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Year End Housing Bubble Predictions

What’s your end of the year housing bubble predictions? Six months ago: “More housing supply comes on the market. Boomers realize they are broke and need that influx of cash, but prices will stay the same or dip slightly. Not gonna give it away.”

“No major changes in 2018 as it will be Q1 2019 before we realize the recession has arrived.”

“The Fed’s very gradual tightening, plus mortgage rates creeping up is the big story. If the other central banks tighten or at least stop the ‘stimulus,’ that would compound the story. My opinion is there’s a gold rush mentality in real estate and there’s a lot of speculative demand. Eventually, the prices will flatten (for non-anecdotal data, I look at Case Shiller) and perhaps a year after that, we’ll start seeing some consistent declines.”

“US Home Listing prices will continue to rise, albeit at a slower pace through the year. In parallel, the inventory of homes for sale begins to increase with a decrease in home sales through the summer and end of 2018. Because of this, home prices will begin to inch their way down in 2019 before entering the ‘correction’ territory (to use a market term) by 2020.”

“As long as the realtors/homebuilders lobby can continue to get the government to subsidize their business, the bubble will continue. But just like in Canada and Australia, once the government reverses via tightening credit then the whole thing falls apart.”

One year ago. “I predict that cyber currencies in general and bitcoin in particular will end up destroying thousands of people’s financial lives. Most of the losses will occur by those who have been conditioned to buy dips.”

“President Trump’s new Fed chair will get serious about ending extraordinary accommodation, sending Bitcoin into a fatal tailspin.”

“Canadian Real Estate tanking. There is no reason your real estate should be worth twice mine when we are just across the border. It’s not like you have much better jobs and lower taxes.”

“You are absolutely right. And I think its tanking all across Canada, certainly in Toronto and Vancouver. Reason? I am not hearing of a single Chinese buyer at the new housing developments. New sales look like they have hit a wall.”

The Houston Chronicle. “Barton Smith, the director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business, retired in 2011 . Smith started the forecasting symposiums in 1984. But his first forecast did not go smoothly.”

“In his inaugural forecast, he accurately and famously predicted an approaching housing bust. Developers did not like what they were hearing. ‘It was bad news,’ recalled Smith. ‘We came to the conclusion that there were almost a quarter of a million vacant housing units. The developers did not receive it well.'”

“In fact, several had called the university demanding his ouster. But shortly after the forecast, the Houston housing market crashed, proving Smith was right. ‘Within six months the attitude had turned around completely, and I was being asked by the same guys that hated me to address them and their investors,’ Smith said.”

“‘They’re raising capital. They don’t want bad news. They don’t like bad news. But they all will show up to hear the facts at our symposia though,’ Smith said. ‘You get people who are sometimes upset about the story.'”

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This Post Has 168 Comments

    1. When was opening date? I count 159 units, which would put occupancy at about 42%. We have 170 units in our 1st phase and we have 5 units left. We opened in April and our lease-up rate was projected for 1 year. We are ahead of schedule. But our prices are much lower than these.

    2. Holy moly! I have never seen anything like that when looking at an apartment complex website. I usually see four or five available units.

    2. I predict that suicides due to financial pressures will be a growing concern for developed economies in 2019.

      3 Dec 2018
      Thousands of suicides linked to financial pressure
      Helia Ebrahimi Economics Correspondent

      A hundred thousand people in England attempted suicide because of problem debts last year, according to research by the Money and Mental Health Policy Institute.

      In this exclusive report, our Economics Corrspondent Helia Ebrahimi goes to met some of the people whose lives have been affected by the desperation of debt.
      …

      1. If there is one thing to take away from this blog is…it takes forever to foreclose/get evicted or file for BK…so no need to do anything rash , just wait your turn to go to court and tell a judge you are broke..( and live rent free in the process)

        eA hundred thousand people in England attempted suicide because of problem debts last year

    1. “buy the dip”

      Wrong. Unless the “dip” is 50% +. I think Dolly may have gotten her face lifted too tight.

  6. In Q1, house prices start lapping the 2018 conventional loan limit increases. As a result, we will start seeing YOY price declines in larger markets.

    The increase in loan limits in 2019 will help some secondary cities continue to the bubble, since the median price isn’t as inflated as larger cities.

    The massive amount of debt issued by the US government will keep pressure on the 10 year yield and therefore pressure on mortgages rates. If mortgages rates fall it will likley be due to a stock market sell off which would not be good for housing.

    There will be no policy change to tighten lending standards in 2019. But also won’t be any major policy to loosen them either (about as loose as they can get). If they try to privatize Freddie and Fannie it will just cause mortgage rates to increase.

    1. “Bankers win! Banning cash forces buyers to use bank cards.”

      Even better, soon we will all be chipped to buy and sell goods and that will help our social credit scores!

      1. Good luck with that, because I think you’re going to run out of ones you will patronize eventually.

        Here we are having an increasing problem with armed robberies, in particular chain drug stores, where criminals know the cashier will fold without the slightest resistance at the point of a gun. If there’s nothing in the register, there’s nothing to steal. And I think that that is what is driving this trend more than convenience for the staff.

        1. “Good luck with that”

          I have not, even a single time, found a business which doesn’t accept cash. I don’t need “luck.”

          1. I have not, even a single time, found a business which doesn’t accept cash.

            I did, recently. The vet my dog had surgery at doesn’t take cash/checks. CC only.

    3. This had me wondering how much US currency is in circulation.

      “How much U.S. currency is in circulation?

      There was approximately $1.72 trillion in circulation as of December 26, 2018, of which $1.67 trillion was in Federal Reserve notes.”

      Verdict: US dollars aren’t going away in our lifetimes.

      2. “Verdict: US dollars aren’t going away in our lifetimes.”

        No offense, but that bald-headed stooge, Ken Rogoff, would like to respectfully disagree.

        1. Anybody with the title “economist” automatically loses all credibility. That being said, a link to what you’re talking about would be helpful.

      3. Paper dollars are a useful tool for maintaining dollar hegemony in corners of the world where electronic payment systems are not available.

  8. The future is unknown, but human behavior is a constant. I think the trajectory of housing bubble 2.0 will be a lot like 1.0. That’s just my opinion of course.

    “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” – Jim Barksdale

    Parting quotes for 2018.

    “This is your last chance. After this, there is no turning back. You take the blue pill – the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill – you stay in Wonderland and I show you how deep the rabbit-hole goes.” – Morpheus, The Matrix, 1999

    “What we have learned from history is that we haven’t learned from history.” – British Prime Minister Benjamin Disraeli

    “People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.” ~ George Orwell [confirmation bias]

    “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”
    Abraham Lincoln, (attributed)
    16th president of US (1809 – 1865)

    “No man is happy without a delusion of some kind. Delusions are as necessary to our happiness as realities.” ~ Christian Nevell Bovee, 1820-1904, American Author, Lawyer

    “The euphoric episode is protected and sustained by the will of those who are involved, in order to justify the circumstances that are making them rich. And it is equally protected by the will to ignore, exorcize or condemn those who express doubt.” – John Kenneth Galbraith, A Short History of Euphoria

    “Panics do not destroy capital, they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.” — John Mills (1867)

    “Blessed are the young, for they shall inherit the national debt.” – Herbert Hoover

    “The game isn’t over until it’s over.” – Yogi Berra

    “It’s déjà vu all over again.” – Yogi Berra

    “Curiouser and curiouser!” – Lewis Carroll, Alice in Wonderland

    “Oh, you can’t help that,’ said the cat. ‘We’re all mad here.” – Lewis Carroll, Alice in Wonderland

    “Where should I go?” -Alice. “That depends on where you want to end up.” – The Cheshire Cat.” – Lewis Carroll, Alice’s Adventures in Wonderland & Through the Looking-Glass

    All the best in the New Year!

    1. Happy new year!

      “The future is unknown, but human behavior is a constant. I think the trajectory of housing bubble 2.0 will be a lot like 1.0. That’s just my opinion of course.”

      I tend to agree with this human behavior angle. This time is NOT different!

      1. Yep, I agree too. Points on any economic curve are a result of human decisions which are, in turn, guided by human nature.

        So far all the behaviors and comments from industry types are just like 2006 to 7 era. That is human nature repeating so why wouldn’t it continue?

        Bubble 2.0 eminent.

      2. I also agree that “people… people never change.”

        I do see one thing being a “bit different this time” and it’s not good. Call it a byproduct of our information age combined with a multiple long term trends.

        tl;dr – more and more people are coming to their own conclusion that 1) the forces driving inequality are not going let up, and 2) we’ve passed a point where we don’t have enough ‘necessary/meaningful work’ to keep everyone employed who wants to be and 3) government is not going to address the problem of the economic left-behinds until they are staring down pitchforks. If anything out government will make things worse for the masses at the behest of the elite.

