What nickname are we going to give to the next recession?
It’s funny to me that as a nation we can’t just bask in the fact that our economy is strong. It’s good right now. It’s healthy (kinda). The US Dollar is worth more. Gas is $3 bucks a gallon and nobody is complaining. Nobody wants to refinance their home… unless of course it’s a cash out (everybody needs cash) and current homeowners won’t give up their property unless top dollar is offered… which in most cases it is. So… why worry? Why shouldn’t we just enjoy this strong economy, sip a margarita and dip our toes in the sand? (Jimmy Buffet said that…right?)
Well… I believe (time to quote Jerry Maguire) “…we live in a cynical world, a cynical world, and we work in a business of tough competitors…” it’ll be the exact same cynicism (what Jerry is talking about) that won’t allow us to enjoy our economic growth, rather begin betting against it. Why, you ask? Because it’s our innate human instinct to act in our own self-interest and begin figuring out a way that we can make money during a recession. I know you’re all getting tired of hearing this, BUT history tends to repeat itself and I promise you it will. Now, there isn’t a specific determining factor of when, why or how a recession is going to happen… however there are some indicators that there is a recession looming in the darkness like that tornado/spider-monster thing from Stranger Things. Oh yea? Do tell. Well… oil prices rise, asset bubbles balloon and our friend the yield curve inverts. As it stands today oil prices are up – so that’s one box checked. The stock market isn’t wildly overvalued… yet (I say that because it’s been taking a beating lately) but I think we can all agree that the housing market is trending towards overvaluation (private capital is back; non-QM products are selling & D.C. is pealing back regulation). As for the yield curve it’s not inverted… but’s its abnormally flat. Take a look at this article from Bloomberg. It helps break the yield curve down and tells us all not to “freak” about a flat curve. Sooo… let’s all take a deep breath, it looks like just one of the recession boxes are checked… for now.
I know that it may seem like I’m encouraging a recession… which is good, because that’s absolutely what I’m doing. If you’re in the mortgage industry and you make it through this strong economic growth period… you’re praying for that next catastrophic event that turns the tables and drives interest rates down. Last week, I had great conversation with two broker partners out in NJ and we agreed that we’re essentially fear-mongers in the mortgage industry… and it’s true. We want an event to take place in the U.S. or the world (think Brexit) that allows us to take advantage of the market and act within our own self-interest (cough… cough… cynicism). Jerry had it right. It’s a cynical world and if you’re not built to accept that… it’s going to be tough sledding.
Talk to you soon!