Recession in 2019? The Great Recession 2.0

isa2130953's picture
Rank: Neanderthal | 2,193

Hello All,

Is the second housing Armageddon coming in 2019/2020? If you think this, why?

Article from the Jesse Colombo at Forbes - Housing Bubble 2.0: America's Housing Market Is Up 49% Since 2012

Since the dark days of the Great Recession in 2009, America has experienced one of the most powerful household wealth booms in its history. Household wealth has ballooned by approximately $46 trillion or 83% to an all-time high of $100.8 trillion. While most people welcome and applaud a wealth boom like this, my research shows that it is actually another dangerous bubble that is similar to the U.S. housing bubble of the mid-2000s. In this piece, I will explain why America's wealth boom is artificial and heading for a devastating bust.

Do you think its possible to have a recession as bad as 2008? Can it be worse? Have we learned a damn thing since?

Share your thoughts!

Comments (111)

Funniest
Apr 16, 2019

I mean, the boom is almost certainly artificial. That's what happens when 70% of your economy comes from consumption and wages have not risen significantly. But you know, Trump is fixing everything and America is great again or something.

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Apr 16, 2019

Everyone has debt not assets, but they don't notice it because they think they can afford more. Job availability is lowering while prices are sky rocketing and income is pretty stagnant. It is scary.

The truth is like poetry, and most people fucking hate poetry.

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Apr 16, 2019
Iguler:

Everyone has debt not assets, but they don't notice it because they think they can afford more. Job availability is lowering while prices are sky rocketing and income is pretty stagnant. It is scary.

I agree. People think things are hard because of the Fed, and apparently they're making things more expensive somehow. But the number one factor hurting consumers is housing, which has been benefitting from record low borrowing costs.

And the Fed's job is to inflate the prices of assets to push people out of conservative low risk assets. Wihout the Fed and with stagnant wages, I don't see how we could've had a boom at all.

Either way, the thing that's most clear is that even markets are starved for higher wages. But for some reason, companies won't act and Trump thinks the only way to increase wages is to restrict movement of people, and limit labor supply in low paying jobs that nobody wants.

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Apr 16, 2019

Which IB groups would do the best/ be the best to be in during a recession?

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Apr 16, 2019

Restructuring. But stop trying to time the market. Being young in a recession isn't bad because many banks "juniorize" since they're cheaper employees.

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Apr 16, 2019

Great point! From what I have read though, generally being in a industry group is better than product/coverage (for job security) because you have more connections which are valuable to the bank

The truth is like poetry, and most people fucking hate poetry.

Apr 18, 2019

This can be true to an extent....you basically need to get a foot in the door in the industry. So, if you're an analyst with a year of experience, you'll be fine in the recession even if you get fired from your current firm. However, if you're trying to break into the industry, you're pretty screwed in a recession.

I graduated right into the 2008 recession. It amazes me the vast difference in long term outcomes among friends who got their first job in 2007 versus those who got something in 2008. That one year of experience is actually a huge advantage.

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Apr 16, 2019

ABL, restructuring and Lev Fin

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Apr 16, 2019

-- Sorry, meant to be a response to the question about IB groups and recession --

Anyone focusing on paper products or cheap consumables. Think cups, paper plates etc.... Spoke to someone on that team a few years ago and an analyst asked the same question. He pointed to the cup on the guys desk.

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Apr 16, 2019

Focused on them in what sense? Not sure if you mean unsustainability or if youre referencing an investment

The truth is like poetry, and most people fucking hate poetry.

Apr 16, 2019

I cover the for sale housing market. Inventory levels are FAR below historical norms and builders have focused on smaller projects for several reasons. One is reducing land exposure (you have to jump in with two feet on big projects with 1,000s of lots) and two is reducing lawsuits.

Specifically, the boom towns tend to be on either coast as well as cheap states like Texas. Generally, these overbuilt markets are tough to develop in (except Texas)and have a lot of NIMBYs which really makes it difficult to get projects going. On the coasts, the jobs to new permit ratios are like 3-4 to 1. So new jobs for every one new house. That's going to create a lot of roommate situations and some net outward migration in these states.