        Unexpected byproduct? more and more people feeling that they have no choice to but to ‘roll the dice’ any way they can chasing that elusive ‘big score/payday’ that will move them ahead on the economic ladder. Believing in the post WWII social contract of working hard is now ‘only for suckers’.

        ————————

        With that idea in mind, I expect to see the next decade to be full of new ‘schemes’ (for lack of a better word) to make easy/big money and people flocking to them, flash mob style.

        Thoughts? Am I totally off-base?

        1. they have no choice to but to ‘roll the dice’

          My mother said about what happens when this historic credit bubble bursts “People will learn to live like we did.” That would translate into working hard, spending very carefully and not going into debt.

          More debt, gambling and other forms of dishonesty is not the solution to too much of the above.

          1. You know, I hardly noticed the 70’s recession but we lived in a rent stabilized apt (NYC); that must have certainly helped, wider ramifications about rent control notwithstanding.

            As I recall those times, my mother said we couldn’t have coffee (price increase) in the morning, only tea. No doubt she was cutting other stuff, none of which I ever heard about.

            As an aside, these days her single parent status would be dramatized (back then it was just a misfortune if your other parent died, which was the case with us, and no one particularly gave a crap.)

            Also, the alternate gas days were a PITA. Gave my mother agita.

            I do remember being much younger and hearing about old people on the block eating cat food. I also saw many older people shoplifting a lot when I was a cashier in a grocery store.

        2. “Believing in the post WWII social contract of working hard is now ‘only for suckers’.”

          Unfortunately, you are probably correct.

          1. when this historic credit bubble bursts “People will learn to live like we did.” I treasure an old photo of my grandma & aunties standing outside their tarpaper shack in a logging camp way back in the woods. Grandma was one of the cook staff. In the summers she lived in a different shack, had baby chicks sent to her by mail, would scrounge up a piglet to raise all summer & slaughter when the weather turned cold, made a little cash by selling hand made baskets & handicrafts, took in laundry, concocted “love potions” and sold them to the credulous. Once a local lad had run up quite an unpaid laundry bill with her, then had the nerve to buy a “love potion” She made sure he got an inactive one, then figured he’d paid his balance due to her that way. She had bad gall bladder disease most of her life, and it went untreated. Very painful.

        3. MGSpiffy, I suggest you check out the amazing podcast “The Dream” on Stitcher about the proliferation of multi-level marketing companies (pyramid companies) and their ties to the GOP. It’s a sobering podcast about the prevalence of mainstreet suckers getting swindled. Anyone who uses Facebook has seen these “opportunities” in their feed I’ll wager.

      1. predicting that China is heading into a recession

        It’s not a prediction if it has already happened.

        1. “It’s tough to make predictions, especially about the future.” – Misattributed to Yogi Berra (Danish proverb)

    2. Data showing Chinese manufacturing cooling put Asia stock markets in early hole for 2019
      By Associated Press
      Published: Jan 1, 2019 11:45 p.m. ET

      BEIJING (AP) — Asian stock markets tumbled Wednesday as 2019 trading began, after surveys showed Chinese manufacturing weakening.

      Keeping score: The Shanghai Composite (SHCOMP, -1.31%) lost 1.1% to 2,465.29 and Hong Kong’s Hang Seng (HSI, -2.56%) fell 2.6% to 25,161.03. Japan’s markets were closed. Seoul’s Kospi (SEU, -1.52%) lost 1.3% to 2,013.80 and Sydney’s S&P (XJO, -1.57%) shed 0.9% to 5,593.80.
      …

  10. I predict that US life expectancy will continue to fall from alcoholism, opioids, gun violence, and suicide. American birthrates will also continue to fall because it is too expensive to raise children (primarily due to high housing).

    Powell will hike rates just one time. Rents will stay flat or fall in most of the country. Blue state housing prices will be negative which will give some relief to the secondary cities whose prices are going up from equity locusts cashing out and migrating. The Fed and policy makers will do everything they can to support housing prices. This will lead to an extended economic malaise which depresses home buying and building. Price stickiness will take hold and many will be reluctant to sell their place at a loss, or for the top dollar they think their place is worth. Many who cannot sell will become involuntary landlords. Renters will have great options as a swath of multifamily comes online alongside many speculators who missed selling at the top.

    Buyers ho cannot wait it out will pull the trigger and buy, thus condemning them to economic misery. Immigration flows and guest worker will not slow meaningfully. I see a major house correction still 5-10 years out coinciding with pension time bombs and aging boomer population. Demographics is destiny.

    1. Renters will have great options

      Not for SFH. Accidental landlords are the worst kind of landlords. I’d much rather they fold and pass the housing stock to someone who does this for a living and values long-term, stable, respectful tenants.

        1. I’d been trying to inderpret that extra ‘f’ in the context of HBB shorthand (FB, F’d HODLer, etc). Glad you resolved the issue, and satisfied my curiosity.

          1. I’d been trying to inderpret that extra ‘f’ in the context of HBB shorthand

            “f’ed drumminj”, of course! But the “f” is silent 🙂

  11. It seems likely that long-term Treasury yields will keep gradually declining for the near term.

    1. Credit Markets
      U.S. Government Bonds Rise as Year-End Demand Surges
      Treasury debt has rallied in the last two months of the year as investors have been reassessing the future path of growth and inflation.
      The New York Stock Exchange has seen investors in recent weeks reassessing the future path of U.S. growth and inflation. That has led to an increase in demand for the safety of U.S. government debt.
      Photo: Jordan Sirek/Bloomberg News
      By Daniel Kruger
      Updated Dec. 31, 2018 4:00 p.m. ET

      U.S. government bond prices rose Monday as investors took advantage of the last trading day of 2018 to add longer-term safe assets amid a turbulent close to the year.

      The yield on the benchmark 10-year Treasury note fell to 2.684% from 2.740% Friday. That’s down from a seven-year high of 3.232% reached in early November. December’s decline in the 10-year yield of 0.329 percentage point was the most since June 2016. The yield ended 2017 at 2.409%.

      The two-year note yield ended the year 2.496%, after recording a 0.315 percentage point decline in December, its biggest monthly drop since November 2008.

      Yields, which fall as prices rise, extended declines after a report from the Federal Reserve Bank of Dallas said perceptions of broader business conditions turned negative in December. The Dallas Fed’s Texas Manufacturing Outlook Survey also showed that most measures of prices and wages either declined or increased at a slower pace.

      Treasury debt has rallied in the last two months of the year as investors have been reassessing the future path of growth and inflation. Expectations for a slower pace of profit growth, combined with concerns about trade tensions and questions about whether the Federal Reserve has become too aggressive with its plans to raise interest rates have led to an increase in demand for the safety of U.S. government debt.

      In December Fed officials penciled in two rate increases for 2019. That would be a reduction from their prediction of three increases next year made at their September meeting.

      Either a slowdown in the pace of rate rises or too many increases by the Fed are likely to push yields lower next year, said Jim Vogel, head of interest-rate strategy at FTN Financial.

      “If the Fed really is going to slow, then real rates in 10- and 30-year bonds are too high,” he said.
      …

  12. I predict Fear, Uncertainty, and Doubt will continue to tamp down stock market investors’ exuberance in 2019.

    1. Stock Talk
      Wall Street staggers into 2019 with modest gains, on the final day of its worst month in a decade
      – The broad-based S&P 500 climbed 0.9 per cent on Monday, while the Dow was up 1.2 per cent
      – But the gains did little to mask what has been a brutal end to the year on US markets
      Agence France-Presse UPDATED : Tuesday, 1 Jan 2019, 6:07AM

      The US stock market concluded its worst year since the global financial crisis on Monday following a late-season collapse that also raised doubts about the prospects for 2019.

      Major indices notched modest gains in the year’s final session, but it barely made a dent compared with the rest of December, the market’s worst month in nearly a decade.
      …

    2. Opinion: A bear market and 6 other forecasts for 2019
      By Howard Gold
      Published: Jan 2, 2019 11:51 a.m. ET
      Sell into stock-market rallies
      MarketWatch photo illustration/iStockphoto
      When you read the cards for 2019, this is what comes up.

      A new year is usually a time for fresh starts and empty promises. But investors begin 2019 in a state of high anxiety.

      That’s because despite a post-Christmas rally, stocks still had their worst December since 1931 and their worst year since 2008 (both ominous comparisons). By Christmas Eve, the S&P 500 (SPX, -0.30%) was within 0.2 percentage points of a 20% bear-market decline, before a Santa rally kicked in.

