donald himself.

I could picture the joy in your eyes when bobechs didn't quite catch your line of reasoning and possibly misrepresented it.

Sadly, you still utterly failed to prove your misguided case for Clinton having set the stage for all this economic damage.
He left office with a budget surplus and a national debt that was no longer increasing vs. GDP. It was a definitively 'improving' trajectory.

Nor was it Bill Clinton that created the dot com bubble that sent the market tanking for several years after Clinton had been (wrongly) replaced by Bush. Clinton didn't cause 9/11, either (noted because it was another large factor in markets dropping). Nor did Bill implement the 'mainly for the wealthy' Bush Tax Cuts, or start a misguided war in the wrong country (Iraq), simultaneously dropping the ball/focus on the correct target (Afghanistan and finding bin laden). And then not paying for any of it in 'on the books' budgeting.

I don't need to directly blame Bush for the housing/banking crash that happened under his watch, but he certainly did plenty to make us unequipped to counteract it.

Hell, the Clinton repeal of Glass-Steagall Act would've been a solid point you could've made, but you failed to. Then again, it would be easy to note that Bush/Repubs made no attempt to reinstate it, so shares that blame and gets far more for the doldrums of our economy than Clinton (or Obama).

Please drop the lame line of baseless attack. It's feeble.

[FIRE_Buckeye]

So you followed up this:

So the range I chose wasn't an arbitrary range at all (nor was it posted to really make any sort of point either, I just found it interesting that the quote actually had some merit to it). It was the ten year period beginning the year Clinton left office. I don't know what there is to argue there you guys.

With this:

FIRE-buckeye,
We can all see you desperately want to push this idea of Clinton having ruined the 2000-2010 economy as an artfully subtle attack ad worthy of The Donald himself.

What am I missing here?
If I wanted to make a point, one would have been made and supported, instead of simply posting a chart relevant to his post that I found interesting.

Take off your tinfoil hat.

[AZryan]

Comical Buckeye.
You flail, lack substance and resort to weirdly cheap insults.
My Trumpish impression of you seems fairly well confirmed.

[TheNick]

Economic policies never have an immediate affect on economic performance due to time lag.

The next president...whether it be republican or democrat...is definitely going to agree with this with the massive pile of dung they will be inheriting lol.  I don't think many people are going to enjoy the aftermath of ZIRP and QE.

Hell, the Clinton repeal of Glass-Steagall Act would've been a solid point you could've made, but you failed to. Then again, it would be easy to note that Bush/Repubs made no attempt to reinstate it, so shares that blame and gets far more for the doldrums of our economy than Clinton (or Obama).

Please drop the lame line of baseless attack. It's feeble.

Nope...but Bush pushed for tighter regulations on the sub prime lending market more than once and got shut down by the democrats who wanted to carry on Clinton's legacy.

http://www.usnews.com/opinion/blogs/barone/2008/10/06/democrats-were-wrong-on-fannie-mae-and-freddie-mac

When the guy before him set the stage for the sub prime lending crisis, and democrats that were supposed to be working with him refused to see the problem...yeah...democrat's weren't exactly an innocent party there just because it happened on Bush's watch.

[AZryan]

TheNick,

Nice counterpoint based on facts and a solid supporting link. A fine example of how to disagree and debate someone.
To have called Democrats blameless and faultless would certainly have been wrongheaded, so I'm glad I never did. I didn't mean to imply it, either but it may've seemed that way.

[FrugalSaver]

I do hope to be wrong. 

The impacts of the oil collapse, which isn't yet done, is already being felt in the housing market.  The Fed is asking banks to NOT "mark to market" their loans to energy companies.  This is where the fed starts to make up the rules as they go and decides who survives and who doesn't from a banking perspective based on bending of the rules.

Does this sound familiar to anyone?  We are in the early stages of the 2007-2009 sub-prime mortgage scenario, except this time, it's in the energy patch.

With Saudi Arabia's mortal enemy Iran now getting a lifeline from America, they are suprficially forcing prices down to help keep them from quickly regaining a financial advantage. 