As a result, housing supply relative to demand is very low which has driven up prices in near-unaffordable levels. In my market in California, roughly 13% of households could afford a home assuming they had a 20% down payment just sitting around. So the real number is like 5%.

The most bubbly stocks are obviously tech stocks. Just think for a second, Wells Fargo (or any other large financial institution) is trading near 10 P/E offering a 4% dividend yield, which is high. The company is worth around $215B and consistently makes around $22B or so a year in net income. Amazon is worth $1.8T and makes $10B a year. I know they're apples to oranges, but the disparity in certain asset classes is getting untenable.

I think you'll see pain in places like Seattle, San Francisco, Denver and (gasp!) NYC. Miami is always boom and bust as is Phoenix to some degree.

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Apr 16, 2019

Whats your take on Arizona, not Phoenix specifically. Mega towns like Gilbert are building houses at an insane rate and prices are shooting up like crazy (although they are still dirt cheap compared to California). Places like Queen Creek and San tan Valley are also booming. Not sure if you know of these places, but in the few years I lived there my town went from desolate to barely enough room for anybody.

I now live in California which is the perfect representation of a necessary-roommate situation.

The truth is like poetry, and most people fucking hate poetry.

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Apr 16, 2019

Prescott and Yuma are booming. Yuma is benefiting from increased border patrol and military presence is bringing in qualified buyers. Average new home pricing of $170 doesn't hurt either. You just have to live in an oven.

Prescott is getting 40% demand straight from California and the rest from snowbirds in Canada and Midwest. It's actually starting to turn into a workforce community opposed to just a retirement community. Sonoma and Flagstaff continue to hum along. Nothing changing there.

As far as surrounding Phoenix is concerned, pricing is certainly up which is why you see SFR rentals now by Christopher Todd communities and NexMetro. Buckeye and Avondale are heating up again with highly amenetized communities such as Verrado. It's like a little city out there. You never have to leave the community!

Funny thing, a start up reached out to me today for a RE market director position from Chandler, AZ! I never thought I'd say start up and Chandler in the same sentence.

Phoenix is benefiting greatly from the high prices in Southern California, but the market is absolutely dominated by public builders. As a result, pricing is actually compressed (i.e. lower margins) and builders are having to take on a lot of land risk.

In Texas for instance, a finished vacant home will generally sit for 2 months before being bought. A finished vacant home is awful. That means the builder spent 5 months building on a crummy lot (i.e. power lines, freeway, airport) or bad plan layout (garage backs up to a hill, undersized front feet which hurts curb appeal) and not one person wanted to buy it. Fin. Vacant months of supply is good indicator of oversupply because you try to avoid it at all costs but it happens when there's a lot of competition (and thus supply). Long story boring, finished vacant supply in Phoenix runs around 6-9 months.

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Apr 23, 2019

Agree very much on Seattle and SF pulling back. Beyond what you mentioned about affordability and tech, quality of life in both of those cities has gone down notably, but that's not reflected in the prices yet. I am curious why you are bearish on Denver though--not that I necessarily disagree, I just legitimately don't know.

Apr 17, 2019

I hope there's a recession relatively soon. Pretty sick of these multiples. Even on the early stage side...finding deals not bid up by autistic VCs is a PITA.

Apr 17, 2019

I just wish recessions could gradually go down but unfortunately they affect most Americans like a slap across the face. I hate seeing the impacts but they are a result of all the shady and inflated things that have been going in. All I know is I'm tired of seeing this unnatural state get worse

The truth is like poetry, and most people fucking hate poetry.

Apr 17, 2019

Wall Street's commentary on housing is always entertaining. The issue is permitting and NIMBY activism in the cities that are the most desirable to live in. It takes FOREVER to get a run-of-the-mill apartment project approved in blue states that have a high quality of life (CA, MA, NY, etc..), thus driving up asset prices and making it impossible to build affordable homes or apartments. Also, in most wealthy cities, it's near-impossible to build enough luxury homes at one time to overbuild to the point of driving down asset prices for the rest of the market; there's just not enough land and the density restrictions are crippling.

