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How to identify the signs of a recession
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    From inflationary money printing to highly leveraged assets and negative yielding bonds, there are a number of signs that investors and traders should look out for that may signal an impending recession.

As proficient traders have probably heard in the past, it’s always best to ride trends than to make trends. Unless you have the liquidity to stay solvent and outlast the market, it’s highly advisable you simply move with the trend and not against it.

The clear signs of a recession

Quote:[Image: xHfngNyd_bigger.jpg]
James O'Beirne@jamesob

I've been watching markets compulsively for the last few years, and it's obvious that we're headed for some very strange times. I've been meaning to write about this - and how Bitcoin ties in - for a while, but finally got around to it this weekend. …
[Image: IJuKoW7l?format=jpg&name=600x314]
Bitcoin for safety
Experimental monetary policy and high leverage is going to blow up our economy. Bitcoin is here to help.

8:40 PM - Aug 26, 2019
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If you want to ride a trend and not fight it, I believe you should be looking for signals of what’s about to come – most likely within the next 12 to 24 months. A recession can quickly turn into a medium to long-term depression if the traditional tools used by governments and central banks cease to work.

Even though this is a tragic and gloomy scenario, there’s always options to safeguard your investments, such as gold and, in my opinion, Bitcoin.

Given most problems arise from the poor management of money by central banks and governments, Bitcoin could easily tackle the key issues we’re about to analyse.

Negative yielding bonds

Negative yielding bonds mean that investors are paying governments (and some companies) for the privilege of lending them money. For instance, I could pay the government $10,000 today and in 30 years I get $9,989 back, so $11 less. 

Intuitively, this doesn’t make much sense. Given the time-value of money, cash I have on hand now should be worth more than theoretical cash in 30 years, at the very least because I may not be around in 30 years to spend it.

There’s also what we call “counterparty risk”. This is the possibility that the government might not repay me (admittedly, this is a low likelihood) or the possibility that the euro will have suffered significant inflation since my original investment, reducing the real purchasing power of my $10,000 (a much higher likelihood). The risks of lending money for 30 years should be offset by some reward, but with negative yields, the lender is penalised for assuming this risk.

If we assume low inflation in 30 years time, given the current setup, $10,000 will buy me at least 30% fewer goods (I’m being very lenient here, the real estimates would be much, much lower). This means an investor would be losing twice – they would receive less money than they invested and that money would also be worth less.

So how did we get here?

Quantitative easing

Quantitative easing (QE) allows central banks to create new money (mint new currency) and use said currency to inflate prices. For example, if you look at house prices in most developed countries, they’ve at least doubled in the past few years. This is happening not only in richer countries like the UK (London is a classic example), Sweden, or Denmark, but also in countries like Portugal, where the economic situation is way more fragile.

Did you know that, if we take into account inflation, Lisbon has become the most expensive real-estate location in the world? That makes no sense at all given the average salary in Portugal is less than 1,000 euros.

So how have prices risen so quickly? Because easy money never gets distributed equally or fairly. Due to the Cantillon Effect, people and companies closer to central banks will receive newly minted cash before other people – almost like a pyramid scheme where the top receives money before the lower tiers.

Because only a handful of investors (but mostly companies) have access to very cheap cash, that is a recipe for long-term disaster, since the easiest thing to do to keep the market pumping is to buy back your own shares.

Buying back shares

[Image: sharebuyback.png]

In a nutshell, buying back shares is when a company takes advantage of favorably low interest rates (enabled by the central bank’s intervention) to take out a loan. Using the loan, the company buys back its own shares which then reduces the number of shares outstanding and artificially boosts earnings-per-share, sending share prices higher. This has the genial side effect of making executive-owned stock options way more valuable.

In the medium-term, there are two options: either the price will collapse when credit becomes more expensive, or price inflates given money starts to lose value.


These are just some of the main indicators of impending recessions, and you should always keep on top of world news to ensure you’re not caught out and your investments don’t take a hit. Stay savvy and be wary of red flags such as inflation and negative yielding bonds, and remember there’s always the option to move money into assets such as gold or cryptocurrency such as stablecoins to try and ride out the storm.

by Pedro Febrero

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