      So are we in a bear market? Is recession around the corner? And how will Democratic control of the House of Representatives and the looming 2020 presidential election affect markets this year? Here’s my take.
      …

    3. How’s the hand lotion supply holding up?

      The Financial Times
      Global Market Overview Markets
      Stock markets shudder as Apple adds to slowdown fears
      Technology stocks fall as iPhone maker points to China market weakness
      Edward White in Taipei and Michael Hunter in London
      31 minutes ago
      Thursday 11.45 GMT
      What you need to know
      – Apple revenue warning spooks investors
      – China growth worries rise
      – Forex market rattled
      – Oil weakens

  13. I predict more mortgage loan shenanigans by .gov to stimulate demand for grotesquely overpriced houses as price declines and weakness in most markets becomes impossible to ignore.

    1. Soon to be followed by MSM articles about hapless victims whose mortgages went into default after they lost their jobs, only to discover that their mortgages are deeply underwater and won’t sell for enough to repay the loans.

  15. I had to revisit the cryptocurrency predictions some of us made last year, which brought back an amazing memory:

    “Comment by Professor 🐻
    2017-12-30 17:41:04

    Shoeshine boy moment: Millennial was charting and trading buttcoin for the full duration of my four hour flight home from flyover.”

    Seems like we collectively nailed the 2018 cryptocollapse.

    1. “…charting and trading buttcoin…”

      That kind of behavior is really annoying. Those people acted like they knew something that the general population didn’t, when in fact there is no technical analysis for something which amounts to one giant scam.

      I’d love to talk to some of those types and say “remember when you were “charting” sh!tcoin, as if you thought you were doing something real?”

      1. From my vantage point across the aisle and a row back, it appeared that he was trying to chart a dips-buying strategy, but my impression was that he was inadvertently dollar-cost-averaging himself a falling knife.

  16. Iffin’ hou$ing is like a car going down a long winding mountain of expectation$, the brake pedal will keep getting $ofter & $ofter. …

    (don’t worry$ about the dropped lit cigarette, ju$t keep yer eye$ on the road$ ahead!)

    Bail out @ yer own cho$en $peed!

    1. Economics
      JPMorgan, BofA Detect Hints of a U.S. Recession Looming in 2019
      By Jeanna Smialek
      December 9, 2018, 9:01 PM PST
      – Bank economists dust off their ‘how to spot a downturn’ guides
      – What they found: Reasons for vigilance, but no impending doom

      Wall Street’s biggest banks are scouring U.S. data for signals of an impending recession. On balance, they’ve been finding that a 2019 downturn still isn’t likely — though it’s becoming slightly more so.

      The current expansion is eight months away from becoming the longest in postwar history. Most indicators remain solid enough to suggest it’ll get there. But the sell-off in stocks and an inversion in part of the bond yield curve has analysts parsing the tea leaves for anything that points to a contraction in 2019.
      …

    2. Economics
      China Slowdown Continues With Factory Gauge at Lowest Level Since 2016
      Bloomberg News
      December 30, 2018, 5:12 PM PST
      Updated on December 30, 2018, 6:43 PM PST
      – Manufacturing PMI slips back into the contractionary zone
      – Non-manufacturing PMI strengthens as stimulus starts to help

      China heads into the new year with its factories back in contractionary territory as the threat of a prolonged trade war dampens sentiment and stimulus struggles to gain traction.

      The manufacturing purchasing managers index dropped to 49.4 in December, the weakest since early 2016 and below the 50 level that denotes contraction. Measures of new orders and new export orders slipped — a bearish signal for future demand — while readings for input and output prices weakened.
      …

    4. Economy and Policy
      Real Time Analysis
      People Are Really Worried About a Recession. Here’s Proof.
      By Alessandra Freitas
      Jan. 1, 2019 8:00 a.m. ET

      Talk of an imminent recession has been everywhere lately. With the Dow Jones Industrial Average and the S&P 500 having flirted with bear market territory before recent rallies, investors can’t seem to hide their fear of trouble ahead.

      One indicator? Google searches for “recession” have spiked to their highest level since 2011, when Europe faced a debt crisis that almost led to a collapse of the eurozone.
      …

    5. Dec 31, 2018, 7:03 am
      Recession And Housing Top Economic Concerns
      Bill Conerly, Contributor
      Leadership Strategy
      I connect the dots between the economy … and business!

      Forbes readers are concerned about recession and they are thinking about houses. That’s my takeaway after reviewing the posts I wrote in 2018 with the greatest number of views. Numbers 1, 5, and 6 were about recession. Housing-related articles showed positions 3, 7 and 8.
      …

    6. The world looked different in mid-October than after the Grinch stole Wall Street’s Christmas.

      Oct 14, 2018, 7:09 am
      Will The Economy Crash In 2019?
      Bill Conerly, Contributor
      Leadership Strategy
      I connect the dots between the economy … and business!

      Don’t expect the economy to crash in 2019, but be prepared for a possible recession.

      Plenty of people are asking about the chance of a crash, which I interpret as a pretty severe recession, like 2008-09. The primary trigger of a full-blown crash would be a financial crisis, when many companies, consumers and other entities have borrowed short to fund long-term assets which start looking dodgy. I don’t think that’s in the cards.

      Household finances are improving. Over the last four quarters, their real estate equity is up 10.0%, financial assets up 8.0%, debt up only 3.4%, for a gain in net worth of 8.2%, based on Federal Reserve data.
      …

    7. Ho ho ho…Merry Christmas!

      Housing: The new recession-proof investment?
      By Brittany De Lea,
      Published December 13, 2018
      U.S. Economy
      FOXBusines

      While the housing market was a centerpiece of the 2008 financial crisis, its stagnant recovery could actually save it from a downturn in another potential recession.

      “Because of the fact that it has been underperforming during the economic recovery, there is less room to go down,” Lawrence Yun, chief economist at the National Association of Realtors, told FOX Business. “I think the housing market would not see any big negative hit if there was an economic recession.”

      Yun said in the event of a recession, interest rates are likely to decline, while the Federal Reserve could halt rate increases and even cut some short-term interest rates – making borrowing easier for investors.
      …

      3. “I think the housing market would not see any big negative hit if there was an economic recession.”

        I find it implausible that a housing economist could be this clueless about the well-known linkage between recessions and collapsing demand for housing. Is he just lying to satisfy his constituents?

      4. “Because of the fact that it has been underperforming during the economic recovery, there is less room to go down

        Another data point to prove how out-of-touch all these economic experts are. Who cares if it hasn’t gone up as much as Yun thinks it should have, housing is ridiculously unaffordable to the average sap, who is likely already drowning in other debts.

    8. Shades of Japan, circa 1990?

      Property Report
      Chinese Investors Back Away From Global Property Markets
      The days of Chinese investors snapping up trophy buildings in Western markets are likely over for now
      By Esther Fung and Dominique Fong
      January 1, 2019

      Chinese investors will likely continue beating a retreat from the world’s top commercial real-estate markets in 2019, adding to the downward pressure on prices from rising interest rates.

      For years, the increasing flow of Chinese capital, alongside investments from other foreign countries, helped push property values higher. But now, the opposite is happening as Beijing continues its tight restrictions on capital outflows.
      …

      1. Real Estate
        Chinese Dumped $1 Billion of U.S. Real Estate in Third Quarter, Extending Recent Retreat
        Rising corporate debt levels, concern over currency stability led Beijing to tighten capital outflows and curb overseas acquisitions
        By Esther Fung
        Dec. 4, 2018 7:00 a.m. ET

        Chinese investors unloaded more than $1 billion in U.S. real estate in the third quarter, extending their recent retreat from hotels, office buildings and other foreign property under pressure from Beijing to reduce debt and curb money sent abroad.

        Insurers, conglomerates and other big investors from China sold $1.05 billion worth of U.S. real estate in the third quarter, while purchasing $231 million of property, according to data firm Real Capital Analytics.
        …

    9. “Is a recession in 2019 a realistic worry?”

      Here’s to hoping for a recession, a serious asset price correction.

    10. Will “the markets” do better or worse in 2019 than they did in 2018? I guess time will tell.

      Markets
      A Brutal Global Market in 2018 Has Just One Champion
      By Samuel Potter and Sid Verma
      November 23, 2018, 10:06 AM PST
      – Of more than 20 assets, few can escape 11 months of carnage
      – Risk-adjusted returns show T-bills triumphant, EM bonds beaten

      Gather a basket of the world’s biggest assets. Strip out the volatility. Calculate the returns. Then find a nice corner where you can weep, and wish you’d put everything in T-bills.

      After another bruising week as portfolios sank deeper into the red, there may be no escaping it: Almost everything is going to lose this year.
      …

      1. With “words of comfort” like these, who needs pessimists?

        There are crumbs of comfort in this year’s ruins. The average return for the set of 23 major assets tracked by Bloomberg, both in absolute and risk-adjusted terms, is only the worst since 2015 on an equal-weighted basis. Back then heavy losses in commodities, the dollar and euro conspired for an even uglier 12 months.