So, yes, housing prices have skyrocketed since the bottom of the worst recession since the Great Depression. However, that's not a surprise to anyone with even a cursory understanding of urban economics. I mean, how many people often think about Zipf's law and positive feedback loops driven by economies of agglomeration?

The housing issue needs to be solved at the regulatory level-- by reducing regulation. You can't tell developers they can't build and simultaneously be upset about how much your housing costs. Oh wait, the truth is no one is upset about their home value skyrocketing due to regulation and activism until they have to move somewhere more expensive than where they currently live, i.e., very infrequently. Ever wonder why it's cheaper to rent and buy down South? Lots of land and fewer regulatory hoops to jump through for developers (labor is also cheaper, admittedly).

Regarding the rest of the article, I read it and it's mostly surface-level commentary. He waited until the very end to discuss wealth inequality, which I believe to be a major factor in asset prices today. You see it manifest in everything from stock prices to stainless-steel watch prices.

In his article, the author neither asked nor answered a key question: what happens after the Fed raises interest rates to a point at which the market turns bearish? Couldn't they just reduce interest rates and implement QE once again? It may not have the same effect, sure, but how do we know the next economic recession will be as bad as the previous recession? This probably won't work forever for the next 50 years, but why is now the time it won't work?

I think a lot of this comes down to economic inequality. Fact is, the vast majority of wealthy people have very few options in which to invest their capital. "But multiples of great tech companies are so high!" Yeah, man, it's acceptable when you literally have no where else to stash your millions without spending all your free time searching for a deal. It's not like the middle class has the ability to say, "Oh stocks are way too expensive we are going to pull out of the market for a bit." They don't even have the money to be in the market. And then these massive corporations with insane amounts of capital on their books just keep repurchasing stock to drive values higher.

Yes, it does sound unsustainable, and it probably is. But why? And what will be the catalyst? If you can't answer a "why?" at a deeper level than interpreting some basic graphs, then I don't think you should be writing commentary on Forbes (but who am I to judge; plus I've always hated Forbes). Lastly, this guy has a website to help coach people to make money during the next crash. Sounds legit, fam.

Btw, despite the high asset prices, I really don't want there to be another crash any time soon. I think too many young people on this forum discount the negative impact that situation could have on society due to where we are at politically. Last thing we need is a big crash right before an election that will likely pit a quasi-socialist against Donald Trump. Maybe I'm overestimating the probability that this could send society down a bad road, but even if I am, I think it's one of those things where if it's 1 in 1,000, the negative impact will be so bad that we really want to avoid it at all costs.

TLDR: Anyone can copy and paste a bunch of graphs. Come at me ColomBro.

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Apr 17, 2019

Great Analysis!

As for your commentary on young people underestimating the effects I could not agree more. Although I am 20 the last recession hit my family terribly and my family is still in 5 digits in the hole, which is basically why I am in finance today.

Our lives were impacted at the greatest extent, but regardless I would hate to see that happen to anyone else, although it is basically inevitable.

Also, definitely worth mentioning that he has his own coaching site......... a bit convenient.

Anyhow while I am not a trump fan at all, the last thing we need is another proclaimed socialist. Being that I am half Venezuelan I have seen what socialism did to my country and I will never support it.

As for rent being cheaper in the south, there are a lot more factors in my opinion then being red states, but nonetheless the regulations are a shit show in the cities you mentioned. That is definitely a contributor for blue states.

The truth is like poetry, and most people fucking hate poetry.

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May 16, 2019

American "socialists" are not actually socialists

They just want a better safety net, which is honestly something we should all want

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Apr 17, 2019

Of course we want to avoid it all costs, but what levers are left to pull? Equities and real estate appreciation has been completely driven by cost of debt. The Fed is already backing off further rate increases inferring that Fed Funds target rate will stay around 2.5%. The truth is that the Federal Reserve is well aware that an American economy with record corporate, automobile, margin, and credit debt cannot stomach major rate rises even though we are coming off of unforeseen record lows.

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Apr 17, 2019

So in your opinion is 2019/2020 going to have the plummet?

The truth is like poetry, and most people fucking hate poetry.

