Are We Talking Ourselves Into Recession?

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Are We Talking Ourselves Into Recession?

 

     Recently, the "R" word has been in the headlines quite a bit.  As with every headline, there's a "devil's advocate" position, and recently, one expert warned that if we keep talking about recession, that could CAUSE a recession!  

 

     Yes, fear is a dangerous thing.  Fear in the markets can be a catastrophic thing.  Self-fulfilling prophecy can be very real, too.  But in this case, and the case for recession, those thinking our thoughts are driving the economy are missing the key data that showed us that recession was on it's way more than a year ago.

 

     Look, our markets have been in bull mode for far too long.  It's been a good run, but like every great party, eventually the carriage turns into a pumpkin and it's time to go home.

 

In this case, here is your damn near infallible evidence that recession is coming:

 

The inverted yield curve

With yield curves inverting, the financial markets begin to make no sense.  Risky adjustable rate market products become more expensive than lower fixed rates.  This yield curve inversion happens nearly every time an economy enters recession.

 

 

The jobs

 

Our jobs market is at all time highs, and unemployment at lows we haven't seen in a long, long time.  That's a good thing, right?  Well, in the case of jobs and how they tie into the economy, literally EVERY recession is preceded by a period of extremely low unemployment (our current market), a small spike in job cuts (you've seen the headlines of layoffs correct?), and then a ripple effect that drastically spikes unemployment as we head into recession.  It's happening, whether you like it or not.  Layoffs are happening.

 

 

The Fed

 

The Fed cutting rates is a signal that they see the economy slowing.  The one major economic principle that is without fail is "don't fight the Fed".  They think there's a Likelihood of Recessionhigher likelihood of recession than they've thought in the past 11 years at nearly a 35%  chance of recession in the next 12 months.  Keep in mind, the Fed is just slightly conservative - in the MIDDLE OF THE GREAT RECESSION, the Fed thought there was about a 25% likelihood of recession.  The Fed wears beer goggles when it looks at the economy, but they're more worried than usual, and every time they're this worried, a recession follows.  Don't fight the fed.

 

 

International Markets

 

We live in a global economy.  It's no longer coming, it's here.  Recessions will no longer be local as economies and international markets are so intertwined.  So what's happening around the world?  Well, the Euro zone is operating at a positive GDP of .2% - SO close to negative.  China just reported it's slowest quarterly growth since 1990 (DID YOU KNOW?  1990 was 29 years ago!  Feel old?  Me too.).

 

On top of slowing global economies, government bond yields around the world are negative - advanced economies like Switzerland, Germany, France, Sweden, and Japan are ALL operating with negative government bond yields.  The UK, probably the closest economy to ours in how it operates, is operating at a return of about .4.  The USA?  We're at 1.57 - substantially overpriced, and ripe for a fall to get more in line with the rest of the world. Keep in mind, our yields shouldn't turn negative and we have an added bonus because of the strength of our currency, but when we're a full 1%+ above the rest of the world's advanced economies, something's gotta give.

 

 

     Look, we're headed for recession.  Whether we talk about it or not.  Whether our heads are in the sand or not.  But recession brings about an awful lot of winners.  The winners are those who know it's coming, who prepare for it, and take action before it arrives.  The people hit hardest are the ones blindsided.  

 

     So prepare, get educated, make the moves you need to make, and above all else, ignore the devil's advocates that believe a little more positive thinking would completely rewrite the laws of economics.  They're idiots, and their message is dangerous. Recession is on the way.  Get ready.

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  1. Ron Barnes 08/24/2019 05:43 AM
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Ambassador
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Debb Janes EcoBroker and Bernie Stea JD
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Interesting reading the comments. I think we are seeing adjustments for certain, just not sure yet exactly when we will see a recession in full bloom.  I agree with the comments from Alexandra and Anna - plus Michael Jacobs raising a good point about the Election and the politics of a recession. 

