In 2006 investors were firing their financial advisors for only securing a 20% return. I remember sitting in a corporate lunch room listening to two idiots that I wouldn’t trust to make a ham sandwich talk confidently about the endless ease of house flipping. At the time I lived in a $600/month apartment and drove an old truck I had bought for $50. I didn’t always grow up poor, but there were periods when I certainly was. And living in weekly motels or staying low and quiet as the furniture repossession people pounded on an apartment door, as Napoleon Hill would say, I’ve felt the icy hand of poverty.
I really don’t know but I assume that like other mental traumas, poverty makes you eternally aware of its harbingers. There’s an adage that Wall Street has correctly predicted 9 out of the last 3 recessions: it’s easy to throw out worst case scenarios but generally speaking humanity has a knack for avoiding death spiral. We’re creative people. Perhaps not always elegant in the execution, we strive above all else for self preservation.
Around the time that my two super-savvy-house-flipping-coworkers were trading ideas in that lunch room, Nouriel Roubini was cautioning the IMF of an upcoming US housing market collapse and how credit default swaps and collateralized debt obligations would unwind the global financial system. He was met with many eyerolls.
So it was rather discomforting when I read recently that Roubini had come forward with another dire prediction: a Greater Depression in 2024/2025. A good article in The Guardian lays out his ten reasons, but I’ll summarize because I assume that like me it is a lot of work for you to open a new tab.
- A “U” shaped recovery comes out of COVID-19 on the heels of a vaccine or treatment that inspires confidence. The vast majority of Americans still have their jobs and there’s a lot of pent up demand for goods and services. That money will be spent as things re-open. You can actually see little glimmers of it right now in the auto industry.
- A blend of automation, public and private debt, deflation, deglobalization and populism, and a geopolitical standoff between China and the US )although other countries may enter that fray as well).
In February of 2020 I wrote that I was taking COVID-19 pretty seriously and was somewhat patted on my head for being an alarmist. Those were the halcyon days where all we had to do was wash our hands and cough into our elbow, remember? Masks were ridiculous, this was just like the flu, etc. Oh, to be 90 days younger again.
Unless you’re a Harvard trained economist who regularly briefs the IMF, I think a wise move would be to consider Roubini’s points and watch over the years as they materialize or are mitigated.
Like anyone who makes calls about the future, Roubini has been wrong before. He’s earned his nickname of Dr. Doom and most recently in 2014 he suggested a war akin to 1914, for which he was (decidedly) wrong. Sure, countries were fighting and people were dying but nothing to the scale that Roubini suggested.
Probably something everyone has considered in moments of fantasy has been the idea that you could go back in time and tell yourself something. Perhaps imagine that this is happening right now: you’re being given a little window in the future. If you did know that a depression, greater than anything seen in modern times, was going to occur in the next ~5 years, what would you do about it now?
What I find interesting about answering that question is that it doesn’t really create bad ideas.
- Try not to have a lot of debt. Think long and hard before accruing new debt.
- Try to have a recession/depression resistant income.
- Try to be healthy.
- Have good friends that you can rely on and who can rely on you.
- Have your spending under control.
I’ve mentioned The Great Depression: A Diary before, and while it may not be a “fun” read it’s certainly educational and interesting. Regardless of whether Mr. Roubini’s prediction bears fruit I think a ~$3 kindle read on the Americans who already went through a depression is a sound investment.
Followup: there’s a ~45 minute podcast interview on Odd Lots with Roubini. (spotify / apple)
My biggest concern is stagflation. Business costs are going increase because of covid ( lower profits ). Concerns about the supply change will force many companies to move manufacturing back to the U.S. ( at a higher cost ). The Fed has dramatically increased the M2 money supply, more dollars chasing goods. Debt to GDP over 100%. Not all of the 40 million lost jobs will return. In summary, little or no growth, higher prices, higher interest rates. Think 1970s.
I was a little kid in the late 70s, the only stories I know of are the ones shared by others. I was on the BARC VHF net the other day and was listening to a guy talk about riding his motorcycle around and spending entire days pushing it up a hill to coast down another, hoping that there was finally gasoline somewhere. Regarding moving manufacturing back to the states, while I agree with it from a supply chain and nationalistic prospective, it doesn’t necessarily bring jobs with it, either. ~80% of lost manufacturing jobs have been via automation and that automation has only accelerated. There will be jobs for engineers, but not for high school educated factory floor workers like in the past. Those jobs are gone, up there with cobblers and blacksmiths.
Remember the 70s well, but from a UK perspective – oil prices, blackouts and the 3 day working week. Followed by the descent into Thatcherism. I don’t think banks etc were forced to pay a high enough price for their criminality so I doubt much has changed, aside from lip service. So, it is certainly easy to see another depression – with the UK having the added benefits of Brexit, eventually leading to the breakup of the UK.
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