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The probability of a US recession just spiked the most in 30 years — UBS says 'even we are surprised by this'

By Kakistocracy following x   2019 Mar 8, 4:00pm 546 views   25 comments   watch   nsfw   quote     share    


The probability of a major contraction in the economy shot up to 73%, from just 24% in December, says UBS.

"Weakness in the data is now fully consistent with a very real risk of a recession, whether one happens or not," the bank economists said.

Trade war tariffs a major factor, as is 'sharp deterioration' in consumer durables spending.

The chances of a US recession just spiked in the last month by a magnitude that UBS economists says shocked even them.



The probability of a major contraction in the economy shot up to 73%, from just 24% in December, says UBS. That's the largest one-month jump in recession risk since 1989, the economists led by Pierre Lafourcade said in a March 7 report.

"Our view that US/China tariffs would do more damage than expected has been playing out in recent months," economists said in the note. "The takeaway is that the weakness in the data is now fully consistent with a very real risk of a recession, whether one happens or not."

There have only been five intra-cycle slowdowns in the past 50 years, they said, and markets tend to respond strongly when they happen.



"This framework highlights such slowing even when a full-blown recession doesn't follow, so we have a good indicator for slowdowns, even if a recession is averted," UBS says.

Previous slowdowns have had a major impact on assets such as the oil price drop in 2015, which flummoxed investment the US energy industry.

UBS cites the trade war as a key contributor to the current rise in probability, with major job losses in the US coming from manufacturing states which have been hit hard by Trump's policies.

Spending drop drives rise in recession odds

Yet much of the research centers around a sector of the economy known as durable goods — a composite of retail items including such as appliances, jewellery, pets and toys, outdoor and sporting equipment that tend to be more discretionary and are a good indicator of both consumer spending patterns and household financial health.



While the decline in car sales in the West is a better-known economic danger signal lately, the UBS economists write that spending on furnishings, durable household equipment, and "recreational goods (boats for the wealthy)" are down the most since 2009, while spending on services has plunged by the most since 2012.

The "sharp deterioration in consumer durables spending drives increased recession probability," UBS said. "This turn in durables is consistent with the tariff story, but it also meshes with the harder-to-explain slowdown in
housing."

Tariff induced weakness alongside a more meaningful slump in global growth, as evidenced by recently reduced OECD growth expectations, could also be detrimental to the US economy going forward.

https://www.businessinsider.com/ubs-1-month-jump-in-us-recession-risk-highest-since-1989-2019-3

#Recession #Economics #FiscalPolicy
1   Heraclitusstudent   ignore (2)   2019 Mar 8, 4:02pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Yeah... I'd say we're fucked.
2   MrMagic   ignore (11)   2019 Mar 8, 4:06pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Thanks Obama!
4   Ceffer   ignore (1)   2019 Mar 8, 6:39pm   ↑ like (4)   ↓ dislike (0)   quote   flag        

It won't happen until the Globalists have all their puts and calls in place, and the economic detonations are approved by The Fed.
5   AD   ignore (0)   2019 Mar 8, 11:57pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Durable goods orders are trending down for last 12 months.
6   komputodo   ignore (0)   2019 Mar 9, 6:05am   ↑ like (2)   ↓ dislike (0)   quote   flag        

Are we on another "BRINK"? Brinks are scary. Should I hold off on buying my 7th TV for the basement bathroom and skip a couple of $400 outings to NBA games?
7   AD   ignore (0)   2019 Mar 9, 9:32am   ↑ like (0)   ↓ dislike (0)   quote   flag        

NY Feds shows an increasing chance of recession over next 12 months.

https://www.newyorkfed.org/medialibrary/media/research/capital_markets/Prob_Rec.pdf
8   CBOEtrader   ignore (5)   2019 Mar 9, 10:42am   ↑ like (3)   ↓ dislike (0)   quote   flag        

Ceffer says
It won't happen until the Globalists have all their puts and calls in place, and the economic detonations are approved by The Fed.


In 2001, I was clerking for the wolve.com partners. They would field large broker orders and take huge bets, if the risks seems appropriate.

Circa late july/Aug and going into September that year, I recall a meeting of the global risk desk team. The purpose of the meeting was to evaluate the appropriateness of our airline skew risk, the puts were trading at such an abnormally high level compared to the calls, that we had a HUGE position on.