        And crypto investors have had it much worse: the value of digital tokens is down by almost $700 billion since the January peak, or about 80 percent.

        1. It’s also good to note the date on the article posted above, November 23, 2018, predates the December 2018 holiday season market meltdown.

    12. Bloomberg Opinion
      Markets
      Markets Are Signaling Higher Odds of a 2019 Recession
      The acceleration in the timing of a downturn is reinforced by the speed with which financial assets have slumped.
      By Komal Sri-Kumar
      January 2, 2019, 2:00 AM PST
      A recession is coming sooner that expected.
      Photographer: Drew Angerer/Getty Images North America
      Komal Sri-Kumar is the president and founder of Sri-Kumar Global Strategies, and the former chief global strategist of Trust Company of the West.

      For investors attempting to adjust their portfolios in anticipation of a recession by the end of 2020, recent economic indicators carry a message: they may have to prepare for the downturn to start as early as 2019 despite stocks enjoying a recent “dead-cat bounce.” Bloomberg News reports that a Federal Reserve Bank of New York gauge puts the chances of a recession at almost 16 percent a year from now, the highest since November 2008.
      …

      1. For the record, by November 2008, the Great Recession had already been in progress for nearly a year (it began in December 2007).

    13. Five ways to tell if a slowdown will turn into a recession
      By Lydia DePillis and Chris Isidore, CNN Business
      Updated 6:44 AM ET, Wed January 2, 2019
      Stocks swing on first trading day of 2019
      Equity strategist: Volatility is the new normal
      Washington (CNN Business)

      Clifton Broumand has started noticing something is off at the trade shows.

      Since 1982, he’s been selling medical-grade keyboards and mice produced at his facility in Landover, Maryland, and he’s been through a few recessions. Each time, he gets the feeling one’s coming when foot traffic seems to be down at the exhibitions he visits to attract new clients.
      This year, he only got half the usual number of leads at an industry conference in Chicago. He knows what happens next.

      “When you start seeing these things, it’s like death by a thousand cuts,” Broumand says. “You see a cut here, a cut there, and all of a sudden it adds up.”
      …

    14. Got doom?

      Bloomberg Opinion
      Economics
      Markets Keep Flashing Recession Warnings
      From doom loops to the yield curve, there’s plenty to worry about.
      By Mark Gongloff
      January 2, 2019, 1:45 PM PST
      Plenty to worry about in the New Year.
      Photographer: Andrew Burton/Getty Images
      North America
      Today’s Agenda
      Doom Loops Are Not a Breakfast Food

      Many people start the New Year full of optimism, but they’re usually just setting themselves up for disappointment. For example, as Barry Ritholtz points out, we should probably accept now that we won’t live up to our resolutions. But why stop there? Why not go ahead and expect the absolute worst, raising the chances we’ll be pleasantly surprised?

      In that vein, Satyajit Das presents how the global economy could go horribly wrong this year as central banks tighten financial conditions and markets reel and swoon in response (U.S. stocks started the New Year off with some reeling and swooning today). He warns these conditions risk triggering a series of interlocking “doom loops,” which sound like cool toys your tween nephew got on Christmas but are actually mutually reinforcing weapons of mass financial destruction. These are the collateral doom loop, the hedging doom loop, the sovereign doom loop, the intermediary doom loop and the real economy doom loop.
      …

    15. Dr. Copper has spoken.

      Copper falls as data signals China slowdown
      By Christopher Alessi
      Published: Jan 3, 2019 6:55 a.m. ET

      LONDON–Copper prices were under pressure Thursday, after a surprise cut to Apple’s sales forecast in China pointed to slowing growth in the country just a day after a measure of Chinese manufacturing activity fell into contraction territory.

      The price of copper was trading down 0.56% at $5,839.50 a metric ton on the London Metal Exchange midmorning.

      “Sentiment remains poor following the weak China PMI release yesterday, and Apple cutting its revenue outlook for the first time in 20 years owing to reduced China demand,” said Alistair Munro, an analyst at on the LME desk at brokerage Marex Spectron, of weakness in copper and other base metals Thursday.

      Apple Inc. on Wednesday surprised markets by slashing its quarterly revenue forecast as a result of a downturn in sales of iPhones in China, which represents nearly 20% of Apple’s sales.
      …

      1. Chinese manufacturing

        For years we were told that growth in China was the key ingredient of world growth. Now we’ll see the flip side of credit powered growth.

    16. The economy is at risk of being overrun by bad omens!

      Bad omen for economy? Manufacturers grow at slowest pace in two years, ISM finds
      By Jeffry Bartash
      Published: Jan 3, 2019 10:27 a.m. ET

      The numbers: American manufacturers grew in December at the slowest pace in two years as demand for their products softened, a potential warning sign for a U.S. economy that’s been running close to full tilt for the past year.

      The Institute for Supply Management said its manufacturing index fell to 54.1% last month from 59.3%. Economists surveyed by MarketWatch had forecast the index to fall to just 57%.
      …

  18. I predict leveraged loans to continue blowing up in 2019, with a possible stealth bailout attempt by Megabank, Inc if the situation gets out of hand.

    1. Finance
      Leveraged loans aren’t as attractive as they used to be
      Brian Cheung
      Yahoo Finance
      December 31, 2018, 7:10 AM PST

      Expectations for a dovish Fed in 2019 are taking some air out of leveraged loans, the market for large corporate debt that has the attention of economists and regulators searching for the next asset bubble.

      Leveraged loans — and the collateralized loan obligations they are packaged into — are floating rate investments, meaning they’re a favorite for investors looking for attractive yields in a rising rate environment. When interest rates go up, so do returns on floating rate instruments.

      But with the Fed signaling in its December meeting that it is backing off of its original projections for three 2019 rate hikes, leveraged loan markets have seen dramatic outflows as investors flock back to fixed-rate assets.

      Bank of America’s Yunyi Zhang noted that each week seems to bring a new record level of outflows from U.S. leveraged loan funds and ETFs. For the week ended Dec. 26, loans saw $3.35 billion in outflows, adding up to a cumulative $12.78 billion in outflows over the last six weeks.
      …

    2. Eye predict$ “outflow$” will bee a ri$ing $tar in online $earches throughout the $lippery $lope month$ (x12) of 2019!

      Cheer$!

    3. The woman who nailed 2018 stock-market volatility blowup now warns of ‘bubbliciouness’ in loans
      By Mark DeCambre
      Published: Jan 3, 2019 9:43 a.m. ET
      Critical information for the U.S. trading day
      NurPhoto via Getty Images
      Bubblicious markets?

      Nancy Davis, the chief investment officer and founder of advisory firm Quadratic Capital, garnered attention back in October 2017 when she predicted that a preternatural period of placidity in the stock market was about to come to an ugly end. Four months later, it did, in spectacular fashion.

      Then, amid renewed ebullience over technology and internet-related stocks, she cautioned in July that the U.S. market’s bull run — notably among tech-centered shares — was set to come apart against the backdrop of a tumbling international market.

      She was right about that, too.

      That brings us to our call of the day from Davis, who told MarketWatch that corners of the debt market, particularly private credit markets like leveraged loans, are ”very frothy,” because “a lot of investors have used leveraged loans” as a way of getting richer yields.

      “It’s definitely bubblicious,” Davis said. She also said those complex purchases of loans, which are used partly to finance private-equity transactions, may be fostering much of the current volatility exhibited by global equity markets.
      …

  19. After the hou$ing movie is fini$hed, (The End) … then roll$ the credit$.

    Iffin’ ya $tay $eated, you might find some intere$ting detail$!

  20. I predict that precious metals will soar in 2019 as millions of investors belatedly realize the Keynesian fraudsters at the central banks are clueless charlatans, and faith and confidence underpinning global financial systems will be severely tested.

    I also predict that the implosion of Housing Bubble 2.0 and resultant devastation to the financial system will be far more devastating than the artificially arrested crash of Housing Bubble 1.0.

    Finally, I predict that the mutual antipathy in society between the takers and the makers, or the taxpayers and the parasites if you will, is going to reach the boiling point as the productive and honest portion of the population gets increasingly crushed by the tax burden of supporting the ever-growing army of entitlement and dependency voters, and fed up with malgovernance by the venal, corrupt, and incompetent.

  21. I predict the combination of gradually increasing interest rates, vanishing Chinese speculators, and eliminated tax advantages to home ownership will have a “much larger than expected” negative impact on West Coast housing prices.

    1. This prediction is also my take for 2019. I believe it will be much quicker compared to Bubble 1.0, I would not be surprised if we get to a bottom by 2020. I would also add that crypto markets will be mostly shut down by gov or lack of participation. The blockchain technology will continue but in a gov managed fashion. Also mass shortages of ramen and medal garbage cans.

