Predicting when the next recession will hit is a fun pasttime. People try to time the market for all sorts of reasons, from buying low and selling high to gaining credebility to sell product to people later because they were right.
So here's my completely unfounded, totally random prediction. You should not listen to it, just go about your life as normal.1 Do not take advice from me or anyone else when making investment decisions without doing your own research first.
I'm not going to bring any sort of technical analysis into this. Putting numbers to something that is completely based on human sentiment is dumb to me. Half the pople that are looking at technicals say we should already be in a recession, and half say we still have many, many more years of a raging bull.
Yes, a lot of people say that the technicals say that we should be in one already. I can agree with that. But, to the dismay of economists who structure so much data behind their predictions, the markets don't really do what you think they will do. Even experts get it wrong more than 80% of the time.
Because they can't predict the future. Nobody can. If anyone could, they'd be rich overnight. Predicting the future isn't like guessing heads or tails on a coinflip. It's like guessing heads or tails on thousands of coins flipping all at once.
I think one of the main drivers of the market is emotion. If everyone is feeling fearful of the future all at once, markets collapse. The effect that collective human emotion has on the global economy is tremendous. It's not something that you can see with numbers, although economists often try to collect and make sense of such data.
Perhaps social psychologists would make better fund managers.
So, just like my investment decisions, my prediction is going to be based on what I think most people believe. I could be very wrong.
Set the stage
Numbers show that we should be in a recession? Numbers show that we're in over our head again moreso than the 2008 crash?
"Eh, fuck that. Things are going well for me. I have a job. I can eat. I just bought a new car.
Besides, we're making America great again."
As Mr. Money Mustache points out, we're currently in the third longest bull market since the end of the second world war.
The longest one before that was the ten year period leading up to the Dotcom bubble popping. Many people say that today feels just like the early 2000s, when "investors" got excited about how stocks were named.
Today, Silicon Valley is full of entrepreuers trying to make their next million.
It's also full of young people who are working long hours not for salary, but for a pile of stock options they think will be worth something when their awesome startup company goes IPO.
Spoiler alert: they'll likely be worthless, or worth very little. Every company can't be a unicorn. Nine out of ten startups fail. Even if a company does have a successful IPO, the employees who put in their sweat, tears, and life better hope that their founders don't stop caring right after they cash out.
There have been countless stories of founders cashing out, moving on to starting something else, leaving the old business to fizzle out. By the time the employee's lockup period is over, it's too late. Just look at what happened to Zynga.
On top of that, people are going fucking nuts with buying new shit on credit.
Malls were full this holiday season.
I see new cars in the streets every day now.
Smart homes are the new craze. With a voice-activated device, you can control your new 4k QLED TV, heater, lights, alarm system, sprinklers, and even turn on off your stove if you forget!2
The party cannot go on. But for now, things are going to be great. They are going to be better than they've ever been before.
If you've been following Trump's efforts to getting his latest job, you'll know how much hard work he must have had to put in to get it.
And now, he's finally made it.
He's been wanting to get the job as CEO of America for the longest time. He's planned on entering the race many, many times, but has always dropped out because he wasn't absolutely certain that he would win.
Now that he's in, he's obviously going to want to get promoted to a second term. It would be a total waste to have tried that hard, for that long, and spent all that money to get there and then only serve one term.
A financial crisis during his first term would not bode well for when he has to reapply for his job.
In order to win again, he needs to keep his supporters happy, and potentially convert more people to being his followers. Everybody that voted for him this time needs to vote for him in 2020. Possibly more. He needs to make them believe that he's doing good by them.
That's going to be a very hard thing to do. Especially because there are a lot of very powerful people that don't want Trump in office, and they are going to do everything in their power to keep him out in 2020.
Give the people and the companies more money
At the end of the day, people are what keep the economy growing. When you purchase a stock, what you are really purchasing is the output of real life people spending their current lives trying to make their company successful.3
People that go to work every day, just like you.
But whenever someone gets paid, whether it be the company that you work for or the employee, the government takes its cut. So one lever that the government can pull to help companies be more successful is to
steal less from you lower the tax rate.
Businesses are going to do better because the corporate tax rate is dropping to 21%. This means that earnnings calls for the next several quarters will be better, even if the company doesn't do any better. Stocks will continue to climb.
Most consumers will pay less taxes starting in 2018 due to a reshuffling of the lower tax brackets and doubling of the standand deduction. Most married couples will have more money. When people are given more money, they will spend more, and companies will be able to report better revenues because of it.
Removing the state and local tax (SALT) deduction only hurts those in states that have high income tax, like California, Oregon, New York, Minnesota, New Jersey, and Illinois. But, all of those states didn't vote for Trump, so who cares? He doesn't exactly need to make them happy for the next round.
The lowering of the mortgage interest deduction from $1MM to $750k hurts people who have bought big homes in expensive cities like San Francisco, Seattle, New York, and Chicago - again cities that didn't vote for Trump.