Then sep 11 hits, our desk loses a handful of millions in the post 9/11 fall. No big deal, as the firm more than made up for it w the extra market making action.

Long story short: someone knew 9/11 was coming, for sure. There is no other explanation. These trades buying downside UAL, for example, were enormous orders executed over a few weeks time. They pocketed a few hundred million in that bet.
9   d6rB   ignore (1)   2019 Mar 9, 10:44am   ↑ like (0)   ↓ dislike (0)   quote   flag        

APOCALYPSEFUCKisShostikovitch says
OPEN! FIRE!

Barbecued FACE! on a stick
10   d6rB   ignore (1)   2019 Mar 9, 10:48am   ↑ like (1)   ↓ dislike (0)   quote   flag        

@CBOEtrader - I am very, very far away from finances, but I have made quite an interesting observation. I have a substantial amount of pension money in tiaa-cref. I pulled all of it out of stock market about 3 yrs ago. In last year or year and half, I get calls from tiaa every few months with offers to "discuss how to earn more" which usually means putting money in stocks again. These calls come usually within a week or two before major stock market crashes. Seems quite suspicious...either I am paranoid or there is more to the timing of their calls.
11   MisterLearnToCode   ignore (4)   2019 Mar 9, 2:19pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Not much to go on yet, seeing durable goods decline in January/February after December Xmas Splurges doesn't mean much.

The next few months will provide a better idea.
12   TrumpingTits   ignore (1)   2019 Mar 9, 3:58pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Is the best you TDS folks can do? What happened to the Russians!
13   Hugolas_Madurez   ignore (4)   2019 Mar 9, 5:32pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

d6rB says
I have a substantial amount of pension money in tiaa-cref. I pulled all of it out of stock market about 3 yrs ago. In last year or year and half, I get calls from tiaa every few months with offers to "discuss how to earn more" which usually means putting money in stocks again. These calls come usually within a week or two before major stock market crashes.


Except we didn't have crashes every few month over the last 3 years.
14   CBOEtrader   ignore (5)   2019 Mar 9, 6:51pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

d6rB says
@CBOEtrader - I am very, very far away from finances, but I have made quite an interesting observation. I have a substantial amount of pension money in tiaa-cref. I pulled all of it out of stock market about 3 yrs ago. In last year or year and half, I get calls from tiaa every few months with offers to "discuss how to earn more" which usually means putting money in stocks again. These calls come usually within a week or two before major stock market crashes. Seems quite suspicious...either I am paranoid or there is more to the timing of their calls.


It's possible they were lining up retail liquidity to steam roll w a large hedge fund customer order, or perhaps their own desired risk desk. Goldman was known to do this into the 2008 crash, when their desk took a short position in MBS's while their brokers pushed these products on their small-fry customers.

^^ would probably only work in an illiquid product.

Outright collusion to manipulate markets is possible, but unlikely.

That being said, our discovery process in my court case found the partners of these prop firms were meeting in bars and exchanging bags of actual cash for insider tips. ^^mediating this in just over two weeks. Will be interesting to look the devil in the eyes
15   Quigley   ignore (0)   2019 Mar 10, 11:31am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I have an explanation for the downturn in economic activity over the last month or so: tax time!
The tax bill is coming due and for most higher earners, it’s hurting. They filed early to get their refund only to find that it wasn’t much or that they owed. This takes a lot of potential economic activity out of the system as that new furniture doesn’t get bought, people make that old car do for another year, and put off those home renovations.

Add that to the Chinese New Year slowdown in shipping/import activity and the fact that most shippers tried to beat the tariff by importing most of their products all at once before the potential tariffs kicked in, and we now have a slowdown.

My prediction is that this is temporary. Give people a few months to recover from their tax bill, get some more money in their wallets, and adjust their withholdings. Americans will adjust to the new situation. We are nothing if not resilient. I predict total GDP growth for 2019 to be 2% not 3%. Not fantastic, but better than the Obama average, and a damn sight better than a Bush recession.
16   Quigley   ignore (0)   2019 Mar 10, 11:37am   ↑ like (0)   ↓ dislike (0)   quote   flag        

No, I explained how both were a little different this year. Reading is fundamental.
17   Kakistocracy   ignore (6)   2019 Mar 13, 12:39pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

US Banks Report $251 billion of “Unrealized Losses” on Securities Investments in 2018, the Most Since 2008: FDIC - And other juicy banking nuggets.

