Or maybe there will be no recession at all?
It's fascinating how religiously humanity follows the exponential curve of evolution. Look at the chart above - this is a global market index since 1835. A perfect straight line on the log chart.
I found this beautiful illustration and it blew my mind (thanks to Robert Frey's presentation about drawdowns in the markets). Well, I knew that technological progress is exponential before, but I never thought in the same way about markets.
Speaking about where we are now, I'd like to make a bold statement: the next recession will be very soft and short. I know some experts are waiting for a flat 10-20 year market with very small returns, but my point is simple: they underestimate the exponentiality.
What if I told you that the chart above doesn't show a strait line but an upward curve? In other words, what if we are accelerating exponentially?
Imagine the worst-case scenario when all markets start to crush: credit, equities, housing market - everything. But in a next few years we come up with a bunch of new technologies that double our productivity. And after a couple more years we connect AI and brain through fast neurointerface which gives us another nX.
The result will be a fast bounce and the beginning of a new economic cycle.
It's becomes obvious that macro-events are getting closer and closer to each other in time. The timeline is "compressing". We will probably reach a point where boom and bust cycles will occur within a minute. Sounds crazy? But that's what singularity looks like. (check the mood of "Slow Tuesday Night")
The framework
To understand the global picture, I use a simple three-bound method:
- upper-bound shows us how high we can go (super bubbles). This means I definitely need to sell equities near it.
- lower-bound shows us how low we can go (super depression). Great buying opportunity.
- golden-bound (near The Golden Ratio) shows when I should be more cautious and rebalance my portfolio.
I checked several markets: Chinese, German, British and others - you always can draw these three lines. The angle of the channel shows you how fast a particular economy can go.
Looking at this chart I could speculate that before so-anticipated crash we first need to jump over the golden-bound. Another observation: we are probably somewhere around 1955 in terms of the channel position.