As a result, much of the Middle East stock markets are already in a depression with no end in sight. 

Stay tuned to this thread as I'll keep updating to help everyone prepare accordingly.  If the world turns over into recession, this will be much worse in my opinion than the 2007-2009 recession that was superficially recovered from, not by job growth, but by increasing the money supply more than any time in history. 

America is in bad shape financially and the world is in much worse shape as they don't have capital markets that help motivate their populations to dig out and feel rewarded for their efforts.

[EngiNerd]

I started investing in 2010 and bought in to buy and hold index investing completely.  Most of what I have read and researched generally supports that based off of the data and knowledge available that for passive investing, low cost index funds are the most prudent option for maintaining and or increasing purchasing power.  I always figured I could easily handle a significant bear market, even look forward to it as sol alluded, early in my accumulation phase.  However, I must admit that the points that FrugalSaver has raised have been on my mind.  The record debt, the not so convincing recovery from the last recession etc.  I currently feel like it would be a good bet that there will be a correction.  That fear of "it might be different this time" is creeping in.  However, there doesn't seem to be a better bet to me than to just keep investing and if there is an insane crash just double down on living efficiency and put as much capital as possible into the market having faith that it will come back up.  Because it is hard to imagine what it would like for the market to not recover from a crash over 20-30 years.  I guess it's true most of us over estimate our risk tolerance.  And it's easy to look back and laugh at doomsday claims that "it will be different this time" in hindsight. 

[FIRE_Buckeye]

I started investing in 2010 and bought in to buy and hold index investing completely.  Most of what I have read and researched generally supports that based off of the data and knowledge available that for passive investing, low cost index funds are the most prudent option for maintaining and or increasing purchasing power.  I always figured I could easily handle a significant bear market, even look forward to it as sol alluded, early in my accumulation phase.  However, I must admit that the points that FrugalSaver has raised have been on my mind.  The record debt, the not so convincing recovery from the last recession etc.  I currently feel like it would be a good bet that there will be a correction. 

Not sure if you misspoke and meant "recession" instead of "correction", but all three major indices are already currently in correction territory, and the Russel 2000 has already reached recessionary levels.

[TheNick]

Stay tuned to this thread as I'll keep updating to help everyone prepare accordingly.  If the world turns over into recession, this will be much worse in my opinion than the 2007-2009 recession that was superficially recovered from, not by job growth, but by increasing the money supply more than any time in history. 

Given the increase in money supply how much do you think the market will actually fall?

Last crash we went from 13k-8k...but the money supply has increased by what about 50% since then?  So if we have a crash as bad as the last one wouldn't basic math just dictate we drop from 18k down to around 11k?

And then there is the simple fact that the expanded money supply is still floating around out there...just because money is leaving the market doesn't mean it is disappearing.  We'll probably just see a 40% drop followed by an equal increase as all the funny money out there finds its way back into the market out of the close to 0% accounts and low yield bonds people are parking it in as a safe play.

I'll be going long and buying lots for the foreseeable future, that's for sure.  The thing that scares me more than a market drop is how inflation rates haven't even come close to matching the rate at which the money supply has expanded.  I'm not an economist by any measure, but my guts telling me this is going to lead to some not so pleasant side effects down the road.

[EngiNerd]

I started investing in 2010 and bought in to buy and hold index investing completely.  Most of what I have read and researched generally supports that based off of the data and knowledge available that for passive investing, low cost index funds are the most prudent option for maintaining and or increasing purchasing power.  I always figured I could easily handle a significant bear market, even look forward to it as sol alluded, early in my accumulation phase.  However, I must admit that the points that FrugalSaver has raised have been on my mind.  The record debt, the not so convincing recovery from the last recession etc.  I currently feel like it would be a good bet that there will be a correction. 

Not sure if you misspoke and meant "recession" instead of "correction", but all three major indices are already currently in correction territory, and the Russel 2000 has already reached recessionary levels.