      1. It’s not all downside, as young families who have long been priced out of California housing may finally realize an opportunity to get a foothold. Think of it as the older generation of Californians collectively handing over a little of their accumulated wealth to the younger generation to help them get off to a good start in life. It’s really a good thing in disguise!

  22. I predict the Fed will continue to backpedal on its ambitious punchbowl removal plans in the face of withering political pressure from Wall Street and K Street.

    1. Fed has a ‘tin ear’ to market concern over balance sheet
      By Greg Robb
      Published: Dec 20, 2018 4:14 p.m. ET

      Traders think ‘quantitative tightening’ is not benign, no matter what Powell says
      Bloomberg News/Landov
      Fed Chairman Jerome Powell at his press conference on Wednesday.

      The Federal Reserve has displayed a “tin ear” to market worries over its ongoing plan to shrink its balance sheet, economists said.

      “Everyone is looking for a reason why the markets are sinking. Blaming quantitative tightening has really taken center stage,” said Joe La Vorgna, chief economist for the Americas at Natixis.

      Stocks, including the Dow Jones Industrial Average, were down sharply for a second straight day Thursday after the Fed’s monetary policy meeting.

      After a gradual runup, since October the Fed has been allowing $50 billion a month of maturing securities to roll off its balance sheet, a program known as quantitative tightening.

      Asked if the weaker economic outlook projected by the central bank on Wednesday justified a slower pace of run-off, Fed Chairman Jerome Powell told reporters the plan would remain on “auto-pilot.” The stock market swooned after that message, Lavorgna said.
      …

    2. Politics
      A Trump-Powell Meeting: Chance of Rapprochement Fraught With Risks—for Both Sides
      As White House aides try to arrange a sit-down, observers see peril to the Federal Reserve’s independence
      By Peter Nicholas and
      Paul Kiernan
      Dec. 28, 2018 5:28 p.m. ET

      WASHINGTON—White House officials are trying to arrange a meeting between President Trump and Federal Reserve Chairman Jerome Powell so that each can explain his thinking and possibly settle differences over policies that have rattled markets and prompted presidential tweets critical of rising interest rates.

      But a sit-down could pose serious risks to the perceived independence of the Fed, according to lawmakers, former Fed officials and longtime central bank watchers. Even if the meeting sticks to broad topics such as the health of the economy, it could give rise to outside speculation that Mr. Trump is seeking to sway Fed policy given his public objections to higher interest rates, these people added.

      “If the conversation is a chance for the president of the United States to tell the chairman of the Federal Reserve how to run Federal Reserve policy, I’d just as soon not answer the phone,” Alan Greenspan, who was Federal Reserve chairman for nearly two decades, said in an interview.
      …

      1. “If the conversation is a chance for the president of the United States to tell the chairman of the Federal Reserve how to run Federal Reserve policy, I’d just as soon not answer the phone,” Alan Greenspan, who was Federal Reserve chairman for nearly two decades, said in an interview.”

        Ol’ spiddlemouthwobblychin hasn’t gone totally senile – he uncorked a gem, here! Think about this for a moment: The President of the United States is widely considered the most powerful man on earth, yet here’s a banker essentially saying “if this guy thinks he can tell us what to do, he’s sorely mistaken.” That’s rich!

        It’s time to neuter the Fed. I wish we could actually end it entirely.

        1. “It’s time to neuter the Fed.”

          They need to be reigned-in, not cut out. Just imagine congress controlling the printing press? We’d show Zimbabwe a thing or two!

    3. Business
      Posted 7:42 PM
      Updated 37 mins ago
      Analysis: Fed chief Powell has lot to lose and little to gain in sit-down with Trump
      A meeting could create the impression the Fed is giving in to presidential pressure, or generate confusion over what gets discussed.
      By Christopher Condon and Jeanna Smialek, Bloomberg

      Of all the holiday gatherings Jerome Powell gets invited to, a sit-down in the Oval Office might be one of the last he’d want to attend.

      Just days after President Trump blamed the Federal Reserve chairman for the stock market’s December swoon and discussed with aides his desire to fire him, White House staff are reportedly working to set up a meeting between the two men.

      While some Fed watchers said such a confab could ease tensions, most warned it might be a minefield for Powell, either creating the impression the Fed is giving in to presidential pressure, or simply generating confusion over what gets discussed.
      …

    4. Traders Ignored the Fed Chairman’s Warning
      U.S. Economy
      December 13, 2018
      Michael Carr
      Traders were right that Fed Chairman Jerome Powell’s recent speech was important. But buying stocks was the wrong reaction.

      William McChesney Martin created the modern Federal Reserve. He was the chairman from 1951 to 1970.

      Before 1950, the Treasury Department drove monetary policy. Martin separated the policies of the two and created an independent central bank.

      Martin said the Fed’s job is “to take away the punch bowl just as the party gets going.”

      He meant the Fed raises interest rates as the economy peaks. Before the economy turns down, the Fed tries to “spike the punch.”

      So, when Fed Chairman Jerome Powell recently said interest rates might stop rising, he meant the economy was in trouble.

      Somehow traders believed his statement was good news, and they sent stocks soaring.

      The S&P 500 Index gained more than 1% in the five minutes after traders read his speech.

      They were right that this speech was important. But buying stocks was the wrong reaction.

      The Fed Chairman Knows There’s a Problem

      Neutral interest rates are the equivalent of the baby bear’s porridge.

      In the Goldilocks fairy tale, the heroine tries three bowls of porridge. The first is too hot. The second is too cold. The third one, the baby bear’s bowl, is just right.

      When the economy is too hot, the Fed raises rates. It cuts rates when the economy is too cold. Neutral rates are just right.

      In theory, neutral is the rate that maximizes growth without inflation.

      In October, Powell hinted rates were well below his target. The economy was too hot. By raising rates, the Fed planned to cool the economy.

      A little more than a month later, the Fed chairman changed his view.

      Interest rates were the same. All that changed was Powell’s opinion. That means new economic data raised concerns that the economy was slowing.

      Powell now recognizes there’s a problem. He’s catching up to what business owners already figured out.

      The National Federation of Independent Business reported that its Small Business Optimism Index fell in November for the third straight month.

      Powell is also recognizing what consumers already know. One sign of the coming economic slowdown is the decline in recreational vehicle (RV) sales.

      An Excellent Economic Indicator

      RVs are a “good economy” product. They might be the ultimate good economy purchase.

      They are expensive to buy. Many RVs cost more than $100,000.

      They’re also expensive to maintain and operate. Owners pay storage costs when they don’t use their RV. They pay for fuel when they use the RV.

      Every month, in good times and bad, the RV costs them money.

      Consumers buy RVs when they’re confident they can afford the maintenance. In a slow economy, they avoid purchases like this.

      That makes RV sales an excellent economic indicator. History confirms the value of this data.

      Sales dropped in the year before each of the past two recessions.

      RV sales are set to end 2018 with the first year-over-year decline since 2009.

      Every annual decline in sales since 1990 has been associated with a bear market in stocks.

      There’s no reason to believe this time is different.
      …

      1. $100,000 + RV’$ = boat$ with wheel$

        (+ It’$ ju$t a rumor, there is lot$ of unit$ $itting in lot$ all acro$$ the U$A = lot$.of.inventorie$)

        1. Ah, yes, the time-tested RV recession indicator…

          Shock Exchange
          A Predictor Of Recession Is Flashing Red
          Dec. 27, 2018 2:42 AM

          Summary

          – RV shipments for the month of November fell 20% Y/Y.

          – RV shipments through year-to-date November were down 3%.

          – We are likely in the throes of recession.

          – Avoid cyclical names and highly-indebted companies that need economic growth to service debt.
          …

    5. Will the appearance that Fed insiders are panicked serve to mitigate or exacerbate the violent selloff underway on Wall Street?

      1. That was fast!

        Fed’s Kaplan calls for pause in interest-rate hikes, says open to slowing balance sheet runoff
        By Greg Robb
        Published: Jan 3, 2019 7:53 a.m. ET

        Dallas Fed President Robert Kaplan said Thursday the selloff in financial markets has caused him to back a pause in further interest-rate hikes until the uncertainties settle down. In an interview with Bloomberg News, Kaplan said the Fed should remain on the sidelines at least for the “first couple of quarters” of the year. “We shouldn’t be taking any further action until some of these uncertainties resolve themselves,” he said. Kaplan said he wasn’t mulling an interest-rate cut. In the interview, Kaplan also said he was open to slowing down the pace of the shrinking of the central bank’s balance sheet. Many analysts say investors are worried the central bank’s balance sheet reduction is removing liquidity from markets.
        …

    2. “Displaying 1 – 50 of 934”

      Geezus, it’s a sad, sad world. This whole crypto nonsense can’t go away fast enough.

