“When the U.S. falls into a recession, a credit bubble will explode.” This is outside my typical purview, but it has been long enough since the last recession for everyone to have forgotten its lessons. In the mid-2000s, I knew lots of ballers who were buying very expensive cars and a lot of stupid people who suddenly got into “flipping” houses, because real estate is a can’t-lose proposition, right?
Except for the way real estate value tanked in ’91. The way it eroded in value during inflation in the ’70s. The way it really fell in the ’30s. Even in the ’01 recession, it at best held steady.
A lot of those ballers in the mid-2000s were bankrupt by 2009. Right now, I’m seeing a lot of the same signs: stupid people eager to get into real estate. Too many cars being bought relative to the number of drivers. Student loan debt problems are already well known.
You make a lot of money by being bold when everyone else cowers, and by being cowardly when everyone else is bold. Right now it seems like a lot of people are bold… I’m going to cower over here in the corner and let the ballers do their thing. People with cash on hand during recessions can make the real money. I wasn’t able to do so last time. I might not be able to do so this time.
Part of game is standing apart from the herd. The same thing is true in financial markets. Most guys never learn about 1. Game. 2. Evolutionary biology. 3. Cooking/food. 4. Finances. Schools don’t teach this, and parents frequently don’t: we then pay for ignorance throughout our lives.
5 thoughts on ““When the U.S. falls into a recession, a credit bubble will explode””
I highly recommend John Mauldin’s free weekly newsletter. I’ve been reading it for many years and it’s been a key component of my financial education. There’s some upselling at times, but it’s easy to ignore that.
I find he’s pretty balanced, not “the sky is falling” type at all, but very mindful of the pitfalls of QE and his articles are always well sourced.
No one can predict the future, but having been through the past two downturns (2001 & 2008) as an investor I do suspect we’re 1-3 years away from another one.
This year I’ve gotten more conservative in my asset allocation (more short term high quality bonds, less stocks). I believe it’s a good time to pull back, wait for the eventual bear, and then look for real estate and other investment deals at reduced prices (higher returns).
I have found that educating oneself about food and finance has a lot in common with learning about women. In all three cases good information is out there… but it’s not the most mainstream. There are many who take an interest in leading us astray, for their own benefit. And of course, in all three cases, men who don’t learn are in for a lot of pain.
Yeah, although, humorously, that was posted in March 2019, and a true sustained recession still hasn’t hit yet… timing the market is tough… cowering in 2019 means losing a lot of money.
Most people who make predictions never check to see whether they’re true, particularly when they’re wrong.
There is always a recession somewhere.
I suggest taking a global approach, and investing wherever good opportunities can be found…
But this is an issue for a whole new blog, probably.