Apr 17, 2019
Non-PC Broker:

I think a lot of this comes down to economic inequality. Fact is, the vast majority of wealthy people have very few options in which to invest their capital. "But multiples of great tech companies are so high!" Yeah, man, it's acceptable when you literally have no where else to stash your millions without spending all your free time searching for a deal. It's not like the middle class has the ability to say, "Oh stocks are way too expensive we are going to pull out of the market for a bit." They don't even have the money to be in the market. And then these massive corporations with insane amounts of capital on their books just keep repurchasing stock to drive values higher.

So what happens long term as this is likely to continue

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Apr 27, 2019
YungMonc:
Non-PC Broker:

I think a lot of this comes down to economic inequality. Fact is, the vast majority of wealthy people have very few options in which to invest their capital. "But multiples of great tech companies are so high!" Yeah, man, it's acceptable when you literally have no where else to stash your millions without spending all your free time searching for a deal. It's not like the middle class has the ability to say, "Oh stocks are way too expensive we are going to pull out of the market for a bit." They don't even have the money to be in the market. And then these massive corporations with insane amounts of capital on their books just keep repurchasing stock to drive values higher.

So what happens long term as this is likely to continue

Political and social upheaval. Take a look at how the Gilded Age ended. That's the end game.

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Apr 17, 2019

Ever wonder why it's cheaper to rent and buy down South? Lots of land and fewer regulatory hoops to jump through for developers (labor is also cheaper, admittedly).

I think your post understates how much harder it is to deal with zoning/regs in a place like NYC versus some middle of nowhere town in the south with 28 people and a donkey as residents.

You also skipped over the fact that nobody really wants to live in the south. Compare the level of opportunity available in a place like SF/NYC...you can't. Look @ what a HUGE chunk of VC money goes to companies in the bay area/SF alone.

Apr 18, 2019
m_1:

some middle of nowhere town in the south with 28 people and a donkey as residents.

You also skipped over the fact that nobody really wants to live in the south.

really? I know you're not this ignorant, cmon man

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Apr 23, 2019

BOOM. Another issue is when areas do get built up, you get local activist types complaining about gentrification. You can't have it both ways that you want investment in your community to improve the quality of life, and then when investment does come, you complain that it's bad for the "culture" or what not. You can't simultaneously say, we need to do something about South Los Angeles, Baltimore, Newark, etc., and when someone actually tries to do something, you complain about it.

How you're talking about how it's hard to build in CA or NY - yes it's ridiculous but really wish it wasn't a political issue. It's just common sense. It shouldn't be a Republican or Democrat thing that more housing construction = more supply to meet the demand. I understand those cities often lean leftward, but the end result is that the gap between the rich and the poor ends up even bigger, not smaller. The ultra-rich will always be fine in SF or NYC. The poor won't be great, I don't think anyone particularly enjoys Section 8 housing, but they have that at least. Ordinary people are the ones who will get screwed. Austin, Dallas and Houston are liberal (not all of Texas is conservative; if you think that then you've never been here) but there's common sense here at least when it comes to more housing = more supply meeting demand.

Edit: one last note, there's another issue too which is how some cities have made it hard for people to get housing to start a family. https://www.citylab.com/perspective/2019/01/family...
I didn't realize that some cities were deliberately making people jump through hoops to build a 3+ bedroom apartment, like for your kids, or even building day cares. The sooner we get back to "land of the free" the better.

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Apr 17, 2019

Pundits have been saying the same thing since 2013 or so. At various point its was each of the PIGS countries, tech stocks, US RE, US trade wars, and the Trump presidency.

At some point, they will be right but the analysis in OPs link is not going to be the one that convinces me.

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Apr 17, 2019

You are right, many people have been claiming for years that the party is going to be over soon. You mentioned they will be right at some point, but do you think that time is near? Regardless of the reason why. Or do you think it is too difficult to say

The truth is like poetry, and most people fucking hate poetry.

Apr 17, 2019

TBH, I think the risk of a recession is actually pretty low in the next 6-12 months given the Fed's accommodation (which is also the case in the other big economies), the US executive branch's naked focus on the stock market's performance, and the divided state of Congress.