  24. Think I’ll have to stick with my mid-year prediction, in addition the following conspiracy theory: this spring will bring the extraordinary slow down in housing sales. Afterwhich, the real estate market will fully unravel. Revealing the cause of this housing bubble: market manipulation by the NAR through app based ‘data’ (Zillow and trulia), and prolific use of subprime (non prime) loans from smaller banks/lenders to a new generation of FBs.

    1. “market manipulation by the NAR through app based ‘data’ (Zillow and trulia)”

      I’m going to pray for a story like this to come to light.

  25. just like the Saudi’s did, i think that the Chinese will go after their rich that did not pay enoug`h or outright evaded taxes. i think that the Chinese govt will recover trillions – and use this to keep the domestic economy going.

    Watch out – because the rich will find new ways to get money out.

  26. I predict the Plunge Protection Team will do its best to mitigate market volatility and reduce the size of large downward movements in stock prices (such as this morning’s). But eventually they will find themselves overwhelmed by valuation pressure, due to rising interest rates and business cycle concerns.

    2. It was a miracle finish in the green for all three headline Wall Street stock indexes, after spending most of the day deep in the red zone. Heckuva job, PPT members!

    1. The writer of this newsletter must own shares in a hand lotion factory!

      Energy & Capital
      Preparing for the 2019 Bear Market
      Get Paid When the Market Tumbles
      Written by Jeff Siegel
      Posted December 26, 2018 at 7:00PM

      Panic.

      It’s the worst thing about my job.

      The market cools off, valuations deflate, and my inbox gets overwhelmed with folks who are in full panic mode, wanting to know, “What do I do?”

      I don’t mean to sound brash, but if you freak out every time stocks sell off, you should just stop investing right now. Otherwise, you’re going to make yourself crazy, and you’ll likely end up acting on emotion instead of common sense.

      Yes, the market got hit hard in December. And market uncertainty is likely to weigh on investors as we head into 2019.

      Geopolitical unrest, the expansion of trade wars, and the very real possibility that the Trump administration will collapse on itself in the coming year should have every investor on his toes and thinking three steps ahead.

      Understand, I don’t say these things to scare you or to be a fear monger. I simply present these realities to you so you can best prepare to both protect and build your wealth in 2019.
      …

    2. Business
      U.S. retirees try to not freak out as stocks tumble
      By Tim McLaughlin
      Reuters
      Dec 28, 2018
      Wall Street faces annual losses despite solid gains for week

      BOSTON • Nancy Farrington, a retiree who turns 75 next month, admits to being in a constant state of anxiety over the biggest December stock market rout since Herbert Hoover was president.

      “I have not looked at my numbers. I’m afraid to do it,” said Farrington, who recently moved to Charleston, S.C., from Boston. “We’ve been conditioned to stand pat and not panic. I sure hope my advisers are doing the same.”

      Retirees are worrying about their nest eggs as this month’s sell-off rounds out the worst year for stocks in a decade, and some fear they are headed for a day of reckoning like the 2008 market meltdown or dot-com crash of the early 2000s.
      …

    1. Don’t let your FUD overcome your FOMO. It’s time to buy the dip!

      News: Dow Jones
      Stocks: Investors Seek Calm as Volatility Rages — WSJ
      01/02/19 02:47 AM EST

      December’s rout in stocks prompted some to buy at what they deem sale prices

      By Dawn Lim, Daniel Kruger and Ira Iosebashvili

      The year-end stock selloff saddled major indexes with their worst annual decline since 2008 as concerns over global growth intensified, but retail investors are trying to hold on despite the intense volatility.

      Some are even taking advantage of the rout, showing the type of support that in the past has helped boost a falling market. Money manager Fidelity, which is both an online brokerage and the country’s largest 401(k) plan administrator, said its customers were buying more than they were selling in the period from Oct. 1 through Dec. 31.

      For every sell order from Fidelity’s retail brokerage clients in that period, there were also 1.25 buy orders, up from a buy/sell ratio of 1.21 in the year-ago period. Amazon.com Inc. and Apple Inc. were among stocks that were in higher demand in the past week.
      …
      Retail investors are more likely to buy and hold stocks and funds, shunning strategies that profit from increased volatility. They often pull money from the stock market during periods of significant stress.

      While many have tried to stay calm, it has proven a challenge. “It’s been pretty crazy,” said Alok Subbarao, a 28-year-old professional services engineer from San Mateo, Calif. “My friends are like, ‘Oh my God, the world is ending’ and telling me to sell.”

      Mr. Subbarao has so far resisted the urge to cash in his portfolio, which is still up thanks to timely investments in biotech firm Sangamo Therapeutics Inc. and other earlier stock picks.

      Making it harder for Mr. Subbarao has been his investment history: He first purchased bitcoin at around $1,100 and failed to sell when the cryptocurrency’s price nearly hit $20,000. He still holds bitcoin, which traded Tuesday around $3,770.

      “There’s a sense of ‘Oh no, it’s happening again,'” he said.

      Mr. Subbarao isn’t sure what he would do if markets resumed their decline.
      …

  29. When zombie corporations and marginal household borrowers default en masse, the Wall Street-Federal Reserve Looting Syndicate won’t be able to socialize the losses this time around. Enough of the 99% who have been financially strip-mined by the oligarchy have become awake and aware since 2009, and they’re onto to the schemes and scams of the central bankers and their policymaker and Wall Street accomplices. That’s going to make another bailout of the TBTB banks, not to mention awarding obscene bonuses to Wall Street CEOs instead of the handcuffs they deserve, politically untenable. Which means true price discovery won’t be thwarted by trillions of FedBux “stimulus” this time around.

    Brace for impact.

    1. It seems like the American electorate, as well as the Congress which serves them, came out strongly against bailouts in the 2007-2009 episode. But then Congress changed its tune when panicked leaders at the Fed and Treasury convinced them that the entire global financial economy would collapse into Great Depression 2.0 without bailouts to make Wall Street whole on its bad subprime mortgage market gambling debt.

      Do you expect a different outcome this time if the Fed and Treasury leaders panic again?

  30. Are you missing out on the quiet rally in long-term Treasurys whilst trying to decide whether to join the stock HODLers and dips buyers in the Wall Street casino?

    1. Now even the Treasury market yield curve is telling the Fed to put the brakes on normalizing interest rates. Who knew that curves could talk?

      Economics
      Yield Curve Tells the Fed to Hold on Rates
      If this keeps up, a key recession warning indicator soon will be flashing red.
      By Noah Smith
      January 2, 2019, 3:00 AM PST
      Pay attention.
      Photographer: David McNew/Getty Images North America
      Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

      Imagine if you could predict recessions, years in advance, more accurately than professional economic forecasters, just by looking at a few data points. Well, according to a 2008 paper by economists Glenn Rudebusch and John Williams, you can.

      The data you have to look at is what’s known as the yield curve — a technical term for the different interest rates on government bonds of various maturities.
      …
      Somehow, Rudebusch and Williams find, economic forecasters often fail to pay attention to this seemingly reliable indicator. They find that recession probability forecasts based on the Survey of Professional Forecasters are less accurate than forecasts based on the term spread between three-month and 10-year Treasuries with horizons of more than one calendar quarter. In other words, simply looking at one piece of the yield curve would let you beat the pros. The onset of the Great Recession in December 2007, 22 months after the term spread went negative, seems to confirm the pattern.

      Why do inverted yield curves tend to predict recessions? When short-term rates are higher than long-term rates, it means that bond markets expect short-term rates to fall soon. That’s what happens in a recession, as the Federal Reserve cuts rates in an attempt to stimulate investment and consumption. So the fact that the yield curve forecasts recessions better than the pros just means that markets tend to be better aggregators of information than even highly trained individuals — a result that tends to hold in many domains.
      …

    2. Don’t let plunging Treasury yields HODL you back from buying stocks!

      10-year Treasury yield falls to 11-month low amid global growth jitters
      By Sunny Oh
      Published: Jan 2, 2019 1:55 p.m. ET

      Treasury prices mostly rose Wednesday, pushing yields lower, after stocks in Asia fell over concerns that trade tensions were weighing on global economic growth.

      The 10-year Treasury note yield (TMUBMUSD10Y, -1.03%) fell 2.8 basis points to 2.663%, after coming off an intraday low of 2.65%. But if the benchmark yield ended at current levels, it would mark its lowest finish since Jan. 26.

