March 2020 Archives

Recession is nigh

Back in August of last year I posted an article in the wake of the inverted bond-yield curve sparking recession worries, titled, 'Recession is coming'. My intent was to provide a survival guide for people in the tech industry who have never had to live through one. In there I made a prediction about what the coming recession could look like:

Do we know what kind of recession it'll be?

Not yet. The crystal-ball at this stage is suggesting two different kinds of recession:

  • A stock-market panic. Sharp, deep, but ultimately short since the fundamentals are still OKish. Will topple the most leveraged companies.
  • The Trump trade-wars trigger a global sell-off. Long, but shallow. Will affect the whole industry, but won't be a rerun of the 2008-2010 disaster.

It turns out the first one was the right one, triggered by an epidemic/pandemic virus with a death-rate higher to much higher than the flu. The market is sliding hard, everyone is losing lots of money, triggered by fears of what prevention, containment, and remediation impacts will have on the overall economy. From this part of the cycle it's hard to be sure if this will be a short or long one, a lot depends on what the true impacts of COVID-19 are worldwide.

Complicating matters now is the oil price-war being waged by Russia and Saudi Arabia against US shale oil. Also, the US Presidential Election can still spook investors. Once it feels like the worst of COVID-19 is behind us, a recovery is likely. However, any recession of any kind will trigger a financial reckoning for companies holding a lot of corporate debt (Halliburton) and companies that exist on continual large investment (Uber).