Past results are no indication of future performance
The results are in, and everyone agrees on everything
I'm not sure what's wrong with me exactly, but when I see EVERYONE agreeing on something, I always find myself wanting to disagree. Maybe I was born with a contrarian instinct, or I am just an asshole, but whatever it is I can't seem to get on board with consensus... especially when it comes to investing.
Lately, my contrarianism has been exercising itself to an even greater degree because I am constantly seeing the exact same things repeated over and over and over again.
- There is going to be a recession soon [because of Trump|China|North Korea|Manufacturing|Tech|THE FED|Real Estate|what have you]
- The real estate market is going to CRASH (remember last time, dummy?)
I'm not saying that there isn't truth somewhere in both of these statements, but for arguments sake today, I am going to disagree with them. That might end up looking stupid in 3 months, but someone should be questioning this shit!
Why a recession ISN'T imminent
Dear readers, did you know that we are in the midst of one of the longest economic expansions in the history of our United States? OF COURSE YOU DID. You can't stop seeing it everywhere. You read about it every day. And right after you do, the following sentence is about an imminent recession.
I won't deny there are risks to the economy. Whether you love him or hate him, there's no doubt that our president is unpredictable, particularly with trade. The economy doesn't respond well to unpredictable. Conversely, the Fed has been as predictable as a Swiss watch on a Japanese train, which is to say that they have been raising rates sloooowly but steadily. Rising rates aren't usually a great sign for the economy, either. And yes, the geopolitical situation in Asia is completely messed up, adding yet another unpredictable element to the world economy.
But guess what? Everything else is going gangbusters. As long as it took to develop it may be easy to forget, but we are seeing one of the greatest synchronized upswings across global markets in world history.
US unemployment is at a record low, but there are millions of underemployed or sidelined workers ready to join the labor force to keep it from overheating. Yes, rates are rising but they are still extremely low by historical standards - certainly nowhere near bubble busting territory. Even Europe is getting in on the action with economies across the continent finally coming out of the slumber that plagued them after the financial crises. Asia, of course, is seeing healthy and steady growth, even from traditionally sleepy economies like Japan. Emerging markets are doing great too. The economy is on fire! But, it's not a frenetic house fire like we saw in 2007... it's more like a slowly crackling fire you could imagine warming your hands around and maybe making some smores.
Most of all, I am confident in this economy because of what I don't see: debt. Credit is definitely on the upswing, but where are the shaky loans? Where are all the idiots buying things they can't afford? Where is the insane derivatives action, and accounting scandals and janitors with stock tips? It's true: the economy moves in cycles -there will be a recession sometime- but the pinnacle of the economic cycle is EUPHORIA. That's what we'll see before things go to shit. Things are definitely good, but I don't see euphoria.
Why real estate doesn't need to CRASH
I can't stop hearing people tell me that the real estate market is going to CRASH. I don't mean to be too shouty with the caps, but they always say it with this flair... "crAASh". The bottom line is that everyone expects the next recession to be a picture perfect repeat of 2008. But, recessions and pullbacks rarely repeat themselves in the next economic cycle. It's usually a different group of idiots with a different highly leveraged product that pricks the economic bubble the next time around.
Fundamentally, the housing market has a lot going for it now, although I do not deny that many cities (like my native Seattle and adopted home of San Francisco) are getting very expensive. But why are they expensive? Is there a massive increase in subprime loans fueling an unmitigated rise in prices? NO. You have a large number of well paid people putting 10-20+% down, and making their mortgage payments on time. It couldn't be more different, but it might LOOK similar because prices are going up and to the right, just like they did in 2008.
Here's the big question: why would a real estate market driven by strong fundamentals behave the same way during a correction as a real estate market driven by shaky loans and euphoric overbuying?
I don't think they will behave the same at all. Just to be clear, my point is this: housing prices MIGHT pull back, but if they do I would be very surprised to see the 30-40% corrections we saw in 2008
Are you a contrarian?
Am I alone here? There's gotta be some contrarians out there who agree with me, or at least see my point of view. What else are you a contrarian about?