Economist Robert Shiller, who shared the 2013 Nobel Prize for his work on asset prices, says a US recession is inevitable and perhaps overdue.
In a new interview with Time Magazine, Shiller notes,
“Well, there will be a recession. The question is when. I’m tempted to say that we’re overdue for one, because this expansion will be the longest in history. That’s assuming the economy isn’t already in recession.
I’m thinking about the narrative and the stories I’m hearing. I think the talk of the recession is building up. The stories are coming in which are probably related to the trade crisis. And it’s going back to a 1930s narrative about a tariff war, a trade war. It’s unsettling people. It’s causing some people to curtail their spending.”
Some leaders in the cryptocurrency community speculate that a recession could lead to more interest in Bitcoin as a safe-haven asset.
Simon Peters, an analyst at eToro, told The London Economic that data from the exchange shows retail investors may be starting to view Bitcoin as a hedge similar to gold.
“Gold has long been considered the go-to ‘safe haven’ asset in periods of economic or political instability. This is because there is a limited supply, it has utility and its value is not impacted by central banks’ interest rate decisions. Bitcoin by comparison shares similar characteristics to gold in that there will only ever be a finite amount in existence (21 million), it’s decentralised, its price is not affected by inflation and it has the added benefit over gold of lower storage costs. Bitcoin requires vault-like storage to protect it from thieves, but it only ever takes up data…
Because the two share so many similarities and benefits, it’s not too surprising that a growing number of investors are betting on bitcoin as a safeguard. As the US/China trade war has escalated and more announcements of tariffs from both countries are made, we are seeing a greater number of positions being opened in both bitcoin and gold on eToro by retail investors.”
But not everyone agrees that Bitcoin is the go-to asset in the event of an imminent financial downturn.
Blockchain Capital general partner Spencer Bogart, who predicts that Bitcoin will be worth a lot more in two to five years than it is now, questions whether the world’s most popular cryptocurrency can currently fulfill the glorified role of a safe-haven asset.
In a Bloomberg interview in August, Bogart called the narrative premature.
“I think longer term, Bitcoin will absolutely be a safe haven. As it grows up the adoption curve, we see Bitcoin kind of evolving as it goes. So I think right now, it’s kind of in this intermediate state right now where you really have to think about, well, what are the risks and how severe are they.
So I think that when you have looming risks of monetary devaluation, things like this, Bitcoin certainly looks very attractive and I think that was a large driver of the recent run-up in price. But when you think about really severe crises taking place – a liquidity crunch, another global financial crisis – I think that Bitcoin will struggle to do very well from a price perspective.
Now I think it will continue to work well from a utility perspective in that Bitcoin can withstand bank closures, etc., and can still continue to function very well. But again, longer term, I think it’s going to continue to evolve into that safe-haven status.”
Regarding the timing of the next financial downtown, researchers at E-Trade note that current data may be showing signs of a slowing economy rather than a full-blown recession.
According to the company’s October report, “Manufacturing: The ghouls of October come early,” the researchers point to a potential manufacturing recession underway, despite the fact that the US economy is adding jobs with the unemployment rate falling to a 50-year low.
“Tariffs on Chinese goods have significantly increased the price of manufacturing inputs, which has disrupted supply chains and crimped corporate profits. The World Trade Organization recently cut its estimates for global trade growth in 2019. If the forecasts come to pass, it would mark the weakest year for trade since 2009.
The bottom line: Economic signals are decidedly mixed, which can lead to investor confusion…
So, here we are. The Fed is cutting rates amid fears of recession even as the economy expands and unemployment falls to historic lows. It’s a mixed economic grab bag to rival any Halloween haul. A diversified portfolio has never looked so good.”