Aug 24, 2019 06:39 AM #16
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Debbie Gartner
The Flooring Girl - White Plains, NY
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Great article and totally agree.  I do wonder at times about self fulfilling prophecies, but to me we are due for one. All the talk may slightly accelerate one and make people more cautious, etc.  I recently read in Forbes (an article from several years ago) that on average, we have a recession every 5 years ago or so...at least following the actual definition. I think it was 3.2 yrs growth, 1.5 yrs decline.  recessions are not usually as bad as the big one we just had and they are normal and generally we go upward over time. Hopefully we've learned from all the mistakes that led to the last one and this one won't be so bad...nor the next one.

Aug 24, 2019 06:45 AM #17
Rainer
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Robin Wells
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Thanks for post and worth thinking about.  One wonders sometimes if some of these are actually planned out far above us by those to can manipulate the financial world.  While they are painful and a lot loose.. clearly some gain with the R word hits.

Aug 24, 2019 05:06 PM #18
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Michelle Carr Crowe,Altas Just Call...408-252-8900!
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It will be interesting to see how things play out. I know that some areas of Silicon Valley have seen prices softening. However other random towns in Pennsylvania areIt will be interesting to see how things play out. I know that some areas of Silicon Valley have seen prices softening. However in other random towns in Pennsylvania homesare still selling quickly. still selling quickly.

Aug 25, 2019 02:10 PM #19
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Bruce Hicks
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Your post is educational and interesting John Meussner.  One of my mothers memorable sayings whatever you're in, 'go with the flow'.  We capitalistic Realtors have to "bend with the wind."

Aug 25, 2019 05:09 PM #20
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Dana Basiliere
Rossi & Riina Real Estate - Williston, VT
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I don't know about a recession however I am seeing a market correction here Chittenden County, Vermont.  Housing prices were going up more than average and just this summer I am seeing buyers making the correction happen by just saying no to some overpriced listings and there are fewer bidding wars that there were earlier in the year. This is a normal cycle that happens. Even with supply on the low side buyers are pulling back.  I see a market correction not necessarily a recession. But then I am not an economist, just an old guy who has weathered a few ups and downs.

Aug 26, 2019 05:58 PM #21
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Lore Lingner
Monterey Coast Realty - Carmel, CA
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I'm not sure that I can buy into the R idea at this stage.  The economy is strong, unemployment is down - I see a lot of "Now Hiring" signs around town.  I believe politics has a lot to do with the conversation.  From a California real estate perspective, I do see some adjustment in the market but I attribute that in part that prices have been escalating at an unsustainable rate.  California has been impacted by the new tax laws.  And, now we are faced with insurance companies unwilling to write insurance in "high risk" areas due to the wildfires.  Those companies still writing insurance are doubling and tripling their premiums (and, sadly, you know the insurance companies will never lower their premiums - even when the dust settles).  We are seeing an exodus from CA to other states.  But in the national picture, I do not feel we are in or heading to a recession at this stage.

Aug 26, 2019 06:35 PM #22
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Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

Excellent post, John Meussner.

How do you "talk a nation into" a recession?  You don't. It's not like inducing hypochondria by telling someone, "gee you look ill today". 

People who lose their jobs figure out sooner or later that a recession has caused that to happen. CEOs who tell their workers, "sorry, but we have to let you go" aren't causing a recession, but they do have to respond to it by trimming payrolls.

I read lots of weird opinions on the economy by real estate and mortgage professionals. I would never ask a real estate agent or mortgage pro for financial advice.

 

 

Aug 26, 2019 06:40 PM #23
Anonymous
Dennis Michael Erickson

Wrong question: Are we heading toward recession?
Right question: How long and how deep will the next recession be? While the inverted yield curve, which, incidentally most of the pundits could not explain to a person on the street, may be an indicator, is it a foregone conclusion that a recession will follow? No. And Eric, I do believe you can talk a nation into a recession, it's exactly what's happening via the politically driven news media. Say it enough and people will begin to spend less, save money, not invest, get out of the market, cut back hiring or expansion of business. Couple this fact with the fact that a certain political party would do anything to remove our President from office and that a financial downturn would help that effort and it's easy to understand why the 'R' word is cropping up everywhere. Don't buy into it. Recessions are natural in our capitalistic system, it's a cleansing phenomenon much like fire cleanses a forest and allows new growth to occur. However, the fire should start with a lightning strike and not a can of gasoline and a match by a politically motivated press. Stay alert.

