Where is the recession ? any one have thoughts on this?

Question

Looks like short term rates are going to come back down .. and long term rates have come back down.

do you all think this is going to extend this run.. or why would be go into recession in the short term.

people have been predicting recession now for a few years..   any thoughts.

Bob Anderson · Answer

The trade war will end relatively soon.  2020 is an election year, and the best thing Trump has going for him is a strong economy, even he is not stupid enough to go into an election year with a trade war against China looming over the economy.

As far as the next recession goes, I believe that a decade of historically low interest rates are causing individuals / corporations to overextend themselves.  Hyman Minsky was an economics professor who coined the, "Financial instability hypothesis", which essentially says that stability itself is destabilizing.  What he meant by that is that investors need to be moderately nervous about protecting their investment to prevent them from continuously overextending.  Very few people want to take a financial risk when the economy is shaky, but when the seas are calm, people believe that it will be smooth sailing forever and that their risky investment strategies will work out just fine.  When the economy is good for prolonged periods of time and everyone is making a 15% return, then 15% is no longer good return on investment, it is just the new normal.  Therefore people start chasing 17, 20, or 25% returns etc.  In order to do this you need to continuously extend yourself by taking on more and more debt to leverage yourself.  For awhile it works perfectly, the investor makes a ton of money, but eventually making risky moves long enough will catch up and then it's time to pay the piper.  After this process has gone on long enough it becomes a house of cards and the slightest hiccup in the economy can cause it all to come crashing down.

This hiccup can be caused by most any event.  Maybe interest rates rise, maybe insiders begin to worry and begin selling off to realize their profits which then starts a panic selloff, maybe there is a major war or terrorist event that rocks the nation.  Without trying to get into political matters, this jolt could easily come in 2020 if democrats win the election.  They have already stated that they want to repeal the new corporate tax cuts which could be enough to tip the economic scales and start the downward slide.  The alternative is that interest rates do finally begin to rise, which puts pressure on all of the companies that are overleveraged.

Joshua Pope · Answer

We’ll have a downturn for sure. The problem with our mentality is that our reference is 2008. This is the worst financial crisis since the Great Depression, so it’s a little over kill to use this as a benchmark.  Case in point: the stock market had a record setting one day loss after the 9/11 attacks, one month later it was back to its pre 9/11 numbers.  The next downturn won’t be a recession. INVEST ON MY FRIENDS!!!  Or don’t, I’ll see you in the rear view mirror

Lynnette E. · Answer

I think that the government will work to ensure that the economy will stay robust until after the Presidential election.  Even with the tariffs put in place, and threatened, other actions have been taken to keep things stabilized.  My guess is that will continue through the election.

BUT if Trump could crash the economy in CA without harming the rest of the country, I think he would:)  Heck, if he could he would give CA to Mexico if he could put all the undocumented folks in the rest of the US there before changing the title!

Bryan Devitt · Answer

@Jay Hinrichs I think housing will come down at the end. There are many bubbles that will pop as we go down the hill, each one bigger than the next. There will be mass layoffs and people won't be able to continue to make payments on anything but the houses will be the last thing that defaults. I am not sure if it gets as bad with housing as the housing bubble, but it wouldn't surprise me if it did. IMO the entire thing is a house of cards built on government lies and piss poor government intervention, without those we'd already be screwed. The sad part is I think this only makes it worse for the next generation or three because the way the government will "fix" this, is to borrow more, monetize more debt and tank the dollar with inflation in order to try and pay back the debts that are near impossible to pay back already

Bryan Devitt · Answer

@Jay Hinrichs I dont think the recession hits until people run out of credit, which looks like it's going to be at least 2 quarters away. If the administration gets their way, they'll be able to kick the can past the 2020 elections. Either way I think we're screwed when it finally hits because the bubbles just keep getting bigger and more dangerous

Jay Hinrichs · Answer

If your thinking late 2019 then we are already there..  these things just don't wake up one morning and we are there ..

I work all over the country.. higher end has slowed for sure.. median to first time home buyers are still quite robust..  as in many markets with the rates the way they are folks can own for LESS than rent or about the same..

What I wonder about though is why we would crash.. on the west coast.. I mean I can see slowing down for sure.. or prices stop rising like they have but what would create a crash this time around..  to me bout the only thing is loss of jobs big time.  Or interest rates just sky rocket..

I look at it like this and I am far from an expert on this stuff that's why I wanted to ask the question..  those that bought pre 07 and stayed in their homes are probably back to par now or positive equity some by a lot.. those that had troubles in 08 to 2012 that inventory got dumped and recycled.. those that bought in those fabulous buying environment got what we would consider today as smokin deals and they had to qualify no liar loans.. so cant see those folks defaulting or doing anything but holding tight.  AS their payments are probably much less than rent..   I look at my home here in Oregon.. and I built it in 2013/2014 when subs were still HUNGRY and got a fabulous price to build.. ergo I have a very low loan to value  25% or so.. and payment is half of rent all in tax's insurance etc. So what would me and many like me do.. I guess if things got bad we just hold.. we are not going to move and take on higher payments..

So just not sure what triggers REAL estate to crash at least on the west coast.. other than people simply stop buying.. and prices come down but only for highly motivated sellers.  So inventory just gets tighter and tighter.. we still are making babies.

Robert C. · Answer

@Jay Hinrichs, I think, in the short term, if there actually is movement to break up the big tech companies with anti-trust laws, that could be a big deal. I do believe some regulation is healthy for start up competition in the long run, but west coast cities are really dependent on Apple/Google/Facebook/Amazon etc for stability right now. They own all the office space and are expanding the most. I also don’t trust that that law makers understand the technology they want to regulate.

As far as macro issues, I think that cheap debt is our biggest problem. Everyone from individuals to corporations to the fed have gotten too used to borrowing a lot of money for low prices. And while I think that gives a lot of downward pressure to keep things cheap. If anything shakes that loose, a lot of folks may have trouble coping. Of course not the homeowners who locked in cheap 30-years.

Jaysen Medhurst · Answer

Every six months the sky is supposed to start falling, right, @Jay Hinrichs? There are plenty of reasons to be worried. The yield inversion doesn't worry me too much. This morning's jobs numbers gave me pause. The on-going effects of a multi-front trade war make me sweat.

I think with the Fed's recent hints that they're willing to pull back rates, we may have some more room to run. The old joke among economists is that "Expansions don't end, they're killed by the Fed." Looks like the Fed is backing away from their most dangerous implements.

Frank Wong · Answer

I think the housing market has changed drastically in the last 9yrs.  There is a true shortage of housing and prices have gone up because of it.  The asset is being coveted even more.  As for the recession, I have no idea when it will happen but maybe when everyone stops talking about it.

If a recession does happen, I personally don't think it will resemble what we saw in 07-09.  To me, the current market place resembles more of 99-01 Dot com era.  I think the next recession plays out like that.  This is just my hypothesis.  Either way, I am not concerned and actually never think about it until I read it on BP.  If it happens great I am in a position to take advantage if not cool let's keep ploughing forward.   I love the status quo.

John Morgan · Answer

i was told by many four years ago we were at the peak and things will pop. Several of my friends had cash on the sidelines waiting for prices to come way down. They’re still waiting. Maybe housing prices will come down, but with the economy hitting on all cylinders and the unemployment rate at historic lows, I don’t see real estate prices coming down much..other than the really expensive ones.

Where is the recession ? any one have thoughts on this?

Most Popular Reply