Our AI writing assistant, WriteUp, can assist you in easily writing any text. Click here to experience its capabilities.
Lessons from History
Summary
This article looks at the past five US recessions and examines the similarities between them and today's economic climate. It focuses on the metric of real disposable income, which is the amount of money people have left in their pocket after inflation. All the recessions, aside from the one in 1990, have seen an increase in real disposable income and this is the same for today. The article examines the three drivers of recessions, which are monetary tightening, higher energy costs and a bubble burst, and how they have been present in each of the past five recessions. It then looks at the potential for unemployment to increase, which is likely due to a decrease in productivity and the need for companies to cut costs. Finally, it looks at current markets and makes an investment recommendation of long bonds and short cyclicals, as well as expecting a return of central bank intervention and QE later this year.
Q&As
What does the article say about real disposable income as a recessionary sign?
The article states that an increase in real disposable income is a recessionary sign, rather than a reason to believe in a re-acceleration of the economy.
How does the current economic context compare to past recessions?
The current economic context combines all three drivers of past recessions - a prior squeeze in energy costs, severe monetary tightening, and a burst bubble.
What are the implications of rising unemployment for consumer behaviour?
Rising unemployment will affect consumer behaviour and amplify the downturn.
What are the potential inflationary drivers?
The potential inflationary drivers are commodity underinvestment, deglobalisation, and demographic cliff.
What is Florian Kronawitter's personal portfolio composition?
Florian Kronawitter's personal portfolio composition is a "60/-40" book, which is a variation of the 60/40 long bonds/long equities setup. He is long bonds and short cyclical equities, including commodity producers, European industrials, and autos.
AI Comments
👍 This article provides an in-depth look at the past five US recessions and how real disposable income has affected them. It also offers insight into how the current economic crisis could unfold and offers an outlook on current markets.
👎 This article is highly technical and difficult to understand for those without economic knowledge. It also does not provide any solutions for the current economic crisis.
AI Discussion
Me: It's about how the past five US recessions have been similar in terms of real disposable income, savings rate, and unemployment, and how the current situation could indicate a recession.
Friend: Interesting! What implications does it have?
Me: Well, the article points out that the current increase in real disposable income is a recessionary sign, rather than an indication of a re-acceleration of the economy. It also highlights the potential for job losses over the coming quarters, which will likely affect consumer behavior and amplify the downturn. Lastly, it suggests that inflation could make a comeback when the economic cycle turns up again, which could be late 2023 or early 2024.
Action items
- Research the past five US recessions and compare the patterns to today's economy.
- Analyze the current economic data to determine if a recession is likely in the near future.
- Consider investing in long-term bonds and shorting cyclical equities to position for a potential hard landing.
Technical terms
- Real Disposable Income
- The amount of money that a person has left to spend after taxes and inflation have been taken into account.
- Inflation
- A sustained increase in the general level of prices for goods and services.
- Fed
- The Federal Reserve System, the central banking system of the United States.
- Goldman Sachs
- A global investment banking and securities firm.
- FT
- The Financial Times, a British newspaper.
- Savings Rate
- The percentage of income that is saved rather than spent.
- Unemployment
- The percentage of people in the labor force who are not employed.
- Monetary Tightening
- A policy of increasing interest rates and reducing the money supply in order to reduce inflation.
- Oil Price Shock
- A sudden and significant increase in the price of oil.
- Bubble
- A situation in which the price of an asset or group of assets rises far above its intrinsic value.
- Alan Greenspan
- The former Chairman of the Federal Reserve.
- Dot-Com Bubble
- A period of rapid growth in the stock market in the late 1990s, followed by a crash in 2000.
- Nasdaq
- A stock exchange based in the United States.
- Interest Rates
- The rate at which a lender charges a borrower for the use of money.
- Real Estate Bubble
- A situation in which the price of real estate rises far above its intrinsic value.
- Subprime Mortgages
- Mortgages that are offered to borrowers with poor credit histories.
- QE
- Quantitative easing, a policy of increasing the money supply in order to stimulate the economy.
- Commodity Producers
- Companies that produce commodities such as oil, gas, and metals.
- Cyclicals
- Companies whose performance is closely tied to the business cycle.
- Discretionary Consumer Goods
- Goods that are not essential for day-to-day living, such as luxury items.
- Financial Repression
- A policy of keeping interest rates below the rate of inflation in order to reduce the burden of debt.
- Inflation Boom-Bust Recessions
- Recessions caused by a rapid increase in inflation followed by a sharp decrease.
- Deglobalisation
- A process of reducing global economic integration.
- Demographic Cliff
- A situation in which a population is aging rapidly, leading to a decrease in the labor force.