      The 2-year note yield (TMUBMUSD02Y, -0.81%) was mostly unchanged at 2.504%, while the 30-year bond yield (TMUBMUSD30Y, -1.36%) slipped 3.3 basis points to 2.988%. Bond prices move inversely to yields.
      …

    3. Closing bell levels today:

      10-year Treasury = 2.66%
      1-year Treasury = 2.60%
      10-year – 1-year spread = 0.06%

      Yield Curve Inversion – What’s Different This Time?
      ETF Trends
      January 2, 2019
      By Sage Advisory
      Crossing the Rubicon – Yield Curve Inversion

      In 49 BCE a provincial governor named Julius Caesar and a single legion of troops crossed a small stream in northern Italy – the Rubicon River – sparking a civil war that led to Caesar’s reign and changed the course of history for Rome. Today, the phrase “Crossing the Rubicon” serves as a metaphor for taking irrevocable steps toward an outcome. In the financial markets, no indicator of an economic recession is as synonymous with the Rubicon as the slope of the yield curve crossing into negative territory.

      The first week of trading in December saw the much-awaited inversion of the yield curve, with the 5-year Treasury yield trading below the 2-year yield for the first time since June 2007. Another commonly cited yield curve measure, the spread between the 10-year and 2-year, has not yet moved into negative territory, but typically follows the 5-year and 2-year spread into inversion territory.
      …

        1. Wow, .06% difference in yield. That is pathetic. I do have to gloat about getting a rather large NCUA certificate in at 4% for 5 years right after Christmas. It was available for about 24 hours before they had all the funds they needed. I kind of feel lucky to get my foot in the door on that one.

    4. What does that huge crater in the 2-year Treasury yield signify?

      And am I correct to interpret “lowest since January” to reference January 2018?

      10-year, 30-year Treasury yields tumble after ISM reading
      By Sunny Oh
      Published: Jan 3, 2019 12:51 p.m. ET
      10-year Treasury note yield remains at lowest since January

      Treasury yields accelerated their decline on Thursday after a weaker-than-expected number from the ISM’s manufacturing gauge.

      The 10-year Treasury note yield (TMUBMUSD10Y, -2.28%) plunged 7.9 basis points to 2.582%, its lowest since January. The 2-year note yield (TMUBMUSD02Y, -4.07%) was down 7.3 basis points to 2.431%, while the 30-year bond yield (TMUBMUSD30Y, -1.10%) fell 6.6 basis points to 2.916%, also its lowest since January. Bond prices move in the opposite direction of yields.
      …

  31. This chart shows slower global growth is dragging down the 10-year Treasury yield
    By Sunny Oh
    Published: Jan 2, 2019 1:35 p.m. ET

    The 10-year Treasury yield appears to have recoupled with softening data from the world’s major economies

    A creeping economic slowdown that has taken hold of Asia and Europe, is starting to command the attention of investors in U.S. government debt.

    In the past few months, the 10-year Treasury yield’s (TMUBMUSD10Y, -0.57%) trajectory has followed the deterioration of data across the world’s leading economies, reversing the story for most of 2018 when U.S. investors shrugged off softer growth in the eurozone and China. Since November, the 10-year yield has fallen around 60 basis points to trade at 2.670%. Bond prices climb as yields fall.
    …

  32. Do you feel like you weren’t sufficiently bearish in 2018? The world has long suffered from an ever-expanding, overpopulated bovine population, even as ursine species join the endangered species list or go extinct. Luckily it’s not too late to join the ursine camp, though you will have to tune out the Wall Street-funded 24/7 fake news MSM encouragement to catch yourself a falling knife through dips buying.

    1. Wall Street is getting bearish, but not bearish enough
      By Chris Matthews
      Published: Jan 2, 2019 2:18 p.m. ET
      Investor sentiment has taken a turn for the worse, but could sour further, say these indexes tracking market analysis
      The mood on Wall Street is darkening.

      Markets have given investors little reason for optimism of late, but many money managers and financial advisers remain surprisingly upbeat, according to analyses from Bank of America Merrill Lynch and the Ned Davis Research Group.

      “Human nature shifts back and forth between extreme optimism (greed) to extreme pessimism (fear),” Ned Davis, senior investment strategist at the Ned Davis Research Group, wrote in a Wednesday note to clients.

      The key for investors, he argued, is to time these shifts in sentiment, as this evolving market psychology is often more important for equity prices than new information about a particular company or the broader economy.
      …

    2. PS It’s well known that bovines are among the least intelligent mammal species. Their herd instinct serves them well during periods when the stock market only goes up, such as the 2008-2018 perod of unprecedented, unbridled extraordinary accommodation by the Fed. Now that we are in the punchbowl removal phase of the monetary policy cycle, I don’t expect the herd instinct to prove advantageous.
      I futher predict that bovines will live continue to live up to their reputation as blind followers in 2019.

    3. Why emerging market bulls need to rein in their optimism
      Nicholas Spiro says investors are bearish about the US but increasingly bullish on emerging markets. But, while the worst seems to be over, emerging market stocks may only seem safer because Wall Street had a dreadful December
      Nicholas Spiro Nicholas Spiro UPDATED : Thursday, 3 Jan 2019, 10:26PM

      One would be hard-pressed to find an investor with a resoundingly bullish view of global markets in 2019. Following a dreadful fourth quarter that left almost every leading asset class in the red for the year for the first time since the 1970s, a profound trepidation pervades the world’s trading floors.

      While few expect this year to be as bleak as 2018, the surge in volatility – day-to-day moves in United States stocks last quarter were the most dramatic in years – has made it extremely difficult for investors to make bets on any major asset class with strong conviction.

      Yet, while the mood is one of “extreme bearishness”, according to a December Bank of America Merrill Lynch fund manager survey, there is increasing optimism about developing economies, the asset class that bore the brunt of the price declines for most of 2018. The survey notes that emerging markets are now the most popular region among equity investors, who have not been more bullish about emerging market stocks over the next 12 months since July 2009.
      …

  33. Pensions will suffer , But I always say this. For example CA passed a gas tax for “roads” which will supplement the original funding for roads that probably goes to pensions now.

    1. I recall reading somewhere that California used their gasoline tax revenue for school teachers when housing property tax receipts tanked during the foreclosure crisis. The argument was to maintain their intellectual capital base… or something along those lines.

    1. Are they already cutting the sales forecast for the 2019 holiday season? It seems early…

      Apple cuts holiday sales forecast on iPhone and China weakness, stock falls 8%
      By Jeremy C. Owens
      Published: Jan 2, 2019 6:29 p.m. ET
      – CEO Tim Cook cites weaker-than-expected iPhone sales, China economy in reducing revenue forecast
      – Apple holiday sales were weaker than expected.

      Fears of weakness at Apple Inc. proved true Wednesday.

      The tech giant, which became the only public U.S. company to reach a $1 trillion valuation last year before a fourth-quarter collapse for its shares, confirmed the fears that led to the stock decline by lowering its forecast Wednesday afternoon. In a letter to shareholders, Chief Executive Tim Cook said that Apple will report much lower sales than previously expected, largely due to slowing iPhone sales and pressure in China.
      …

    2. The Plunge Protection Team has its work cut out for them tomorrow on the Apple announcement.

      And cockroach theory suggests there will be more bad corporate announcements to come. Enjoy your HODLing!

      1. Eee-bola is breaking out all over Wall Street!

        U.S. stock futures sink after Apple cuts sales forecast
        By Mike Murphy
        Published: Jan 2, 2019 6:22 p.m. ET

        U.S. stock futures plunged late Wednesday after Apple Inc. (AAPL, +0.11%) lowered its holiday-quarter sales forecast. Dow Jones Industrial Average futures (YMH9, -1.40%) were down more than 300 points, or 1.5%, soon after trading opened. S&P 500 futures (ESH9, -1.30%) were off more than 1.4%, and tech-heavy Nasdaq futures (NQH9, -2.24%) sank more than 2%. Apple shares dropped 8% in after-hours trading after the Wednesday afternoon announcement, in which the tech giant blamed disappointing sales on weakness in China. The news had broad repercussions across the tech industry, with some of the biggest tech names, such as Microsoft Corp. and Netflix Inc. falling in after-hours trading.
        …

      2. Asian markets mostly down as Apple’s warning weighs on tech stocks
        By Associated Press and MarketWatch
        Published: Jan 2, 2019 11:33 p.m. ET
        Apple suppliers hit hard after tech giant cuts sales forecast
        Bloomberg News
        Commercial buildings stand illuminated at dusk in Hong Kong.

        Asian markets were mostly lower Thursday after tumbling more than 1% on the first trading day of 2019. Apple downgraded its sales projections, citing slowing Chinese growth, hitting technology shares in South Korea and Taiwan. The Japanese yen, seen as a relatively safe asset, strengthened against the dollar, euro and several other Asian and European currencies.
        …

  35. I predict a former Trump adviser will step up to offer helpful advice on how to save the stock market.

    1. The Scary Mooch is ba-a-a-a-ack, talking his book to the former boss!!!

      Scaramucci — the ex–White House staffer — says these are the three things Trump needs to do to boost the stock market
      By Mark DeCambre
      Published: Jan 2, 2019 7:02 p.m. ET
      WireImage
      Anthony Scaramucci attends the Hollywood Reporter’s 35 Most Powerful People In Media event last year.

