UBS "THIS COULD TRIGGER NEXT RECESSION"

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UBS is talking about this could cause the next financial crisis, recession and stock market crash.

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Guys, we have had two investment bankers come out in the past week and basically talk about recession scenarios happening within the next six months to two years, guys, two different investment things.

UBS came out and made some comments this week about oil prices. Then we also had Credit Suisse talking about a recession, possibly coming in 2020 and why they see that guy so let’s just dig into this.

Let’s talk about if this is realistic or whatnot. So UBS was the first one this week and they talked about oil prices, so oil prices are broken out of a sweet spot for global economic growth and could Herald a US recession if they keep rising.

UBS warns the Swiss investment bank on Tuesday joined the chorus of financial institutions in pondering the economic impact of oil prices at $100 a barrel. Crude futures are trading near their highest level in three and a half years.

Bolstered by strong demand supply cuts from big producers and mounting geopolitical tensions in the Middle East and Venezuela. International benchmark for Brent crude has surged nearly 48% over the last year and is traded above $80 a barrel.

Meanwhile, US crude is up 43% near $72 a barrel just real quick if you guys don’t already know, oil, you know, used to usually hovered between 80 and $100. That was kind of its normal range.

You know, if you look at, you know, prior to 2014, you know, you look at like, you know, let’s say 2005 to 2014, generally speaking, except when the recession happened, and you know, everything kind of bottomed out there, generally, oil was kind of in the 80 to $100 range.

And then the last few years, it’s just gone super, super low. Because one OPEC didn’t want to cut production and two fracking took off in the United States, we’re now energy independence, the United States has changed the whole game as far as supply out there.

And obviously, you know, with demand picking up a little, you know, more economic growth, that’s going to generally make the need for oil go up. So when oil prices rise sharply, it raises the cost of fuel and shrinks the amount of money customers have to spend in the broader economy.

But when the cost of crude falls too much, it weighs on growth in the oil producing nations. Until recently, oil prices fell in a range between those two polls. According to UBS. However, now that is good getting closer to $100 a barrel.

The net impact of higher oil prices is again becoming a net negative ups economist says in a research note, the global sweet spot where oil prices may have positively contributed to global growth seems to be somewhere between $50 a barrel and $70 a barrel oil prices at $100.

A barrel would knock UBS his estimate for global growth in 2019, down from 4% to 3.86%. So that’s not much of a knock down there, buddy. You know, it is still down and they’re estimating, okay.

It says global inflation would top out at 4%. If price hikes hit that level up from the bank’s current forecast at 3.1%. To be sure those economic impacts would be felt very differently across the globe, obviously, depending on different nations, but it certainly raises a risk for the United States.

There’s a quote from them. Now, we should take seriously the possibility of an oil price spike, not least because oil spikes preceded five of the last six recessions in the United States. Okay, real quick here.

So this guy, one of his points, he brings out his last five and last six recessions, oil prices spiked, you know, a little before the recession happened. Okay, well, before a recession happens before the economy starts going south, generally the economy’s strong, okay.

And generally speaking, everything’s gonna get more expensive. Okay, the oil price, you know, because obviously, economies are strong, there’s a tonne of demand for oil and more goods, moving around all those type of things.

So generally speaking, obviously, like oil is probably going to be its highest level generally right before a recession happens. Now, that doesn’t mean that a recession is going to happen because oil prices are a little bit higher.

Because also, you know, oil prices were super high in 2012 and 2013 2014. And then they started dropping big time. And guess what, we never have any type of big recession or any recession at all.

Now, let’s talk about this next one is coming out of Credit Suisse, a US recession probably won’t happen for another two years. And in the meantime, stocks are good that according to closely followed Credit Suisse analyst Andrew garthwaite or whatever his name is.

We conclude that the US recession is unlikely until q3 2020. The analysts wrote, he remains overweight equities, typically an inverted yield curve when longer term interest rates dip below short term rates and foreign employment with the wage growth at 3.5% happened about a year before a recession.