If someone held a gun to my head, I'd point to Q42020-Q12021 as where we will hit bottom. But, since I'm not a pundit, I can also be transparent about the fact that my likelihood of being right is <20% (probably in the single digits).

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Apr 23, 2019

Pundits will do pundit things. If they shotgun enough stories, one will stick eventually. I'm more interested in the yield curve flip recently.

Most Helpful
Apr 17, 2019

I've written on this topic pretty extensively, all I'll say is you can always find the usual suspects no matter the market environment

  • permabears (marc faber, john hussman, etc.)
  • permabulls (jeremy siegel)
  • government doomsayers that blame the end of the gold standard and the Fed on everything (Ron Paul, Peter Schiff)
  • obscure types that give you wild ass advice at the end of a scary 10 minute conspiracy video (INVESTING LEGEND WHO PREDICTED THE 2008 CRASH HAS SOME ADVICE, TAKE NOTE)
  • intense headlines full of useless information (10 STOCKS TO OWN FOR 2019, HOW I MADE MILLIONS TRADING PENNY STOCKS, WHY AMERICA'S NEXT CRASH WILL BE WORSE THAN THE DEPRESSION, etc.)

here's the thing though: none of these jackaloons ever post their track record. I don't give a fuck what you think unless you tell me how you've performed. I can make a strong case for bullishness, bearishness, despondency, or irrational exuberance, but unless I back it up with how I'm investing in it (and have been correct a reasonable amount of the time), my opinion is like my asshole, my wife likes it but it still stinks and is of little value to society.

if you let one article define your view on the housing market, it's like being at the poker table for 30 minutes and not knowing who the sucker is...it's you homie. not saying you (OP) are doing that, but this is a dangerous thing that we (as people, not WSOers) do, take everything at face value. who's the source? what else has jesse colombo written? has he always been bearish on housing? does he have a vested interest in housing collapsing? does he always write about the wealth gap? are there any experts who agree with him and have a good track record?

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Apr 17, 2019

This post was solely to stir up conversation amongst people who are involved in finance. I mentioned his specific quote just to get feedback on his theories as well as everyone else's.

I also mentioned that he may have personal incentive because he offers consulting for recessions.

This was more of an open question to hear the general opinions of everyone. That being said, I absolutely agree that many people cry wolf, and at some point they will have been right (being that our economy is cyclical). I just like to deliberate over people's reasons behind their questioning of the validity of our economy.

thank you for this quote though, it made my day XD

my opinion is like my asshole, my wife likes it but it still stinks and is of little value to society.

The truth is like poetry, and most people fucking hate poetry.

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Apr 17, 2019

You are ignoring people with very legitimate track records like Jeffery Gundlach, Ray Dalio, and Bill Gross who are seriously concerned about the future of the economy due to record levels of debt. Ray Dalio's "Big Debt Crises" (I am reading currently) presents a scary look at the data behind past debt cycles and how we are increasingly seeing signals that the end of the long cycle is near.

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Apr 17, 2019

bill gross is a great example, because he has made public comments many many times before, but he's been wrong on stocks nearly all the time.

article from 2012: https://www.pimco.com/en-us/insights/economic-and-...
within, he predicted that high yielding companies and gold were good plays (gold was at $1550). and said stocks should return 2-5%.

as far as gundlach is concerned, he said sell everything in september 2016, about 8-900 S&P points ago: https://www.cnbc.com/2016/08/01/sell-everything-do...
dalio? well his track record certainly speaks for itself, but since his performance isn't public knowledge I have to plead ignorance.

gross, gundlach, and others are near gods in the bond world, but they approach the stock market through the lens of the fixed income world, and that has caused them to be overly bearish at times when investors should be buying.

my point is this, while they've been right (gross & gundlach, don't know enough about dalio's comments on stocks and subsequent performance to judge) on the bond market, I'm ignoring them for their comments on the stock market. my views on global debt are completely independent of my portfolio. I agree with you: this country's debt and deficit are the #1 issue I would like to see washington solve and it's despicable to see us spend money like a spoiled college student who just got his tax return.

