Recently, I wrote about how lots of various financial analysts and pundits predicting a coming stock market crash or imminent recession are more interested in trying to take credit for making a guess than in accurately predicting what the facts actually support. However, there is one very good case for predicting a recession coming in the next few years.
It is as likely as not that the next recession will trigger the next stock market correction. Of course, the opposite has been known to happen as well. Most recently, the internet bubble popping took the economy with it, when it caused the bankruptcy and fire sale of dozens of formerly high-spending technology companies and sent their employees flooding onto the market, just when the demand for them vanished.
On the other hand, the slow motion implosion of the housing market, and its affects on poorly leveraged, and managed, banking companies, followed by their panicked actions to stay alive, is what caused the so-called Great Recession of the Bush the Younger era.
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These days, most analysts like to predict a stock market crash based on “knowing” that the market is over-valued, or propped up by the Fed, or whatever else you want to say. That’s a lot sexier than saying that an economic recession will likely cause the rapid rise of the stock market to halt.
Expansion and Recession Cycles
This morning over on MarketWatch, an article makes maybe the best possible argument for an coming recession. Of course, solid, accurate, reporting, absent some sort of “click-trigger” is an anathema to journalism today, so the article has to include Trump in the headline, although the President has NOTHING to do with why the article says a recession is coming.
If we look past the “we’ll get more clicks with Trump’s name in the title” shenanigans, we get a solid point.
The reality is that expansions come and go, and they do so, with recessions in between. While the length of expansions and recessions vary widely, the reality is that neither lasts forever. In fact, most recent expansions have lasted around eight years or so.
How long has the current expansion been going?
You see the logic.
When Will The Next Recession Hit?
Predicting exactly when the economy will roll over into a recession is a suckers game. However, with 8 years of expansion behind us, history would suggest that one is coming in the next couple of years.
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That is the catch, of course. If it takes another three years, then you would miss out on a lot by bailing out now. If it happens in just 6 months, you should be getting prepared.
Also, while the last recession was a doozy — there’s a reason they call it the Great Recession — the next one doesn’t have to be. It might end up being mostly statistical with most people not really being affected beyond a little worry.
Here is where things get really iffy.
This expansion has been going for 8 years, but realistically, only the last year or two has been “real” expansion. The rest has been barely moving upwards, with very low inflation, and slow recovery in the job market. Does that mean that this expansion can last longer?
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For example, if we only counted decent growth as part of this expansion, then it is only two or three years old.
What do I think?
I think this economy is still teetering on weakness and with the Fed so gung-ho to raise interest rates, it’s a good bet that it will roll over in the next year or two, when it gets unable to handle tightening monetary policy. However, there isn’t an overheated housing market (some places, but not nationwide), and even the stock market isn’t that far out of whack. As a result, this coming recession should be milder than the last one.
If I had to make a bet, I’d say the recession comes at the beginning of 2018, after analysts realize that the holiday shopping season was too weak to support a growing economy, and the Fed just finished pushing through a third or fourth rate hike for 2017. Furthermore, I’d guess that it will be relatively mild, maybe pushing employment back up north of 5%, but not all the way to 6%.
Of course, I don’t have a crystal ball either.
This article is for informational purposes only and is not a recommendation to buy or sell securities. Talk with your financial and tax professionals for advice on your specific situation.