Notice a trend here?
The states that voted for Clinton will continue to feel screwed over for the next seven years because they're helping to fund the tax cuts.4
The year after Trump leaves office, several benefits of the tax code will expire.
The Bush tax cuts were introduced in 2001 and were set to expire in 2010, two years after he would leave office. Obama "inherited" a mess, extended the Bush tax cuts, and oversaw a tremendous bull market.
But there's a large subset of Americans who have said they haven't been able to participate in the boom. Most of these people are those that voted for Trump in 2016 because they felt disonnant when politicians kept saying how much they have been doing for the people and how great things have been.
People are saying that all the indicators for a recession are here, but I think there's still a few years left for that very reason.
It's certainly not going to be good for Trump if there is a big crash during his first term if he wants to get his job back. If people start losing their jobs in pro-Trump states, it's going to be difficult for Trump to claim success because the people he's talking about will know it's not true. Even though people say that presidents have little to zero effect on the economy, it behooves those that do pull the economic levers to work with the president to create scenarios that benefit themselves.
The longer the time since the last recession, the longer people have to get comfortable, and the more people will inflate their lifestyles, buy houses, cars, smart devices, and other things they can't afford, the more people will be poorer after the next recession comes and goes.
Plus, the more people you can get to participate and splurge in the good times, the more people that will fall flat on their face when you yank the rug to create bad times.
The gutting of the middle class is far from over. Even though the system is all out of whack, the top 1% of Americans still own less than 40% of the total wealth, and it's estimated that the wealthiest families in the world only own around 50% of the global wealth.
They still have a long way to go.
One of the most effective - and legal - ways to transfer wealth from the masses into the hands of a few is to use the stock market. Taking advantage of the fact that humans are emotional beings that react to fear, you can manipulate people into buying high and selling low.
Today, if you go around asking people who are in the market how they are doing, they'll tell you with great pride about how much they are up. Investment account doing great, 401k is up a bunch - things are going great. They will also very confidently tell you that the next time a recession hits, they will weather it and not sell near the bottom like they did in 2008.
Hmmm... But what if everywhere you turn people are screaming that this is the end and that you should take what you can before it all disappears? It's going to be really hard for most people to not sell when things are going to shit.
But what Trump has done makes it a bit harder for a recession to happen right now. Trust me, he really, really wants to keep his job. How big a hit would it be to his brand if he lost in 2020? He has to make - and keep - a large number of people happy if he wants to win.
He's going to do everything that he can to delay the recession. He's been making deals that ultimately benefit the American economy, like renegotiating trade deals and cutting regulations that have been making it hard for small businesses to do business. It may only be in the short term, but presidents are only in office for a short period of time.
A lot of people's bottom lines will improve, and that's good for the stock market.
But in order for the people that want to get Trump out of the White House, the stock market needs to tank. They will need every talking point that they can get, and a tanking market is a strong talking point.
So, there you have it: my incredible unfounded and ridiculous prediction for when the next recession will hit.
Don't pay any attention to it. I wont.
What should you do about it?
I mean it.
If I'm right and we do have at least two years left of the good times, go about your life as usual and make yourself prepared for the bad times. Now is a great time to build FU money, take risks, and find answers to the question "what should I do with my life?"
If you're around my age, you've probably never experienced a recession before. The only thing I remember about the 2008 recession was my dad sitting in front of the TV when we were on vacation saying "Oh my god. Markets are getting crushed. This is not good. This is not good." I didn't understand what was going on or why. They were just numbers on a screen to me.
I know that my strategy is to not sell and keep buying, but will I stick to it? What about when everybody around me - even those who so confidently talk about their resilience to downturns today - starts selling and salvaging what they can?
I'm pretty convinced it's going to be a really fucking scary time. People talk about 2008 like it was the worst thing ever.
But then again, if they're talking about it, they're still alive so it doesn't really matter.
In a way, I'm excited for it to come. I want to see what happens. I want to see what people do. I want to see what the world does.
No matter what happens, it's going to be a hell of a ride.
Official recession start prediction: 2019
The people that want to beat Trump will need bad markets and all the talking points that come with it.
But, there will be a significant correction sooner than that, certainly involving the technology sector.
1. Unless you have more than six months of living expenses in your bank account. If that's you, go get it now while the bull is running. (go back)
2. Each set sold separately - America's favorite marketing slogan. (go back)
4. Yup, I'm also predicting that Trump gets elected a second time. (go back)
5. From the Chicago Tribune: "Nearly half of country has $0 invested in the market, according to the Federal Reserve and numerous surveys by groups such as Gallup and Bankrate... Stock ownership before 2008 was 62 percent, Gallup found. Even after recent inflows, only 54 percent of Americans are invested now. More adults in the United States own homes than stocks." (go back)