Definition of a Recession:
- The textbook definition of a recession is two quarters of negative GDP growth. Some examples of recessions include the great depression of the 1930’s, the dotcom crash of 2000 and the great recession of 2008.
Causes of a Recession:
- Recessions are caused by several factors. These include:
Prolonged Fall in Exchange Rates
Collapsing Consumer Confidence
Collapsing Asset Prices
Collapsing Global Trade
Bust following Excessive Speculation – e.g., Property Market in Japan -1989
Evidence so far:
- 1) Collapsing Commodity Prices:
Recessions caused by deflation see massive collapses in asset prices. There has been a well over 50% plunge in the prices of industrial commodities such as copper and oil:
- 2) Collapse in Global Trade:
- Freight rates as measured by the Baltic dry index have collapsed over 95% from their highs set in 2008. While temporary dislocations can cause the index to fluctuate quite a bit, the well over 95% collapse in the index is an indication that all is not well with the global economy as far as trading activity is concerned.
- 3) Collapsing Stock Markets:
- Stock Markets across the world have been collapsing despite record low interest rates globally.
- Emerging markets are down significantly from their recent highs:
- The US S&P 500 is on the verge of breaking down from a massive multi-year rising wedge
much like in 2000 and 2008 but much bigger this time around:
- 4) Dollar Strength:
- The Dollar has strengthened against virtually every other currency the last five years:
- 5) Excessive Speculation & Risk Taking:
- We are all familiar with the excessive speculation in the housing market that led to the great recession of 2008 following the collapse of Bear Sterns and Lehman Brothers. Fast forward to 2016 and the risk exposures at some big banks are reaching alarming levels as is the case with Deutsche Bank:
- 6) The velocity of Money is below Great depression levels:
As seen onrajveersmarketviews.blogspot.in
What are the odds of a recession in the not too distant future?
byRajveer Rawlin54,445 Views