Net income in Q4 2018 among all 5,406 FDIC-insured banks and thrifts more than doubled year-over-year to $59 billion, due to “higher net operating revenue” and “lower income tax expenses”; and full-year net income rose 44% to $237 billion, the FDIC reported today in its Quarterly Banking Profile. But over the same period, “unrealized losses” on investment securities – losses that are not included in the “net income” figures above – ballooned to $251 billion, the largest unrealized losses since 2008.

“Unrealized losses” are losses on securities that dropped in value but that the banks have not yet sold. In other words, they’re “paper losses.” Every quarter in 2018 brought steep unrealized losses: Q1: $55 billion; Q2: $66 billion; Q3: $84 billion; and Q4: $46 billion (chart via FDIC, red marks added):



Banks designate these securities either as “held-to-maturity” securities, valued at “amortized cost” or book value (light blue in the chart above) and “available-for-sale” securities valued at “fair value,” such as market value (dark blue).

These securities holdings are concentrated in bonds. When yields rise, as they did during much of 2018, bond prices fall. This is where a large part of these losses come from.

When banks hold bonds to maturity, the bonds are redeemed at face value, and banks are paid face value for those bonds. If banks didn’t pay a premium when they bought those bonds, they will not lose money on them, and the “unrealized losses” go away. Also, if bond prices rise, as they have been in the current quarter, some of the unrealized losses will be reversed.

But if banks are forced to sell those bonds during a liquidity crunch, as happened during the Financial Crisis, the “unrealized losses” become real losses.

Other juicy banking nuggets from the FDIC:

Banks gobbled up US Treasuries: In Q4, banks added $93 billion to their securities holdings, bringing their securities holdings to $3.72 trillion. That $93 billion included $55 billion in Treasury securities, the largest dollar increase since Q4 2014. Their total Treasury holdings now amount to nearly $500 billion!

Total assets rose by $270 billion among those banks and thrifts, to $17.94 trillion, the most ever.

Declared dividends in Q4 rose to $52.7 billion, the most ever.

Average cost of funding – total interest expense paid on deposits, bonds, and other borrowed money as a percentage of average earning assets – rose to 0.91%. This is still so low because a lot of deposits earn zero or close to zero in interest. However, it’s up from 0.54% a year ago.

Net interest margin in Q4 rose to 3.48% the highest since 2012. In other words, banks have raised the interest rates they charge on loans more quickly than their cost of funding has ticked up.

Banks set aside $14 billion in loan-loss provisions in Q4. These are losses that banks anticipate they’d experience on their loans. It was the largest amount since Q4 2012. About 40% of all banks reported increases in their loan-loss provisions.

Net Charge offs were $13 billion from loans banks deemed uncollectable. From Q3 to Q4, charge-offs for credit cards increased by $348 million and for commercial and industrial (C&I) loans by $523 million. For other categories, including mortgages, charge-offs fell. And overall, charge offs ticked down a little from Q3.

Loan-loss reserves rose by $1 billion to $125 billion in Q4 from Q3. This increase is the result of banks charging off $13 billion and setting aside $14 billion in new loan-loss provisions. 58% of the banks increased their loan-loss provisions.

Loans 90 days or more past due declined by $1 billion in Q4 from Q3. This quarter-over-quarter decline was mostly a result of two opposing factors: declines of past-due balances on residential mortgages (-$2 billion) and C&I loans (-$554 million); and increases of past-due balances on credit cards ($1.6 billion). These rising credit card delinquencies are starting to crop up everywhere.

So, it’s still a good time to be a bank – especially since $251 billion “paper losses” don’t need to be included in net income. But loan-loss provisions are starting to indicate that the credit cycle has turned, and that banks are preparing little by little for the next phase in the cycle.

https://wolfstreet.com/2019/03/12/us-banks-unrealized-losses-on-securities-investments-balloon-to-251-billion-in-2018-the-most-since-2008-fdic/
18   d6rB   ignore (1)   2019 Mar 13, 12:46pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Hugolas_Madurez says
Except we didn't have crashes every few month over the last 3 years.