Aug 26, 2019 08:16 PM #24
Rainmaker
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Karen Simms
Century 21 Arizona Foothills - Queen Creek, AZ
Horse Property Specialist

Well said.  It's the law of attraction.  If you think it long enough it will happen.

Aug 26, 2019 09:27 PM #25
Rainmaker
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M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

You got a great debate going here, and I tend to agree with your points.    Business inevitably cycles, and this current expansion has run longer than usual...

Aug 27, 2019 08:02 AM #27
Rainmaker
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
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I gave up making predictions of this sort a long time ago.  Especially as of late, the "signs" that historically meant one thing in certainty have ended up meaning quite another.  It's in my nature to always be preparing as if another downturn is just around the corner, both personally and with my business.  So far, it's served me well.

Gene

Aug 27, 2019 09:01 AM #28
Rainer
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Brian DeYoung
Howard Hanna Real Estate Services - Ithaca, NY
Brian DeYoung

Positive mindset is good.
Being open eyed and prepared is better.

Aug 27, 2019 05:28 PM #29
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Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Alot of predictions, scepticism, etc.  Only time will tell.  I don't have a crystal ball.

Aug 27, 2019 09:29 PM #30
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Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Seems inevitable, especially with what's happening/not happening in the UK re: Brexit.  It's true unemployment is low, but many, many people cannot find full time work that pays a living wage with benefits.  

Aug 28, 2019 02:39 PM #32
Rainmaker
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Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
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This spells opportunity for sellers to get those properties sold before too much longer.

Aug 28, 2019 09:38 PM #33
Rainmaker
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Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

I thought that in this case, the inverted yield curve was partly a function of foreign capital finding a home in the US because yields across the pond are actually negative. 

An inverted yield curve is only an indicator. It doesn't mean that every instance of inversion means recession. 

As for the rest of it, I think that the powers that be will try to keep the economy out of recession until the 2020 election is done. However, the craziness of all the tariffs Trump is tossing around like confetti could tip us over. 

With so many Americans living on the knife's edge - having never fully recovered from 2008, this could be a very serious recession - pushing more and more of the remaining middle class into the abyss. 

Aug 29, 2019 12:43 AM #34
Rainer
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Richard Foster, J.D.
Nevada Perfect Homes - Henderson, NV
Broker Owner - ABR/M, CREN, CRS, GRI, RRG, SFR

People, recessions are a GOOD THING.

Now, before you start tossing stones at me and reaching for pitchforks; allow me to say . . . I graduated with a degree in Economics. For any economy to survive, it can not just keep growing; there needs to be occasional market corrections, otherwise inflation would price everything out of everyone, but the uber-riches reach.

We have had a decade of growth, and that is a great thing; now is time for the market to correct back to a base, so growth can start again. This is how the average Joe can buy homes, and not be priced out of the market forever.

Remember, there are buyer and seller's markets, they tend to follow growth and recession trends!!! So don't freak about a minor recession, they are a good thing that keeps REALTORS employed.

Aug 30, 2019 07:14 PM #35
Anonymous
Mik Cohen

That IS what happens in most cases. What happens is the Fed runs a "report" that suggests the economy is slowing - and the media picks that up and does what they do (Don't, even, get me started on how I feel about the media !!) blowing it out of proportion and blasting it across all platforms - then people (Sheeple) take it as gospel and change their behaviors...thereby creating it.

I do believe it's quite deliberate and intended to slow things down to avoid a crash.

Aug 31, 2019 08:29 AM #36
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Debe Maxwell, CRS
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I couldn't have summed it up better than John Henry - "I don't even know that we can 'talk' our way into a recession with things as strong as they are.  This is a political gambit, and a dangerous one."

I have been educating my clients for months now, convinced that we are headed for a recession. Recessions are a fact of life but, when they seem to be politically driven everytime a certain party is in office (in the White House), it becomes predictable and old. 

WHO sensationlizes negative news that will ultimately impact their own country? Why, our media, of course! 

Sep 08, 2019 11:49 AM #37
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