Why I think a Recession is coming – How to invest as a Singapore investor?



You know how Stanley Druckenmiller always talks about how George Soros (or even himself) can change his mind completely once new data comes to light?

How he can be leveraged long a trade one day, and when new data comes to light he goes short the next day?

I wrote my most recent macro update on Thursday, 11 May, where I said that none of the hard economic data is showing signs of an imminent recession.

On Thursday night / Friday morning, some of the latest data is now showing that:

  1. Unemployment starting to tick up
  2. Consumer spending on leisure may have peaked

These are early signs of a US recession

Especially so if we see further confirmation in the data in the weeks / month or two ahead.

This has pretty big implications, and I want to take some time out to discuss this.

For ease of reading, I am structuring this as a series of Q&As

This is a premium Patreon post written on 15 May. I am making it available to all readers given the importance of this topic. If you found this useful for you, do consider signing up as a Patron.

What are the early signs of a recession?

Let’s split this into the “hard data” and the “soft data”.

Hard Data

To put it simply – the US labour market is starting to show signs that unemployment is going up.

The 4 week average of continuous claims has gone up considerably.

And the number of states where the rise exceeds a certain level is starting to show recession signals.

There are also signs of consumer spending on leisure starting to peak.

Early signals no doubt, but if confirmed in the weeks ahead this is a meaningful recession signal.


Closer to home, a lot of the growth data coming out of China is pointing towards a marked slowdown in fixed investments / capex / manufacturing.

Consumer spending is still holding up due to stimulus though.

Whatever the case – China’s post COVID recovery is going to look nothing like the West’s post-COVID recovery (not in a good way).

While Singapore, itself a bellwether for global manufacturing, is showing real headwinds for global goods demand.

Soft Data

Stanley Druckenmiller in a recent interview said that based on soft data he is monitoring, housing / travel / F&B remain robust, while trucking and retail are poor.

Basically – housing and services demand remain strong, while demand for goods / manufacturing is terrible.

Anecdotally, I’ve been hearing from business owners in the US that demand for goods has been very poor since the start of the year.

Throw in reports of a weakening job market and increasing layoffs, and the job market outlook looks quite 50/50 too.

Putting it together

Soft data is by its nature very subjective, and shouldn’t be used as a recession signal on its own.

What changed last week was that the hard data in employment and consumer spending are starting to confirm what soft data is saying.

So just for the record, this is a big red flag because we now have early signs that a recession is coming.

Stanley Druckenmiller in his interview even shared that he thinks economists down the road may pin the recession as starting in Q2 2023, as growth is slowing today.

Is a recession / hard landing a done deal?

Just to be very clear though, these are early signs of a recession.

A recession is by no means a done deal here.

If Powell cuts rates to zero tomorrow, or congress passes a big stimulus package – no doubt that we will avoid a recession.

To determine if a recession will come, we will need to see how policy makers react in the months ahead.

And data wise – we need to see unemployment claims continue to stay high or tick up higher.

And we will need to see consumer spending weaken further.

What will determine if we are going to have a recession?

The most important thing to look out for now in my view.

Is how do policy makers (the Feds and the government) react to slowing growth.

Either one of them can change the outcome materially.

If the Feds cut interest rates, that could make a big difference.

If the government raises the debt ceiling and increases spending, that could stave off the recession.

In my view, the reaction from the Feds and the government the next 6 – 9 months is going to be absolutely crucial to determine if we get a recession, and how deep the recession will be.

How is Powell going to react – cut rates or not?

As I shared last week, predicting how Powell is going to react the next 6 – 9 months is not straightforward.

He’s quoted Volcker many times in the past to show his resolve to crush inflation.

He doesn’t want to go down in history as the next Arthur Burns and cause a decade of start stop inflation.

He says a lot of things to show that he is going to be tough on inflation when the time comes.

And yet if you look at the actual actions.

In March 2023 when a few regional banks failed he was quick to restart the money printer, undoing 6 months’ worth of QT instantly.

And don’t forget that in 2021 when dogecoin / gamestop was mooning, Jerome Powell’s Feds were at 0% interest rates and buying $120 billion in treasuries a month.

And don’t forget 2024 is an election year.

As this goes on and the economy weakens and unemployment ticks up, Powell is going to face ever more pressure to cut interest rates.

So predicting what Powell does next is not straightforward.

What to buy when the recession comes?

