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Next recession: Warning sign from crash includes & # 39; mother of all the bubbles & # 39;



  • Several warning signs, including the "mother of all the bubbles," are in the process of diagnosing the next recession, according to Joseph Zidle, chief investment strategist at Blackstone's Private Equity Solutions Group
  • He is concerned that investors are treating these signs as random events , even though they are all interconnected – just like the 2008 crisis, the culmination of many separate risks.
  • Click here for more BI Prime stories.

Economic crises are easier to diagnose with the benefit of hindsight. But how do you identify one while brewing?

Joseph Zidle, chief investment strategist for Blackstone's Private Property Solution Group, applies the framework his boss used to predict the housing crisis a decade ago.

Blackstone CEO Steve Schwarzman advocates the idea of ​​hunting for "discordant notes." These refer to trends in the economy and markets that easily pass as isolated events, but are combined in a dissonant, disturbing way.

As a result, the increase in house prices and the collapse of The Reserve Primary Fund due to the exposure to Lehman Brothers seemed to be two separate issues. However, we now know that they were part of the same terrible financial crisis.

The next recession is unlikely to be any different according to Zidle: Many warning signs that easily pass as isolated add up to warned investors.

Today, the highest "inconsistent note" he hears in government debt, which he says may be "the mother of all the bubbles."

He notes that investors have characterized the prevalence of negative government bond yields ̵

1; a consequence of rising prices – as normal. Some investors have stopped questioning whether it is a bubble, even though the global stock of negative return debt adds up to a staggering $ 13 trillion.

The unique problem with the rise in bond prices from Austria to Germany is that, unlike other asset classes, interest rates have historically been used as a ballast for portfolio fluctuations. However, bonds themselves have been exposed to major features such as Austria's 100-year bond, which doubled in two years. In some cases, investors speculatively buy sovereign bonds for price increases instead of steady returns and protection.

While Zidle is not alone in uncovering the rise in bond prices or calling them the biggest bubble ever, he warns that investors are too easily dismissing this and other signals showing that something is wrong.

Repo market failure, negative return debt, a deep negative premium, trade conflicts around the world and an industry collapse don't seem related right now, but I don't think they are accidental, "Zidle said in a recent note to clients. [19659005] He does not expect a recession over the next six months, but he also does not expect this expansion to continue for up to two more years.

Providing the wrong solution

Ironically, one of the factors that would usually delay Another crisis – the central bank's monetary policy – ended up being ineffective this time, according to Zidle.

He says central banks place investors rather than their economies by pumping liquidity into the financial markets and cutting interest rates in a coordinated manner.

For example, US equities have declined sharply this year as the Federal Reserve has shown its readiness to continue expansion by reducing interest rates. However, the interest rate cuts do not move the needle on how easy it is for consumers to borrow money.

"Even a year ago, when central banks tightened monetary policy, credit conditions were not meaningfully more difficult than they are today," Zidle said. "So if tight credit markets aren't the problem, lighter money is unlikely to be the solution."

The real problem is trade, in his view. Solving this political problem would boost business confidence, keep hiring strong and maintain expansion.

For investors, the second solution is a resurgence in corporate earnings growth, which will give shares meaningful upside that is not dependent on the Fed. Cyclical stocks and low quality – or those with a weak balance – should outperform this scenario, according to Zidle.


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