Specialist · Newberg, OR · Member since 2018 · 35 posts · 174 votes
Background: The economy is on a tear, but trees don't grow to the sky. At some point, it will over-extend and go into recession when financial commitments default.
Last time, the trigger was a default on home mortgages.
It doesn't look like that is a major risk area currently. However, there is going to be something.
My theory - I think that commercial debt from companies in the retail sector is a major weak point for the economy. When the financially troubled big box retailers start defaulting on their debt service payments, I see the potential for a causal chain that spreads out to the broader economy. (Not nearly as severe as 2008, but will definitely result in lots of vacant commercial property and much higher risk premiums for bank lending)
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
8y
I'll respond with a quote from Warren Buffett: Predicting rain doesn't count. Building arks does.
I agree with everything you said in your scenario, along with many other possibilities. I can't predict exactly when the storm will reach landfall, but I can start battening down my hatches now.
Investor · Roseburg, OR · Member since 2015 · 34 posts · 48 votes
8y
On the labor front I see a perfect storm of Artificial Intelligence and robotics helping to topple our global economic "house of cards".
An old book, I think by J. Rifkin, was titled "The End of Work". Very prescent. End of work not in some utopia where the average Joe doesn't need to work, but a dystopia where no one needs his work (please re-insert correct pronouns into the above example: he she s/he they them those it cis non-cis etc., as may be required by the latest politically correct Language Nazis protocol because I can't keep up).
Houston, TX · Member since 2018 · 72 posts · 6 votes
8y
@Michael Plante, I mean its happening here too although, there haven't been as many new housing starts where I am. Some parts of Houston are growing quicker than others. Depending where you live. Help wanted signs, thats fine but how do you expect people to buy homes without good paying jobs?
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
8y
I think the comments about student loan debt are spot on. And regarding the earlier comment about "working my *** off while in college to not go in debt," well you can't do that today.
When I was in college in the 70s, the tuition for every state school in Texas was $5 an hour. You could literally write a check for your tuition from the proceeds from your summer job. Today those same schools are charging $400+ an hour. A couple of years ago I briefly flirted with the idea of going back for a Masters and totally hit the brakes when I saw the tuition prices.
In addition to that, we have the retail apocalypse with all these retail giants going under that means thousands of lost jobs.
And I can't speak for other markets, but here in Houston, I think the commercial office space world is in a depression or at least a recession. The residential market is strong, but I see all these high-rise office buildings built in the last few years that are basically sitting empty. I drive by these new buildings along 610 and the Beltway. Where the freeway is elevated I can actually look into the buildings and see absolutely no tenants.
I think the comments about student loan debt are spot on. And regarding the earlier comment about "working my *** off while in college to not go in debt," well you can't do that today.
When I was in college in the 70s, the tuition for every state school in Texas was $5 an hour. You could literally write a check for your tuition from the proceeds from your summer job. Today those same schools are charging $400+ an hour. A couple of years ago I briefly flirted with the idea of going back for a Masters and totally hit the brakes when I saw the tuition prices.
In addition to that, we have the retail apocalypse with all these retail giants going under that means thousands of lost jobs.
And I can't speak for other markets, but here in Houston, I think the commercial office space world is in a depression or at least a recession. The residential market is strong, but I see all these high-rise office buildings built in the last few years that are basically sitting empty. I drive by these new buildings along 610 and the Beltway. Where the freeway is elevated I can actually look into the buildings and see absolutely no tenants.
I agree. I have no basis or expertise on commercial rentals but I did work for an investor that had many properties he sold off and went industrial/service type warehouses in high growth areas like I35 close to Austin/SA a few years back. I call this client KIng Midas because he always seems to make gold and predicts many market changes. He went into medical rentals near Creekside, New Braunfels area before the big boom. Also Beaumont area industrial. He seemed to make pretty good going from commercial to industrial. Both are cyclical I guess.
Background: The economy is on a tear, but trees don't grow to the sky. At some point, it will over-extend and go into recession when financial commitments default.
Last time, the trigger was a default on home mortgages.
It doesn't look like that is a major risk area currently. However, there is going to be something.