As you can see from the discussion above, what to buy if a recession comes, will depend very much on what the recession looks like.

A key question to answer is whether inflation will be contained.

If Powell panics and cuts too early (like Arthur Burns in the 1970s), there is a good chance that inflation is not contained and it comes back a second round.

If Powell holds resolute and cuts too late, there is a possibility that severe damage is caused to the economy and it becomes incredibly hard to put back together (like 2008, requiring multiple rounds of emergency measures).

Both are possible today, and will depend very much on how policy makers react in the next 6 – 9 months.

FH… venture a Guess?

With all that being said, let me now share some of my personal views on what happens next.

On the Recession

The early signs of a recession are here, and will likely accelerate in the second half of 2023.

How deep a recession we get, will we avoid a recession, really depends on how quick policy makers cut rates / stimulate the economy.

This is not an easy one to predict, especially when you account for the 2024 election cycle.

The decision making could be very heavily influenced by political factors.

So I would watch policy makers very closely to see how they react to slowing growth in the next 6 – 9 months.

Positioning right now?

And in terms of positioning, I would be heavy cash here until I watch how policy makers react.

Just to be absolutely clear – by heavy cash I don’t mean 100% cash.

It means whatever cash levels you would be comfortable with, knowing that there is a good chance of a recession in the next 12 months.

As shared above, we don’t know how deep the recession will be when it comes (if at all).

Some investors may be comfortable with 20% cash in this market, some may want 50% cash.

I leave it to individual investors to decide on the right cash levels for themselves.

Exact asset allocation and cash levels I am running is available to Patreon members.

On what to buy when (if) the recession comes

I don’t know what the recession is going to look like.

But based on what I know today, areas that I would be keen to buy into heavily are:

  1. Commodities (including Gold)
  2. Technology (AI)
  3. REITs

Let me talk briefly about each.


As you guys know by now, I am a big commodities bull in the mid-term.

Underinvestment in supply, coupled with a demand boom from the green revolution and east-west cold war.

I think commodities go a lot higher this decade.

It’s just that I don’t necessarily want to be holding a lot of commodities when we might be heading into a recession the next 12 – 24 months.

If we get a big decline though, I will be adding heavily to commodities positions.

Oil (energy) is the most obvious play.

I wrote about this in the past, you can just ETF it via XLE, or buy the oil majors for a fuss free play. If you want more leveraged exposure you can get the oil services players like Schlumberger, or even the smaller exploratory plays (or China oil like CNOOC).

Copper is another one that I like – Copper will power the green revolution, and supply / demand is mismatched.

Copper is not so easy to play, and the easiest might just be an ETF like COPX.

Uranium is a more esoteric play, but small exposure may make sense as a play on nuclear energy.

So I like commodities, but the timing is absolutely crucial. There is a big risk of economic slowdown in the months ahead, I’m not sure you want to be long commodities a big way ahead of that.


Gold is kinda like commodities where I can see the mid term bull story.

Which is that distrust for the USD and US Treasuries will spur more countries to hold their reserves in a neutral asset like gold instead of Treasuries.

But the short term is not so clear.

Gold usually doesn’t do so well if we get a recession (at least until the money printing kicks in), and in a market risk off investors sell everything they can get their hands on – including gold.

I do hold significant physical gold positions as a long term asset allocation though.

But if we get a big decline I do see myself adding to paper gold positions – most likely GDX for a leveraged exposure (gold miners ETF).

Technology (AI)

Say whatever you want, but the only reason why we are here reading this on a smartphone and not as cavemen sitting around a fire is because of technology.

Never bet against technology.

There’s a lot of hype over Artificial Intelligence, but I do think that AI has the potential to be as transformative for the world as the internet itself.

That’s a lot of opportunity in the decade that lies ahead.

The AI names like NVIDIA and Microsoft have gone up a lot and I’m a lot more cautious at these prices (I took profit in 60% of my NVIDIA position already).

But if they decline in a recession I do expect to be adding.

Other secular themes like cybersecurity (Cloudflare etc) I would also be keen to add.


REITs go back to valuations.

At current prices, I’m not all that excited by REITs.

There’s some names like Keppel REIT and Lendlease REIT at 7% yields that do look exciting and that I may add (might find the time to do a quick update on Lendlease REIT which I like).

But if we get a big decline in a recession, I would be adding heavily to REITs, especially those with Singapore heavy portfolios.

You can see my full stock and REIT watchlist on Patreon.

