Page 22 - Venture - State of the Market 2020

We all know what happened in 2008. The repo market just blew up back then. It was wild and short.
We could face another large recession in 2020. Most likely, there would not be housing bubbles in
the potential upcoming recession but there are housing bubbles all the time. Our banks have a large
amount of capital. Individual homeowners should not worry much about facing large losses.

WHICH INDUSTRIES DO YOU THINK ARE MOST VULNERABLE IN THE UPCOMING
RECESSION AND WHY?

The retail industry will take a hit because of consumer pullback. It depends on which specialized
industries are already affected (ex. Agricultural industry because of the trade war).

I would say that the manufacturing industry where durable goods are produced. Those goods are
highly elastic. In a recession, people may be less inclined to spend money on expensive durable
goods like sofas, televisions and others.

It depends on the worldwide trade flows. Companies like Boeing may face hardships. Customers
from other countries might not buy their products,like the 737, in a price crisis. We may also worry
about multifamily getting overbuilt.

Tech industries like Amazon and Apple. For Amazon, the distribution expenses are high. When there
is a recession, people may choose to buy fewer products from Amazon and Apple.

The supply chain industry. New projects require a lot of capital. However, during a recession, they
cannot have large amounts of capital, which results in a downturn.

WHAT MIGHT BE THE FACTORS FOR A 2020-2021 RECESSION OR FACTORS FOR CON-
TINUED ECONOMIC GROWTH?

Factors in the upcoming recession include corporate debt (overleveraged) due to job growth, the
trade war (US being dependent on import trades), and consumer spending on the decline. The level
of economic growth depends on the technology industry and how financially stable Silicon Valley is
during this time.

It could be the highly-leveraged loans to corporations. IMF, BIS worry about this. Of course, there are
international factors. China’s financial structure is pretty weak. If there is a financial crisis in China, it
would definitely affect the economy in the US. As for the Fed, it has less power for the financial crisis
compared to it in 2008. As for the economic growth, the tech could contribute to it.

There are always recessions. It is just one stage of the business cycle. The trade war may be a factor
of the recession.

I would say it is because of international factors like China. China’s economic recession would affect
how the economy in the US performs.

Political and economic factors may result in the recession: political uncertainty, economic uncertain-
ty, trade uncertainty, and global manufacturing, which receives large consumption from the globe. All
of those could lead to a recession.

20 VENTURE | 2020 STATE OF THE MARKET