I'm sorry I think I did misspeak, I meant a significant drop in the market.  I am not sure what percentage enters correction territory nor at what percentage it then moves into a qualifying recession.  Does anyone plan on making changes to their AA because of these feelings that a bear market is coming?  In the dual momentum thread there is an argument with plenty of supporting evidence that using a consistent system that triggers a move to bonds as the market starts to decline may be able to match or even beat market returns over the long term while avoiding the worst of bear markets.  However, with the plentiful evidence that active investing and market timing are usually fool's errand and most often will not match market performance in the long term it would appear unwise to make any changes based off these beliefs, especially without utilizing a system that takes emotion out of the decision.  I plan on sticking to the course as B&H with a high percentage of equities, but feel like I might regret not moving some equities to bonds over the next year or so.   

[Retire-Canada]

DEFINITION of 'Recession'
A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.


DEFINITION of 'Correction'
A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either.

[Bicycle_B]

I started investing in 2010 and bought in to buy and hold index investing completely.  Most of what I have read and researched generally supports that based off of the data and knowledge available that for passive investing, low cost index funds are the most prudent option for maintaining and or increasing purchasing power.  I always figured I could easily handle a significant bear market, even look forward to it as sol alluded, early in my accumulation phase.  However, I must admit that the points that FrugalSaver has raised have been on my mind.  The record debt, the not so convincing recovery from the last recession etc.  I currently feel like it would be a good bet that there will be a correction. 

Not sure if you misspoke and meant "recession" instead of "correction", but all three major indices are already currently in correction territory, and the Russel 2000 has already reached recessionary levels.

I'm sorry I think I did misspeak, I meant a significant drop in the market.  I am not sure what percentage enters correction territory nor at what percentage it then moves into a qualifying recession.  Does anyone plan on making changes to their AA because of these feelings that a bear market is coming?  In the dual momentum thread there is an argument with plenty of supporting evidence that using a consistent system that triggers a move to bonds as the market starts to decline may be able to match or even beat market returns over the long term while avoiding the worst of bear markets.  However, with the plentiful evidence that active investing and market timing are usually fool's errand and most often will not match market performance in the long term it would appear unwise to make any changes based off these beliefs, especially without utilizing a system that takes emotion out of the decision.  I plan on sticking to the course as B&H with a high percentage of equities, but feel like I might regret not moving some equities to bonds over the next year or so.

EngiNerd,

Great name!  Based purely on your sense of humor I predict you will do well.

MMM predicts you will be successful sticking with the buy and hold strategy too, if I understand his article correctly:
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

MMM's buddy Jim Collins recommends buying stock and skipping the timing efforts too:
http://jlcollinsnh.com/stock-series/

The Collins link has multiple articles but makes a strong case for B&H.  Since your investments are already set and arguably should be forgotten for the time being, here is an investment you can make with your hands as well as brain since it's winter now:
http://www.mrmoneymustache.com/2014/05/01/beating-the-stock-market-with-diy-insulation/

[mrpercentage]

Staying disciplined, especially if you're a buy and holder, is extremely difficult in the face of losing 40% or more of your net worth.

This is why I don't go by net worth. On my 457 I don't even look because Im not touching it for years and its on auto. On my direct stock purchases I only look at dividend distributions and projected distributions. These might get hit at some point but they have only been going up so far. One of my holding just raised a dividend. I think the equity is going down but I am holding this for good so income or bust. Not selling. I review my equity quarterly.

[FrugalSaver]

BOOM!  As I mentioned, what governments are likely to do is just pop off another QE. 

And just like clockwork, that's exactly what Japan just did today.

Unfortunately, this is like trying to kick a heroin habit by upping the dose of heroin you're used to.

I wouldn't be shocked to see the US do this in Obama's last year or the next if Hillary wins.  If Trump wins, I'm not sure what he would do.

Until we go through the pain of cleaning up the catastrophic mess of the now $19T in US debt and over $100T in worldwide debt (not counting unfunded liabilities as the US actually is close to $90T in debt when counting those), the pain later on will only be worse. 

Plan accordingly based on your level of risk tolerance.

[ETBen]

The other problem with speculation is that the average persons assessment, as well as how politicians use it to scare people, is based on the bretton wells model. Everything balanced, currencies were fixed, it was akin to how you manage basic personal finance. So people like it bc it makes sense to what they know.

