A stopped clock is right twice a day.
Having watched the entirety of the financial media fail to predict the housing crash and Great Recession of 2008, it seems a bit too convenient for everyone to suddenly see this one coming with the clarity typically observed only with hindsight.
Why is it that despite the HousingBubbleBlog.com and Dr Housing Bubble Blog screaming into the wind, and low wage workers buying multiple properties with no doc loans serving as glowing radioactive indicators of the massive overextension of credit, that no one saw the 2008 crash coming? And yet an inverted bond yield curve in 2019 has everyone loosing their freaking minds?
We live in a conspiratorially minded age, but I can’t help but pause when even the general public, who tend to be under invested or not invested at all in stocks, are bracing for impact and discussing strategies to prepare as if a hurricane is about to make landfall. This focus on recession is all the more striking given that nearly 40% of Americans can’t cover a surprise $400 expense. From the Federal Reserves’s 2019 report on the Economic Well Being of American Households:
17% of U.S. adults are unable to pay all of their bills in full every month.
25% of Americans skipped necessary medical care in 2018 because they couldn’t afford the cost.
30% of families must cope with income that that varies from month to month.
25% of adults who are still in the labor force have no retirement savings or pension.
30% of people either can’t pay their bills or are one modest financial emergency from serious trouble.
Financial journalism largely ignores the economic challenges facing American families in favor of market coverage. What coverage does occur tends to be episodic, focused on the housing affordability crisis, or outsize student loan debt, or stagnant wages as individual issues without connecting them to the larger thematic narrative that the American middle class is struggling. Even more troubling is the fact that 1 in 4 Americans are now worse off than before the recession, despite the longest running period of expansion in US history.
If there is one lesson to take from the Great Recession it is to never underestimate the variable of timing. As Bruce Bartlett observed in his retrospective on Who Saw the Housing Bubble Coming:
“…being right too soon is insignificantly different from just being wrong. And forecasters that are wrong when most of their community is also wrong never suffer for it…”
The indicators can be there, the potential sources of froth in the bubble can be ripe to spill over, and yet the timing on when these will occur can be difficult to predict. Never underestimate the ability of the government, the bankers, and the man behind the curtain to keep things going way longer than you ever thought possible.
The endless speculation of is there or isn’t there going to be a recession fits the media template of a horse race, but misses the bigger picture of what is happening in American financial life. And it does a disservice to the larger public by focusing on issues that might impact them, but about which there is little they can do, while ignoring the issues that are already affecting them and obscuring the policy causes. Fortunately, this conversation is happening in the context of the Presidential Primary.
So relax, give up trying to time the market, and let’s shift the focus back to where it belongs, which is on the ways in which the economy is actively working against the interest of most Americans not by chance but by policy choice.