Have I put on the TLT trade?

Some of you have asked me if I have started buying call options on the TLT as a recession trade (described in greater detail here).

The simple answer is no, I have not.

While the recession signs are starting to get clearer, I do have concerns about this trade.

The main concern is that if Jerome Powell panics and cuts interest rates too early.

I can see a situation where inflation expectations come roaring back, and the long end interest rates shoot up (bond prices down).

The 20 year yield sits at 3.8% today (vs Fed Funds Rate of 5.25%), which really only makes sense if you believe that Jerome Powell will contain inflation.

If he cuts too early and the markets start to question that – then it’s not impossible to see 20 year yields blowing out past 4.5% (this cycle’s high).

How I would size the TLT trade?

If I do put on this trade, I will probably only risk about 1 – 2% of my capital on the call options.

This means a notional exposure of about 10 – 15% of my portfolio on long term US Treasuries.

So you can see from the position sizing that this is not meant to be a huge bet your portfolio kind of bet.

Payout if you are right is about 100% – 300% of the capital invested.

Which means that I put 2% of my portfolio on this trade, I would be looking at 2% – 6% returns if I am right, vs a loss of 2% if I am wrong.

That’s roughly the kind of sizing I would look at here.

Will the debt ceiling be good or bad?

I’ve been getting quite a few questions on the debt ceiling so I just want to share some high level views.

If the debt ceiling is not raised, it is almost certainly a bad thing for the economy.

Without a raise in the debt ceiling, government will need to prioritise what they spend on.

So they will prioritise repaying debt (to avoid a technical default).

This means cutting other non-essentials like employee salaries, repairs, keeping parks open etc. These things will not be paid until the debt ceiling is raised.

This is a very bad for economic growth, and will deepen the recession.

Just because the debt ceiling is raised though, doesn’t necessarily make it a good thing.

Much will depend on the nature of the deal in which the debt ceiling is raised.

If the deal is reached at the expense of government spending (cutting spending), that is bad.

How to trade the debt ceiling?

The debt ceiling is a political issue, and is not easy to predict how exactly it plays out.

So I don’t suggest you to trade this specifically.

Just be aware of the risk, and watch how it plays out closely.

Based on how it plays out, you can then understand how it will impact the rest of the markets / economy.

This is a premium Patreon post written on 15 May. I am making it available to all readers given the importance of this topic. If you found this useful for you, do consider signing up as a Patron.


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  1. Lol you’re giving a real the sky is falling!! vibe here.

    2q gdp is highly unlikely to be recessionary. Its tracking at 2.9% so far, hardly a recession.

    Inflation is a tailwind. It will likely fall to 4% or less in the next 2 prints, if PPI is a reliable lead.

    Fed is done. Says Powell on Fri. Reits are going to look damn good from here with peak rates.

    You say stocks to buy in AI and commodities WHEN recession hits. What about IF recession never hits ( cuz it’s so widely expected)? How to buy the AI and Comm stocks then? Never buy, always hoping for a crash? How to retire like that? 👍

    • Haha okay maybe this piece may have come across as more bearish than I intended.

      I think the point I’m trying to make is that the signs are pointing to an economic slowdown. Whether it’s going to be a mild slowdown (with positive nominal growth), or something deeper is still not very clear, and will depend on policy makers actions in the next 12 months.

      With that uncertainty in mind, each investor should think about what is the right asset allocation for themselves. Do you run a 150% long portfolio today, or do you run a 60% net portfolio.

      That’s really the point I’m trying to make.

      I am not saying to go to 100% cash here, for exactly the reasons you mentioned.

      In fact there are quite a few REITs at 7%ish yields that I like and will buy over the next few weeks, will write on this as well.

  2. Please stop using emotive words like ” terrible” to describe a deteriorating outlook.
    Professional writers or writers who wish to be taken seriously on economic/financial matters tend to steer clear of these populist words as it undermines their credibility.
    At worst it tends to suggest you are talking your book.
    It’s a shame because otherwise your pieces are worthwhile reading.

    • Yeah fair enough I get where you’re coming from.

      The original Patreon post was slightly different (didn’t include the word terrible) – I made some changes for the public version of this post that probably changed the tone of this article.

    • Anyway I updated the liner in the article.

      Point I wanted to make is that hard data out of China on fixed investments / capex / manufacturing is poor. Consumer spending is still holding up due to stimulus though.


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