Last year, not 3 yrs
19   Heraclitusstudent   ignore (2)   2019 Mar 13, 4:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

https://wccftech.com/analysts-claim-apple-is-having-the-worst-month-in-china-when-it-comes-to-iphone-sales/
Random signs that tell the story:

As you might already know, Apple’s revenue took a hit recently and the company attributed that to the weakening economy in China. The sales of iPhones briefly improved in the country after prices were reduced temporarily. ... a new report suggests that as far as China is concerned, Apple had a pretty disastrous February and it is not known if it has recovered yet.

According to the Academy of Information and Communications Technology, the Chinese smartphone market declined more than 20 percent in on a year-over-year basis.
20   Heraclitusstudent   ignore (2)   2019 Mar 13, 4:09pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

A typical leading signal of recessions:
21   Heraclitusstudent   ignore (2)   2019 Mar 13, 4:14pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Trump's small businesses hangover.
22   Heraclitusstudent   ignore (2)   2019 Mar 13, 4:21pm   ↑ like (2)   ↓ dislike (0)   quote   flag        

Could still rebound:
23   WaltertheoFlanders   ignore (0)   2019 Mar 14, 6:54am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Say it ain't so!
24   Kakistocracy   ignore (6)   2019 Mar 17, 6:21am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Gartner Analysis of 2018 Earnings Transcripts Shows Companies Bracing for Recession

ARLINGTON, Va.--(BUSINESS WIRE)--Analysis of S&P 500 2018 earnings transcripts shows fading exuberance among corporate executives as the year progressed, according to Gartner, Inc. Several sectors are undergoing an earnings recession, and efficiency and restructuring initiatives are increasingly common.

“S&P 500 company executives are concerned about the risks and uncertainty from government interventions rather than suspecting any global macroeconomic downturn in the near term,” said Tim Raiswell, vice president at Gartner’s finance practice. “Talk of capital and cost-efficiency programs was increasingly common in earnings calls as 2018 progressed.”

Economic Downturn?

“Mentions of the words ‘downturn’ and ‘slowdown’ were four times more likely to appear in earnings call in 4Q18,” said Mr. Raiswell. “Yet it’s important to consider that 4Q18 brought relatively extreme drops in stock prices. After 10 years of economic expansion, it’s not surprising to see analysts asking company executives about their preparations for cyclical economic weakness.”

Most executives, however, remained optimistic about the U.S. economy in 2019. The companies most exposed to China were more likely to report demand weakness in 2018, or predict it occurring in 2019. Sentiment was particularly positive in the technology and communications sectors.

“Even while expressing a broadly positive economic outlook, many of the world’s largest companies are starting to behave as if they are in a recession,” said Mr. Raiswell. “Ford, Pepsi and P&G are all recent high-profile examples of companies announcing large-scale efficiency programs.”

Top Concerns

The most commonly cited economic concern was the slowing Chinese economy. This theme emerged strongly in 4Q18 and has since picked up momentum in 2019 earnings calls. Much of this concern for China and the wider global economy outside the U.S. was more related to unpredictable government interventions than to any strong conviction of underlying economic weakness.

Common U.S.-related concerns were the recent government shutdown, tariffs and trade policy uncertainty. Worldwide political issues cited were Brexit and the fractious political landscape within the Eurozone, as well as concerns in the Middle East and in South America.

“Given the lack of realistic precedents in many cases, all parties are largely guessing about the extent to which political rhetoric will become firm policy and what the impact will be on companies’ order books,” said Mr. Raiswell. “In this uncertain environment and after a long stretch of expansion since 2009, a significant number of leading firms are taking a recessionary stance and making preparations to capitalize on a downturn rather than be a casualty of one.”

The growth of nonbank lending emerged clearly in financial services earnings calls. Nonbanks offer high-risk loans to consumers at prices that many banks are not willing to match. This strong competition is why the theme emerged in earnings conversations.

“While many economists suspect that the next U.S. recession will take a different form than the financial liquidity crisis of 2009, there should be concerns among CFOs and treasurers that this growth of nonbank lending poses a risk to the U.S. financial system. Nonbank portfolios tend to be built on higher-risk loans to low-income clients. A combination of this phenomenon and any future easing of banking and lending regulations could spell trouble for the global economy in the next few years,” said Raiswell.

