“Soft landing”, “no landing”, “fauxcession” … the confidence is everywhere that the flaccid economy is firming up and even “re-accelerating”. “Mild recession” is the most bearish of outlooks on the economy that I can find among the mainstream ‘Street’ workers.
I’ve been negative on the outlook for the economy for some time and I’m the most bearish of almost anyone out there in terms of what I think lies ahead. I admit that it has taken longer than I previously suspected to … almost, almost … come. And the reason I think why this has been the longest drawn out affair of rolling over and going down, is the most fundamental aspect of my economic philosophy.
Sex
I’ve laid it bare in the past. Demographics is the root from which the economy spawns. But as Marshall McLuhan said in The Medium is the Message, (I’ll paraphrase): ‘we create things and then those things dictate our way of life’, I observe that sex makes the economy grow and as the economy grows, we are enticed into having sex.
I hear you say, “Explain … and use pictures … especially with regards to the sex part”.
In January 2023, I put up a chart of some data that stood erect from the body of data. I anticipated that this bulging would swiftly subside , like it had over the previous 45 years. It did not.
‘What would cause the economy to keep it up for so long?’, I wondered.
Ah, yes! Our societal and cultural obsession with real estate. We make babies and they grow up only to blindly adopt normative cultural habits like home ownership1 (of course, everyone needs shelter whether they own it or not), which perpetuates the leveraged growth of the economy. Real estate is the Viagra of the economy.
Back at the beginning of the new millennium, the U.S. economy went wild on this economic performance pill.
The U.S. real estate market experienced multiple years of single-digit percentage gains which accelerated (and compounded) into years of double-digit gains, all of which was leveraged to enhance property investor’s “profits”.
Wealth has a funny affect on people. It gives them a sense of power and puts them in a “damn the consequences” frame of mind.
During periods of increasing asset values (like the early 2000’s), baby manufacturing explodes.
And in the self-perpetuating nature of all organic life, the little bastards grow up.
When they ripen into “working age population” maturity, they add growth to the economy … in addition to doing the dirty should they feel particularly wealthy at any stage.
And so, due to real estate being the Viagra of the economy because so many people are invested in this manner AND because it is a leveraged investment, making people feel wealthier still, that period in the early 2000’s caused an extended baby-making frenzy, which has resulted in an economic orgy some 16 years (and nine months) later.
But the extended period of debauchery is coming to an end. In mathematical terms it is expressed as: 2008 + 16 = 2024.
One cycle begets another (if I ever read the Bible again, I’ll have a greater appreciation of the begats). Let’s look at the above chart in a slightly different way.
This chart highlights how big swings in the number of new participants in the economy has a material affect on economic growth, and that, in turn, has a material impact on the stock market.
My point is, that the delay in the current recession that everyone now thinks isn’t coming, is due to an elevated amount of baby-making pre-GFC that has meant a bunch of sexual byproducts have come of age and lent their support to the economy. Not enough to make it roar away, but enough to hold it up in the face of a tightening cycle … temporarily.
On the bright side, the swift rise in house prices in 2021 means there’s likely to be another bout of stock market exuberance (a blow-off top) in the mid to late 2030’s as a new batch of wealth-effect progeny enter the economy.
This is where I have a fatherly chat with you and ask if you’re using portfolio protection?
It’s 2024, we should be able to discuss these things openly.
I’ve stated it in earlier posts (with supporting data), that our economy systematically prices each generation further out of the real estate market to where we are now at the point that current new entrants no longer blindly adopt the doctrine of the real estate faith that their family (going back 4 generations) professed, which means we are on the cusp of a reset (speaking in multi-decade terms)