My theory - I think that commercial debt from companies in the retail sector is a major weak point for the economy. When the financially troubled big box retailers start defaulting on their debt service payments, I see the potential for a causal chain that spreads out to the broader economy. (Not nearly as severe as 2008, but will definitely result in lots of vacant commercial property and much higher risk premiums for bank lending)
What do you think it will be?
I think it will be raising interest rates and/or increases in oil prices.
We have been on a 30-40 year long term deflationary period. Bonds imo are all but worthless. But there is a real reason to believe that we will inflate our way out of our unfunded entitlements
Specialist · Newberg, OR · Member since 2018 · 35 posts · 174 votes
8y
I can definitely see rising interest rates placing a pinch on growth.
The thing I can't help but wonder about is whether bond prices will re-inflate to push interest rates back down once an economic hiccup comes along.
I'm pretty sure that the Fed has been raising rates to store some ammo in their can so that they can push rates back down if they need to combat a recession.
Houston, TX · Member since 2018 · 72 posts · 6 votes
8y
Does anyone think that once the economy does “ramp” up that institutions will move from bonds to stocks? This can be an effective way of hedging inflation. It does have more risk though.
Katy, TX · Member since 2017 · 149 posts · 72 votes
8y
@Nathan Golding hit the nail on the head. Student Loan debt, in my opinion, will be the next card to fall that will cause a collapse. We're told from kindergarten through high-school that a degree is the only way to make a living. This might have been true in the 60's-90's but not so much now. So you have all these students going $75k-$125k or higher in debt then get a job making $35k-$50k when they graduate.
Investor · Roseburg, OR · Member since 2015 · 34 posts · 48 votes
8y
When the first viable computers were built the company most ready to profit from them, IBM, stated they thought the worldwide demand for computers would be for something like 12 computers!
When the laser was first perfected they basically said "that's cool, but what can we do with it?"
In the same way I believe that AI, robotics, 3D printing etc., will have so many uses of which we can't even fathom at the moment. 20 years from now people will say "duh, you didn't see that application?" just like we say that about the people involved in early computers and laser applications. Unfortunately, most of those uses will replace human work and the need for human labor. And I do not mean only physical labor, anything a human can do will, in the future, be able to be done better faster cheaper by AI, robotics, and 3D printing. No matter what industry you are in be prepared to hear the words "thank you for your services but they are no longer required".
Now the Amish have an interesting mentality. They are against technogy. Instead they look at each technology from the viewpoint of "will this put people out of work or in some way harm our society?"
Not a bad worldview. In the case of the Amish most feel any technology in the transportation and communication sector after about 1890 is detrimental to their agrarian society and would put people out of work. In the agricultural sector they limit their technology and theory of farming practices to just before World War 2. In the health care sector most will visit modern hospitals when necessary.
It wouldn't be a bad idea to think thru the ethics and societal impact these newest technologies will have. However, I think most people will be like me; I can't wait to see, hear, and experience the latest upcoming revolutions in science no matter how much it screws up the global economy.
I want an alternate enhanced reality to entertain me.
I want new forms of money and commerce to satiate me.
I want a pill that will make me healthy and immortal.
I want government to solve all my problems, provide for all my needs, and protect me from myself and others.
Investor · Roseburg, OR · Member since 2015 · 34 posts · 48 votes
8y
Oops.... mistyped. It should have said "the Amish are NOT against technology, instead they...."
I blame my auto correct, you can't expect me to accept responsibility for my own mistake can you.... I'm American so it has to be the fault of someone/something else. (Insert sarcsm emoji here)
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
A good CPA always advises people to put savings in tax deferred investments. Pay off or combine loans to a manageable level. Have 6-12 months saving ready. Rather overage on leverage, one keeps a small investment property for those taking standard tax deduction.
The Wall Street analysts warned on equity overvaluation esp. in high tech stocks. Right now the economy is robust but no one will argue with you it will run out of steam in the foreseen future. They advise converting some stocks to cash as to protect ones life time savings during a bear market.
The political threats from overseas are uncontrollable. Remember 911 and its consequence? US took a 2 trillion dollar additional debt.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
Right now with the stock market correction It will be tough for a high tech worker to come up with 20% downpayment. For example, $100 market drop from AMZN translates to avg $50K in 24 hours. It is already affect home sales here as it took one weekend to sell a home. Now people start dropping asking and still wait for a good offer after 3 weeks.