80% of analyst and economists are predicting a recession within the next two years. If you watch CNBC, every other topic is about the recession coming. My opinion is that if everyone believes a recession is going to come, then it won't actually happen. After all wouldn't the markets change their behavior to prevent that. Recessions are supposed to catch everyone off guard, they don't tell us when they're coming. So for the older monkeys out there, what was the general market commentary during 2005-2007. Was there optimism/pessimism?
Trending Content
Career Resources
My recollection may be a little fuzzy but I think that consumer confidence levels were high in mid 2007. I also think that the buy side was generally optimistic during this period. Equities were generally rising from 2005 to 2007. Equities first started falling towards the end of 2007. For most of this period, I do not think all that many people realized that there were issues in the real estate market which would eventually flow into some of the fixed income markets and the equity markets. The problems became more evident as we headed into 2008.
This has been verbatim what I've been saying too. I've talked to some "older" guys who worked in IB and RE alike during that time and what they've said is that it was mostly a surprise, especially when Lehman and Bear collapsed cause no one thought such massive institutions would collapse just like that.
To my mind, they knew full well a liquidity event was possible, they'd always just assumed the government would stopgap them. I'm sure some people contemplated what would happen if a major bank failed but no one thought it would actually happen, and many people stated as much "they never thought the government would let a major bank fail" was stated often during that time. The entire financial system, the "best and brightest" were all caught with their pants down.
On an aside, I'm curious what the logic is "if everyone believes a recession is going to come, then it won't actually happen". What is anyone doing differently than the behavior that got us to this point? Because as far as I can see, behavior hasn't changed, prices are insane, and for me the question is: exactly how much higher does any knowledgeable person think prices CAN go? Or why would they stay flat for any meaningful amount of time while the general economy caught up? Point blank....if someone thinks a recession won't happen, then what do they think the market looks like a year or two out looks like holistically....and why? I'm not sure there's a reasonable answer to this, or not one I've heard, and I've been looking for one since 2014/5.
In my mind the only thing that can really stave off a recession is a grand government intervention, the likes of the New Deal. Probably not the new green deal, although elements of that would be helpful, but a major upgrade of America's infrastructure. Still, America never proactively invests in itself on a grand scale, it always waits for a crisis for that. So in a way, I welcome the next major crash. It will be the excuse to finally have systemic overhaul. We're living in the 50s and it's time to upgrade. Plus, from an investment standpoint, I'd really really like to see the entire market go on sale. Everything is stupidly overpriced.
Yeah so what I mean by saying that isn't particularly scientific, it's just that when I hear people talk about an impending recession, Buffett's adage of "Be greedy when others are fearful, and be fearful when others are greedy" comes to mind. Sort of the opposite of how before The Great Depression, there were shoeshine boys that were giving stock tips, and now we're now hearing the proverbial shoeshine boy talk about an impending recession.
Don't really agree with government intervention being something that would stave off a recession -- the government generally just makes recessions worse, and if anything, most likely creates most recessions we go through. Before The Great Depression and the New Deal, I believe average recessions were ~10 months. FDR made his recession last for 10 years.
Booms and recessions are driven by lending cycles. Blaming the government is like blaming the weather for leaves turning....there are larger seasons above and beyond the daily weather variances. That said I like your other point.
"Be greedy when others are fearful"....strangely, the vibe I'm picking up is "grab what you can before this blows up again". So I'm not sure exactly where to go, thus my cash position at the moment. I've got several hundred percent gains over the last decade, I can sit out a few points while I get a bead on the situation.
I guessed a recession would happen earlier this year but now I'm scratching my head. The FED is dovish in rates but unloading the balance sheet so I'm wondering if they're just going to see how long they can hold the line. My honest guess is that the next downturn will be triggered by something non-core to the US economy, like BTC fail or an external shock.
Either way, this conversation is helpful, as every time I go through this some new little nugget of information surfaces.
Cheers
Repellendus doloremque autem excepturi inventore dolor. Et iusto velit rem amet amet suscipit. Quam aut rem unde optio.
Qui velit veniam similique ut necessitatibus. Doloribus atque exercitationem ipsam impedit ut qui possimus accusantium. Alias illo in quas modi molestias enim atque. Earum nemo tempore explicabo nam ea non. Dolorum qui nobis quas.
Mollitia et earum distinctio cumque. Vel quae eos molestiae est quam quia voluptatibus. Possimus possimus qui excepturi optio aut sed. Vel qui itaque quo deleniti voluptatem cumque iure. Nisi et dolor et temporibus voluptas odio qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...