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Tuesday, October 30, 2018

We are already in the aftershock recession...

The real estate market in Southeastern Michigan has slowed as rising prices and lack of available inventory sent many would-be buyers to the sidelines as the year winds down. See the attached report from our broker, Dan Elsea -

http://reofamilymarketing.com/wp-content/uploads/2018/10/Bro_HousingReport_Q3_2018_REO_Dynamic.pdf

There is an inclination to just attribute this slowdown to a normal seasonal pattern; however, I believe that we actually seeing the leading edge of the next recession. There are other subtle indicators in the retail markets and elsewhere that reinforce my "gut feel" that what we are seeing right now is the quiet before the storm of another recessionary period.

The Wall Street gang would like us to believe that the recent volubility and drop in the market is just an "adjustment"; but I think it is more of a pullback by people made cautious by the last recession. Many people are starting to hunker down in anticipation of a few years of the pain of this recession.

I would compare this recession to an aftershock following a major earthquake. We had the major quake in the so-called "Great Recession" of  December 2007 to June 2009. At the end of that period there was an attempt to "return to normal", fueled by a Wall Street Rally that was based largely on great expectations. Stocks rallied and there was an expectation that wages would soon follow them up. That did not happen. Employment when up, but the jobs were mainly part time and lower paying that before the Great Recession.

In fact, the Great Recession was the final death knell of the Middle Class working man - the union workers who, with overtime, could afford the bigger houses and the toys that went with the Middle Class lifestyle. Wall Street used the downturn and the changes in political power that occurred in Washington at about the same time to emasculate the unions and decimate the working Middle Class. The rich got richer at the upper end and more of the middle class was pushed down to join the poor at the bottom.

So this "aftershock" recession is actually the a reflection of the reality of people's lives finally matching their circumstances, rather than being fueled by the credit-driven optimism that Wall Street was pushing. The Wall Street band was playing "Happy Days are Here Again" and encouraging people to spend, spend, spend with credit in the hope that wages would rise and allow that credit to be paid off. Didn't happen! Not going to happen. The realization that a raise is not forthcoming is settling in and the valves of the credit-fueled recovery are being cranked shut.

Add to that the likely mid-term shift in the political environment in Washington and you have the classic ingredients for a recession. The good news is that the credit overhang in the general population (especially in real estate) is not quite as bad this time and the measures taken after the Great Recession have strengthened our financial system and positioned it better to ride this one out without bailouts.

That recession also took America down a notch in the order of things in the world. At the same time China was on the rise and India was awakening as an economic power. America is still the only "great power"; just maybe not as great in relative terms as before. That s another new reality that most have not yet figured out how to deal with for the future.

So, remember that you read it here. We have already entered the "aftershock recession" of 2018. How long this will last and how deep the "adjustment" will be are yet to be determined. I don't think it will be as long or as bad as the Great Recession; which I believe should be renamed "The Great Reset", because it did cause a wholesale reset of the economic and social structure of America.

I'll see you on the other side.


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