HOWEVER, if I own shares of MSFT (or pick any quality company) and they self fund, have diverse sources of revenue, and a growing business, what the fuck does a debt crisis have to do with their earning power? too often, people conflate their worries about the economy with their underlying holdings. if we see a recession, will my portfolio go down? well yeah, just like everyone's, but will they go out of business? if I've done my homework well, I'll be just fine. moreover, if I own multinationals, a devaluation of our currency could actually be good.

the other scenario is one where the debt just poisons the entire well, we go back to the stone age, and the only valuable assets are gold, guns, and land, in which case most of us are fucked anyway.

EDIT: @Iguler" thanks for clarifying, just wanted to be sure you didn't drink the permabear kool aid

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Apr 17, 2019

Dot com bubble two Quran hai tu hubahu

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Apr 18, 2019

What's going to be the cause? Leverage?

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Apr 18, 2019

Everyone in the comments seems to have very different opinions on this..... but most people blame housing

The truth is like poetry, and most people fucking hate poetry.

Apr 18, 2019

IP, how naive of you. every recession is totally predictable

  1. the Fed
  2. inverted yield curve
  3. long in the tooth economic cycle
  4. TRUMP
  5. DEMOCRATS

/tongue in cheek

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Apr 18, 2019

We've also covered the fact that basically everyone claims recession just so they can say it before anyone else. Someone will claim it 10 times wrong and when its right they go on Forbes as "The Guy That Predicted The Recession".

Now this is not to say that sometimes people can be right but many times, claiming it has to do with personal agenda or vendetta rather than helping others. BUT I do have my own personal reservations about whether the economy is going to plummet.

anyhow would appreciate your analysis on this when you get the chance https://www.wallstreetoasis.com/forums/airlines-th...

The truth is like poetry, and most people fucking hate poetry.

Apr 19, 2019

Dont you go blaming Trump. Everyone knows this is Obama's fault....or maybe Bush? Actually I'm going with Jimmy Carter, damn guy couldn't farm a peanut right.

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Apr 18, 2019

Whenever I read about impending recessions, I'm always reminded of the quote: "economists have predicted 9 of the last 5 recessions."

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Apr 20, 2019

.

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Apr 22, 2019

Pensions are a slow ticking time bomb with absolutely zero solution other than slashing them. The data I have looked at shows the average state pension system is underfunded by 25 - 30% at an ~8% discount rate (needs to be cut). Scary.

Apr 24, 2019

.

Apr 23, 2019

Interesting point on the alt/non-bank lenders. Ever heard of OnDeck?

Apr 26, 2019

I just want to thank you for the Michael Burry reference first of all. Really great analysis though! I will definitely like into this...

If you could give some input on this I'd appreciate it!
https://www.wallstreetoasis.com/forums/should-vert...

The truth is like poetry, and most people fucking hate poetry.

May 19, 2019

Strong post. Upvoted!

Apr 28, 2019

All I want to know is when the whole goddamn market is going on sale again. My numbers originally pointed to end of 2018 but that pullback this time last year I think staved it off. Now the chatter from the executives is H2 2019.

On a side note, with rates effectively near/approaching zero (especially if cut) and the balance sheet at holy-fuck-ton-bazillion dollars.....what exactly does everyone think the game plan for recovering from the next recession will be? And I'm asking this earnestly, not rhetorically, because aside from the obvious political/social upheaval path, I'm curious what anyone thinks is a viable alternative. Either that or open the borders, raise taxes, and go full steam ahead with national infrastructure reinvestment. (and don't shit yourself, we heard "it can't happen again almost immediately after 1999 and now asset prices are 2x the levels in 2008).

Open ended question: what the f*** happens when this current delusion wears off?

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Apr 29, 2019

Whatever happens, I hope it's bad enough that central bankers realize that QE and artificially low interest rates are a recipe for disaster.

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Apr 30, 2019

hehe you funny guy

I'm not optimistic that people will ever stop using financial tools improperly.

I do wonder if the next time around, we see social/political unrest, post Gilded Age type. There's kind of a limit to how far things can bend before something important breaks, and now we're even at the point of the politicians openly (as in across Twitter fer fuks sake) pressuring the FED for policies that will benefit them in the next election cycle. We've fallen that far as a civilization.