That's not the economy of today, which is based on deficits, larger unemployment, allowing economies to float value and position themselves as they need any given day.  They can't judge it by the old model because it doesn't exist.  Probably 99% of speculation that people read doesn't take this into account,  although I see more people here that understand it. Policy drives it so much less than daily exchange speculation/information.

[Scandium]

The other problem with speculation is that the average persons assessment, as well as how politicians use it to scare people, is based on the bretton wells model. Everything balanced, currencies were fixed, it was akin to how you manage basic personal finance. So people like it bc it makes sense to what they know.

That's not the economy of today, which is based on deficits, larger unemployment, allowing economies to float value and position themselves as they need any given day.  They can't judge it by the old model because it doesn't exist.  Probably 99% of speculation that people read doesn't take this into account,  although I see more people here that understand it. Policy drives it so much less than daily exchange speculation/information.

I like the way you proved your own point. It's Bretton Woods, NH, not wells. And many countries had already run Keynesian deficits during the depression and WW2, so I don't see how that could be a thing nobody knew about at BW which happened after

If anything people credit/blame the government too much re the economy. Research has shown that the president has basically no power to change the economy, but we hear nothing but how this or that candidate or president will change it, or ruin it. "heavy industry moved from rural PA to Asia because of Obama, wha wha"

[MustacheAndaHalf]

I'm open to thoughts and opinions as data can be interpreted many ways.

If that's true, why aren't you replying to anyone in this thread?  Your comments repeat the same thing in each post.

Your first post mentioned $100T in world debt.  Should that scare us because it's a big and round number?  Also, why does this article from Aug 2015 disagree with your figure by such a large margin ($60T)?
http://www.visualcapitalist.com/60-trillion-of-world-debt-in-one-visualization/

You also need to explain why the Total US market gained +33% in 2013 and how 2016 debt levels differ.  But I'm guessing you're not actually going to research these things, and continue your narrative.

[aspiringnomad]

No offense intended, but your logic is mostly nonsense in my view. The net world debt (public and private) has to be zero anyway because there's a creditor on the other side of every debtor. Not that your analysis would be predictive of a coming recession anyway. More importantly, household balance sheets in the US are in relatively good shape. And, I posted this elsewhere, but will re-post here. If you're looking for a good leading indicator of a business cycle peak (i.e., an impending recession) then look no further than residential investment. Current levels and trajectory suggest the current expansion still has room to run, but who knows?

http://www.calculatedriskblog.com/2016/01/private-investment-and-business-cycle.html

[Telecaster]

Economic policies never have an immediate affect on economic performance due to time lag.

The next president...whether it be republican or democrat...is definitely going to agree with this with the massive pile of dung they will be inheriting lol.  I don't think many people are going to enjoy the aftermath of ZIRP and QE.

Hell, the Clinton repeal of Glass-Steagall Act would've been a solid point you could've made, but you failed to. Then again, it would be easy to note that Bush/Repubs made no attempt to reinstate it, so shares that blame and gets far more for the doldrums of our economy than Clinton (or Obama).

Please drop the lame line of baseless attack. It's feeble.

Nope...but Bush pushed for tighter regulations on the sub prime lending market more than once and got shut down by the democrats who wanted to carry on Clinton's legacy.

http://www.usnews.com/opinion/blogs/barone/2008/10/06/democrats-were-wrong-on-fannie-mae-and-freddie-mac

When the guy before him set the stage for the sub prime lending crisis, and democrats that were supposed to be working with him refused to see the problem...yeah...democrat's weren't exactly an innocent party there just because it happened on Bush's watch.

<scratches head>  The Republicans controlled both houses of Congress from 1994-2006.    As your article points out, Congress did nothing until...2007.

This is some informative reading as well.   Highlights include the notion that people shouldn't have to have downpayments (partly in thanks to the US taxpayer), mortgages for low income people who otherwise wouldn't qualify, etc.   These were viewed as accomplishments, at the time.  Something to be bragged about. 

http://georgewbush-whitehouse.archives.gov/infocus/achievement/chap7.html

I certainly agree there is blame on both sides of the aisle.  But Bush was a cheerleader when all this was going on. 