      Anthony Scaramucci is back at SkyBridge Capital, the hedge-fund firm he founded in 2005 (and attempted, controversially and unsuccessfully, to sell to a Chinese conglomerate in 2017), but that hasn’t stopped the Trump ally and former White House staffer from offering advice to his former boss.
      …

  36. I predict that lots of big name investors will run aground in 2019, thanks to wickedly unpredictable markets.

    1. We got a bear market in 2018 in lots of asset classes, just not in Treasury bonds.

      Markets
      The Bond Bear Market of 2018 Never Really Came
      Sure, it was a tumultuous year for Treasuries. But fears of a doomsday were overblown.
      By Brian Chappatta
      December 31, 2018, 3:09 AM PST
      Not much of a bite.
      Photographer: William Vanderson/Hulton Archive/Getty Images
      Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

      Remember this?

      Bond bear market confirmed.

      Bill Gross, on Twitter, Jan. 9, 2018

      That proclamation, mere days into the New Year, set the tone for the $15.6 trillion U.S. Treasury market in 2018. Not only was it the subject of the most-read article of the year on the Bloomberg terminal among U.S. rates and foreign-exchange news, but it ushered in a new shorthand for projections of higher yields. Later in January, Bridgewater Associates founder Ray Dalio said the bond market had slipped into a bear phase. “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” he said.
      …

    2. Top Stories
      Hedge Funds
      Hedge fund all-star David Einhorn posts his worst year ever, losing 34% in 2018
      Published Wed, Jan 2 2019 • 8:56 AM EST Updated Wed, Jan 2 2019 • 10:30 AM EST
      Yun Li
      Key Points
      – Greenlight Capital’s main fund lost 9 percent in December, bringing its decline for 2018 to 34 percent.
      – Greenlight’s largest holdings include General Motors, insurer Brighthouse Financial and homebuilder Green Brick Partners, which all struggled in 2018, bleeding as much as 47 percent.
      …

    3. Business
      This Is The Worst Year For Hedge Funds Since The Financial Crisis
      2 days ago at 10:54 am by Michelle Jones

      It’s no secret that most hedge funds have had a particularly difficult year, and now that we have 11 months of data, it’s become clear that 2018 is the industry’s worse year since the global financial crisis. Between investor redemptions and performance-based losses, the hedge fund industry has shed 3.4% of its assets under management so far year to date, according to data from Eurekahedge.

      More of the same in November

      The publication reports that assets under management by the world’s hedge fund industry are down to $2.36 trillion. The 3.4% year-to-date decline in AUM for the first 11 months of the year makes 2018 the worst year for the hedge fund industry since the global financial crisis, Eurekahedge said.
      …

      1. “…and now that we have 11 months of data, it’s become clear that 2018 is the industry’s worse year since the global financial crisis.”

        Apparently this was the situation before everything really went to hell in a handbasket in December.

  37. I realize that 2019 is a little long in the teeth to continue making “year-end predictions,” but I’m curious what y’all expect to happen when Wall Street’s myopic bovine herd fully assesses the gathering housing bust whch Ben diligently documents here on a daily basis? So far, their consternation seems narrowly focused on signs of industrial slowdowns in China, the U.S., the Eurozone, and perhaps a few other corners of the developed world which presently elude my musings.

    1. Technology
      Investors Punish U.S. Companies Vulnerable to China Slowdown
      By Esha Dey
      January 3, 2019, 11:01 AM PST
      Updated on January 3, 2019, 2:44 PM PST
      – Apple warning on sales abroad not limited to iPhone maker
      – Auto parts supplier, chipmakers and multinationals suffer

      In the wake of Apple Inc.’s revenue warning, investors are finding that exposure to China is not all it’s cracked up to be.

      The unexpected revision late Wednesday is weighing heavily on China-exposed companies across sectors that have already been struggling to cope with trade war uncertainties. To top that off, Kevin Hassett, chairman of the White House Council of Economic Advisers, cautioned Thursday that more U.S. companies can be expected to lower earnings forecasts as the softer Chinese economy cuts into their sales.
      …

    2. Eurozone factories ended 2018 on a low note: survey
      Thu, Jan 03, 2019 – 5:50 AM
      London

      EUROZONE manufacturing activity barely expanded at the end of 2018 in a broad-based slowdown, according to a survey which showed scant signs for optimism as the new year begins.

      The disappointing survey comes just after the European Central Bank (ECB) ended its 2.6 trillion euro (S$4 trillion) asset purchasing scheme and is likely to make uncomfortable reading for policymakers.

      IHS Markit’s December final manufacturing Purchasing Managers’ Index (PMI) fell for a fifth month, coming in at 51.4 from November’s 51.8, matching a flash reading but barely above the 50 level separating growth from contraction.
      …

    3. The Wall Street Journal
      U.S. Economy
      U.S. Factory Activity Decelerates Sharply Amid Global Slowdown
      Manufacturing index falls as demand for American-made products wanes
      By Sharon Nunn and
      Nick Timiraos
      Updated Jan. 3, 2019 3:24 p.m. ET

      WASHINGTON—American manufacturing growth slowed sharply in December, adding to concerns about cooling economic expansions in the U.S. and abroad.

      The Institute for Supply Management said Thursday that its manufacturing index fell to 54.1 in December, the largest one-month drop since the end of 2008, during the financial crisis. Still, a reading above 50 indicates factory activity is expanding.
      …

    4. Economic outlook for 2019: More uncertainty for Japan’s economy amid planned tax rise and global slowdown
      by Cory Baird, Staff Writer
      Jan 2, 2019

      With the average worker’s pay barely rising and inflation hovering just above zero, it is easy to overlook the resilience of Japan’s economic growth streak, which is currently on track to become the longest in the postwar era.

      Yet both internal headwinds, such as the upcoming consumption tax hike slated for this coming October, alongside slowing global growth and stock market downturns around the world, indicate that the party may finally be coming to a close.

      While it is highly uncertain as to which looming events will hold back global commerce, professional economic soothsayers appear in agreement on one theme for 2019: Growing risks and subsequent uncertainty will significantly slow Japan’s economic growth over the next few years.

      According to analysis from a dozen top Japan-based think tanks, which publish economic outlook reports at the end of the year, there is broad consensus that the domestic economy will grow by less than 1 percent in 2019, a decline from 1.9 percent growth achieved in 2017.

      “The Chinese economy is slowing, the Eurozone is slowing, America is also approaching a slowdown — these are not good signs for the Japanese economy,” said Hide Yoneyama, an economist at Fujitsu Research Institute.
      …

    5. Bonds News
      January 3, 2019 / 1:48 AM / Updated 15 hours ago
      EMERGING MARKETS-Emerging stocks, FX slide; Apple revenue warning hurts risk sentiment
      Aaron Saldanha
      * Apple’s sales forecast fuels global growth concerns
      * EM technology stocks hit heavily, investors rush for safety
      * Turkish lira drops against Japanese yen, dollar
      * S.Africa’s rand weakens
      By Aaron Saldanha

      Jan 3 (Reuters) – Emerging market currencies and stocks slid on Thursday as investors piled into safe-haven assets after an Apple Inc revenue warning fuelled fears about slowing global growth and sparked a sharp drop in risk sentiment.

      The iPhone maker’s cut to its quarterly sales forecast, citing weak China sales as a reason, prompted weakness across world markets and investors rushed for the exits.

      MSCI’s index of emerging market currencies dipped 0.3 percent, not helped by a soft dollar, while developing world stocks dropped half a percent, as shares in South Korea and Taiwan slid.

      Technology stocks in emerging markets bore the brunt of the weakness. A 1.3 percent slide in the sector index left them on target for their lowest close in over two months.
      …

  38. I predict that with growth slowing on multiple continents, oil prices will stay soft for longer than Albuquerquedan predicted.

    1. Stocks and the oil market fall together thanks to global economic worries
      By William Watts
      Published: Jan 3, 2019 5:35 p.m. ET
      Correlation often intensifies during selloffs: Cumberland’s Chen
      Getty Images
      Synchronized diving.

      It isn’t your imagination, the oil market and the stock market have been moving together to an uncanny degree amid twin selloffs that have sent both down sharply since their October highs.

      According to Leo Chen, portfolio manager and quantitative strategist at Cumberland Advisors, the prices of West Texas Intermediate crude (CLG9, -0.70%) the U.S. oil benchmark, and the S&P 500 (SPX, -2.48%) were nearly 79% correlated since the October selloff began through the end of December. A correlation of 100% would mean prices moved in perfect unison.
      …

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