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Apr 30, 2019

you and I have had some spirited banter in the past. I have a feeling you and I agree on more than our post history would indicate (national debt & deficits, artificially cheap money, etc.), and what I'll reiterate is debt cycles and corporate earnings are not one and the same. there are plenty of companies out there growing cash flows with stable business models, just do some under the hood looking and you'll find em. you may not get the "sale" you're looking for this year, on average markets tend to return >25% after a quarter like Q4 2018.

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May 2, 2019
thebrofessor:

you and I have had some spirited banter in the past. I have a feeling you and I agree on more than our post history would indicate (national debt & deficits, artificially cheap money, etc.), and what I'll reiterate is debt cycles and corporate earnings are not one and the same. there are plenty of companies out there growing cash flows with stable business models, just do some under the hood looking and you'll find em. you may not get the "sale" you're looking for this year, on average markets tend to return >25% after a quarter like Q4 2018.

I'd love 25% Q1 2019 gains on the S&P500/DOW. Those things are easy: just buy in while it's going up and have an itchy trigger finger around earnings time. I don't even have time for that so I'm in cash at the moment: I sold out of some positions that were up hundreds of percent since 2009 so I'm not sweating a few points. Me personally, I'd have liked to see tightening starting in 2014/5, it would bring market prices in line with historical valuation metrics. (as in, I don't care what gimmicky chart CNN Money produces cheering on the 'rally'; every goddamn thing is overpriced, especially tech, and everyone is over leveraged..

What I'm looking at is the cyclical interest rate apocalypse, which is inevitable. Higher corporate earnings and FED rates low (to facilitate 2020 elections) only push said apocalypse out. The more time passes, the worse these things tend to be, especially considering high market prices driven by easy money are so far above levels ever seen before: what happens when the gravy train stops?

Can't lower rates, can't add more to the balance sheet, absolutely won't alter political course....other means of getting america moving again will be needed. And I have no worry that is when the desperately needed structural reforms will come (spending reevaluation, infrastructure plan, etc). My concern is how much damage it does before, during, and after. I think people really discount how ugly things got in the era right after the Gilded Age...strikes, wars, famine, etc. There's no way to calculate the risk, so it becomes an uncertainty. An expected uncertainty essentially making long term planning perhaps not worth the risk for a while.

So what I'm getting at is seeing something like that on the horizon....it makes me pause to make large investments like rental properties, construction projects, and even purchasing alternative investments with long lockup periods. On the corporate side, despite announcements day and night of bringing all sorts of jobs all over the place, there's a pause in planning. That's the part where I'm concerned.

I have yet to see any answer of what happens in 2021 or 2023, or 2025 when the rates cycle finally catches up with us. No one even wants to entertain the idea. They simply want to run up the prices as high as they can and then drop the hot potato.

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May 2, 2019
thebrofessor:

you and I have had some spirited banter in the past. I have a feeling you and I agree on more than our post history would indicate (national debt & deficits, artificially cheap money, etc.), and what I'll reiterate is debt cycles and corporate earnings are not one and the same. there are plenty of companies out there growing cash flows with stable business models, just do some under the hood looking and you'll find em. you may not get the "sale" you're looking for this year, on average markets tend to return >25% after a quarter like Q4 2018.

BTW one of those SB's is mine :)

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Apr 30, 2019

How about the housing market too? I don't understand who is buying all of these new $400-600k homes in North Dallas when the median household income is $60-70k...

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May 2, 2019
InVinoVeritas:

How about the housing market too? I don't understand who is buying all of these new $400-600k homes in North Dallas when the median household income is $60-70k...

Literal answer: almost-sophisticated people who can't really afford them, made low down payments, and assume the economy will continue steaming ahead ....without disruption.... forever.

    • 3
May 15, 2019

The problem is not prices, it's wealth concentration. US consumer balance sheet looks amazing in aggregate, but when you break it down by quartiles the picture looks more grim.

May 15, 2019

and what impact do you think this will have on asset prices? I'm not being snarky (though much of my stuff is), I'm curious.

May 15, 2019
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May 16, 2019
May 24, 2019