[doggyfizzle]

Telecaster: the link you posted just gave me chills...

[Matumba]

Posting to follow

[zephyr911]

Part of me is tempted to prolong my employment until I've seen a crash and a rebound, just to get one last good buying opportunity. My baseline market investment is on autopilot - just over $400 into TSP, mostly C and S equity funds, every week. I'm not interested in trying to time anything, I just think it'd be cool to get in a bunch more shares at a discount.

But, the chances are, I'll just hedge my bets in enough ways that it doesn't matter, and when I decide it's time to leave, I leave.

[Jack]

The net world debt (public and private) has to be zero anyway because there's a creditor on the other side of every debtor.

No it doesn't. Money gets created by debt (in the form of fractional reserve banking -- banks are allowed to lend money they literally don't have). It is expected and normal that a certain fraction of that debt will be defaulted on or inflated away rather than repaid. The entire economic system is like a gigantic game of musical chairs, where when the music stops the people without seats declare bankruptcy.

[aspiringnomad]

Please reread my comment. Nowhere do I say that that the money supply needs to equal the net amount of world debt. To simplify, if there is one bank in the world and that bank has lent out 10x its reserves then the amount owed to the bank is 10x its reserves and the amount of debt held by debtors is 10x the bank's reserves for a total net world debt of zero. Reserves are subject to regulatory and market constraints, and the looser those constraints the more a bank can lend, but when all public and private debt is out netted out (as I specified in my post) it will remain zero. As for defaults, bad debt is written off as an expense and then is no longer debt.

If we someday encounter alien beings and they agree to lend to us, then net world debt will be negative. We'll have to hope that we can grow the world economy enough to pay them back or that they have not developed crazy advanced and brutal alien debt collection techniques. Until then, the OP's claim that there is "over $100T in worldwide debt" is not on my list of worries/recession indicators.

[Jack]

Please reread my comment. Nowhere do I say that that the money supply needs to equal the net amount of world debt. To simplify, if there is one bank in the world and that bank has lent out 10x its reserves then the amount owed to the bank is 10x its reserves and the amount of debt held by debtors is 10x the bank's reserves for a total net world debt of zero. Reserves are subject to regulatory and market constraints, and the looser those constraints the more a bank can lend, but when all public and private debt is out netted out (as I specified in my post) it will remain zero. As for defaults, bad debt is written off as an expense and then is no longer debt.

If we someday encounter alien beings and they agree to lend to us, then net world debt will be negative. We'll have to hope that we can grow the world economy enough to pay them back or that they have not developed crazy advanced and brutal alien debt collection techniques. Until then, the OP's claim that there is "over $100T in worldwide debt" is not on my list of worries/recession indicators.

"Number on one side of a ledger" vs. "number on the other side of a ledger" is one thing. "Actual obligation that needs to be repaid" vs. "actual asset" is another. With fractional-reserve banking, the "...that needs to be repaid" part is subject to certain caveats (bankruptcy, inflation) and the "asset" is mostly created out of thin air (or perhaps, the asset is the increased velocity of the money itself).

This is not to say that any of that is a problem, or that the guy you were responding to was right about the implications. It's really just a statement about how the macroeconomic implications of "debt" are very different than the microeconomic ones.

[aspiringnomad]

Yeah, I understand fractional reserve banking, but you're not just talking past me, I think you're also talking past yourself. So what about inflation? High levels of inflation are good for most debtors, but inflation expectations are presumably factored into debt markets anyway. If you don't think inflation risk is accurately priced, then put your money where your mouth is and make a mint playing the arbitrage. And bringing up fractional reserve banking just confuses the issue without adding much to the discussion. Is there is something inherently wrong with lending out more than a bank holds in reserves? If so, then you'd logically argue that minimum capital requirements should be 100% of banks' risk-weighted assets. If that were to somehow happen, then yeah, I'd become extremely bearish on the economy.

[FrugalSaver]

Are the indicators more or less apparent today more than 2 years later?