He predicts that will happen halfway through 2019 meaning a year later, we would end up going into a recession based on the timing of historic behaviour. Stocks could keep rising until 2020 in the past 50 years.

With the exception of 1987 when the equity risk premium hit a very low 1% equities have never peaked more than 13 months ahead of a US recession. He told clients to sell and remain cautious on highly leveraged companies with low free cash flow such as GlaxoSmithKline.

But Credit Suisse analyst is not bullish on all sectors. He suggested that you stay underweight non financial cyclicals such as consumer discretionary materials and industrials, calling them expensive and over owned his his opinion there, guys.

So I think it’s always very interesting when Wall Street, you know, tries to make predictions on a recession is going to happen in such and such year, it’s so almost impossible to predict a recession will happen in a certain year.

Okay, what the longest out I like to look as far as judging macro economics and saying, oh, are we going to have a recession? Are we going to have a strong economy is about 12 months, because that’s really all your visibility can see.

Okay, you can see what companies are reporting what companies are guiding for numbers and things like that, where unemployment rates are you can, you know, talk with yourself in amongst your friends and whatnot, and what are they you know, doing in real life.

It’s so hard to say, oh, in 2020, we’re gonna have a recession or in 2022, or 2024, or 2020. say like, it’s so ridiculous, guys, because it’s so far out there in the future, anything over 12 months is almost impossible to predict, okay.

If there was that easy to predict, like everybody would have been out of the market in already, like 2007 or 2006? Because it would been like, Oh, you know, a year from now we have this massive recession, everybody already would have been out of the market investment banks would have held up well, instead.

What ended up happening to investment banks, they ended up going down in the ones that, you know, didn’t survive is because they basically got government bailouts. Okay, so Wall Street thinking they’re gonna call a recession.

It’s interesting, it’s interesting to talk about and discuss. But is it really realistic when you’re trying to, you know, call a recession two years from now, or three years from now, people do it all the time, like, you can go back, you know, people were calling for a recession in 2000, you know, 10, and 11.

And we never had one, and then they were calling in for it in 2012. And 13, we never had one. And then they were calling for in 2017, Oh, my gosh, we’re gonna have a recession. We got all this going on, Trump’s gonna, you know, cause the economy to crash.

And then what happened was one of the best years in the stock market in a long time, right? economy took off even more. So this whole notion about Oh, let me try to predict two years out, it’s like, that’s like an impossible game to play.

I don’t care who you are. I don’t care how much information you have to yourself. I wish it was that easy that we could just predict all of this stuff way out in the future. But it’s unrealistic, guys.

It’s unrealistic when it comes to macroeconomics, because there’s so much involved in macro economics. It’s like ridiculous when you start really thinking about all the different economies of scale.

When you start thinking about all the different countries that are involved in the well being of their own country, and then how that country can impact another country. It’s insane, guys, it’s absolutely insane.

So we shall see, you know, maybe he could be right. But I’m just saying like, when you when you try to predict what’s going to happen two, three years out in the macro economic landscape, that’s like throwing darts at a board man is so much easier to deal with a company because a company has so much less going on around it.

But macro economics, man, oh my gosh, like if you know how much goes into the economy, it’s crazy guys, and how much that can affect everything. It’s like dominoes. You know, if the dominoes are all standing up, it looks great.

But once a few dominoes fall, everything starts getting worse. Okay, so that’s the way it is. Guys. I want to hear your opinion. Do you think we’re going to have a recession anytime soon? This year, next year 2020 2024 anytime soon? Or do you think it’s you kind of like on my side as far as like, you just take it how it goes.

And you see how the economy’s running. And then you know, you make judgments based upon the factual information you see, and not try to predict Oh, we’re gonna have a recession, you know, 10 years from now or whatever. So I love to hear from you guys in that comment section. As always, thank you for watching and have a great day.

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