Winning in the Turns

Many large firms reported that cost management initiatives are well underway, largely targeting overhead categories such as marketing, advertising and finance, as well as direct industrial production costs. For example, P&G, Estée Lauder, Whirlpool and others all detailed significant firmwide productivity programs. Several vehicle manufacturers, such as Honda, Ford and Nissan, began initiatives to consolidate their production in fewer facilities to drive efficiencies. Many more firms reported deliberately lower capital expenditure than expected in 2018, as growth capital was reallocated.

“The CFO’s posture is critical now. Gartner cautions against a ‘business as usual’ approach that fails to change a winning formula when faced with turns in market direction,” said Mr. Raiswell. “While signs of early preparation bode well for company performance, if a downturn appears, this preemptive behavior does raise questions. How much further will executive teams have to cut costs if demand plummets, and will this take the form of more-drastic forms of restructuring, such as layoffs and divestitures?”

https://www.businesswire.com/news/home/20190314005548/en/Gartner-Analysis-2018-Earnings-Transcripts-Shows-Companies/?feedref=JjAwJuNHiystnCoBq_hl-aC45ZVAsfQfjy4iJM4P87A1-eIfwn0x0eiSlv8DaAkIg_EfkFOaNgL2PG4SPbr1kg_A2CGL-EyAtYNbtACnGnJ51YlY7W-9mzj-PuJxyuYnS-XfqwrefcF50_QVKGoICg==
25   Kakistocracy   ignore (6)   2019 Mar 19, 4:16am   ↑ like (0)   ↓ dislike (0)   quote   flag        

US Freight Volume Drops - The services sector better hang in there.

Now it’s the third month in a row, and the red flag is getting more visible and a little harder to ignore about the goods-based economy: Freight shipment volume in the US across all modes of transportation – truck, rail, air, and barge – in February fell 2.1% from February a year ago, according to the Cass Freight Index, released today.

The three months in a row of year-over-year declines are the first such declines since the transportation recession of 2015 and 2016.

A recession in the US is always preceded by a contraction in the flow of goods across the US. But not each contraction in the flow of goods leads to a recession. Services – healthcare, finance, shelter (rent), education, barber shops, etc. – are the far bigger part of the economy; and even in 2016, as a recession in the goods-based economy triggered a steep transportation recession, services kept growing, and GDP still eked out a gain of 1.6%, albeit the lowest gain since the Great Recession. As long as services hold up, the economy will grow.

We already know that the first-quarter GDP growth is going to be weaker than the growth rates seen last year: The government shutdown, the reduced tax refunds, some bad weather…. These factors are one-time items and their impact will dissipate in Q2.

But consumers more broadly are less exuberant about buying goods than they were last year — though they’re still buying. Growth in retail sales has fallen from a red-hot range peaking at nearly 7% year-over-year in mid-2018 to a much more subdued range of 1.6% to 2.3% growth in January and February. This includes e-commerce, which is booming and chewing up brick-and-mortar stores. These slower growth rates in retail have started to percolate into the transportation sector.

But consumers are only part of the demand in the transportation sector; industrial demand — oil-and-gas drilling, construction, manufacturing, etc. — also plays a large role.

On a sequential basis from January to February, the Cass Freight Index for Shipments rose, as it always does this time of the year for seasonal reasons. But it rose only 4.0%, compared to January-February growth rates that ranged from 5.6% to 8.3% in the prior years going back to 2013. You have to back to February 2012 to get a slower sequential growth rate (2.5%).

So with shipment volume declining, the pressures the sector experienced last year are fading, and inflation in transportation services is backing off from the extraordinary rates in 2018 but remains substantial. For transportation spending by shippers to actually decline, as it did during the transportation recession, lower volume of shipments and excess capacity by truckers and railroads would have to be able to push transportation providers to cut their rates. This happened during the transportation recession on a fairly broad scale.

Trucking companies have backed off their historic binge of ordering Class-8 trucks. In February, orders for these trucks – Peterbuilt, Kenworth, Freightliner, Western Star, Navistar, Mack Trucks, and Volvo Trucks – plunged by 58% from a year ago, to the lowest level since the “transportation recession” when and truck and engine manufacturers were announcing layoffs. So that U-turn was fast, even for the notoriously cyclical trucking business.

More including charts and additional explanations: https://wolfstreet.com/2019/03/18/declining-freight-volume-signals-slowdown-for-goods-based-economy/

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