Maybe one of the dumber things I’ve seen on stock market Twitter over the past few months.
Normally it comes from these permabull contrarian types who think Jerome Powell is their Lord and Savior who can do no wrong, we’ll never have another recession again, and stocks only ever go up.
These people will be decimated in the months (possibly years) to come and nobody should shed a tear for them, because they are fools.
But I really want to take aim at this idea that we can’t have a recession/bear market if most people are expecting it. There are people out there who really believe recessions and bear markets are impossible to see coming, and that all recessions are like The Big Short–where only a few people in the whole country see the collapse coming and they are roundly mocked and ridiculed by everyone else.
Would you say the same thing about a storm? Gee, the barometer is falling like a rock, there are massive storm clouds on the horizon, there’s an ominous breeze in the air–but it’s definitely not about to storm because everybody can see it coming.
No, that’s not how it works. Sometimes everyone can see disaster on the horizon and it’s still unavoidable. Sometimes–in fact, most of the time–if it looks like it’s going to storm, it’s going to storm. No need to overthink it.
But I also want to bring up another point about the advancement of technology and the widespread proliferation of economic and financial data to the masses.
We now have an abundance of data at our fingertips. Everyone does–literally anyone with an internet connection has access to a nearly endless amount of economic and financial data and metrics. We can all track GDP, as well as the Atlanta Fed’s GDPNow forecast. We can all track housing sales, retail inventories, durable goods orders. You just go to FinViz.com and they track just about everything.
We can track the price of oil–and dozens upon dozens of other commodities–by the minute. We can track treasury bond yields of all durations, closely monitor the yield curve. We can even track global container shipping traffic data on a minute-to-minute basis.
Just on my TradingView account, I monitor the inflation rate, the GDP growth rate for the US, Euro area and China; the Case-Shiller home price index, the Shiller P/E ratio of the stock market, interest rates of all durations, the Fed balance sheet, manufacturing PMI, UMichigan consumer sentiment (already down to 2008 levels, by the way), after-tax corporate profits, option volatility (the MOVE index), mortgage rates–and countless other sector/country/commodity ETFs, and more.
I, today, have more information available to me than the most elite investment banks of the 1980s, and probably even into the 2000s.
We can go on Google Trends and see the rise in searches for inflation, stagflation, recession, and economic collapse.
There are advanced algorithms that pore over every FOMC statement and make buy/sell decisions within seconds based on the new information.
There are business owners on YouTube with unique insights into the economy who today can share their experiences with all of us, like this guy who owns a pawn shop and says he can tell a recession is coming by the things people are selling:
In good times, people hold on to collectibles and imagine they’ll hold them for the rest of their lives. But when things start collapsing, they start selling those collections and collectibles that they previously vowed to never part with–because they need the money.
Strippers, of all people, are saying the strip clubs are now empty and that they think a recession is coming. There have always been strippers, of course, but it is only now in the internet era where we can all easily access the economic insights of exotic dancers. In past eras, they would just keep this stuff to themselves.
I’m not even scratching the surface of all the economic data and indicators that are now, thanks to the internet, widely available for all to see. But you get the picture.
We can see it all playing out in real time. All of us have access to this data if we so choose. The amount of data and information available to us for free and at a moment’s notice is completely unprecedented.
We have real datapoints and anecdotal evidence to inform us.
Back in the day, this information was not really available to the common man. Pre-internet, you could really only see stock prices in the newspaper and, by the 1990s, you could watch CNBC and financial news on TV.
But even as recently as 2008, the internet was not nearly as sophisticated as it is today. The iPhone was only invented in 2007.
During the last major recession (excluding Covid, which was a government-caused recession), we did not have nearly as much data available to us, so it was harder for the average person to see it coming. I’m sure the government, Wall Street and all the Titans of Industry saw it coming, but of course they’re not going to sound the alarm for the rest of us.
But now, we have access to pretty much all the data Wall Street has. There is no shortage of random people on Stock Market Twitter with access to Bloomberg Terminals who happily post screenshots of high-level datapoints and charts. There are numerous finance bloggers and content creators who monitor countless economic indicators and datapoints, essentially there are thousands–if not hundreds of thousands–of regular people out there who are closely monitoring the health of the economy and the stock market every single day.
The average person today has vastly more knowledge and information available to him than the average person did even 10 years ago.
In short, we are now able to better prepare for recession and stock market collapse than ever before.
We are all, due to the internet, able to collectively monitor the health of the health of the economy on an hour-to-hour basis.
And the aggregate of all this information–official economic indicators and datapoints, as well as anecdotal evidence–points to a recession. We are probably already in it now.
Do not be one of those reflexively contrarian morons who spouts off nonsense like “There can’t be a recession if everybody knows there’s going to be a recession!”
That’s idiotic. There is no reason there can’t be a recession if everyone knows it’s coming.
Everybody knew Russia was going to invade Ukraine and it still happened. Everybody in Europe in 1939 knew war was imminent, and it still broke out.
Sometimes, the most obvious possible outcome is the actual outcome.
This is not a movie, where oftentimes the guy you think is the bad guy turns out to not be the bad guy.
It’s possible we avert recession, but if you believe that will be the case, then bring up some actual, valid arguments to support your claim. Don’t just take the lazy contrarian view that we can’t have a recession because everyone is expecting a recession. That’s idiotic.
I have gone over the bear case a million times but I’ll do it again:
- Virtually all of the economic gains since the Covid Crash were illusory; the result of trillions of dollars in fiscal stimulus, rock-bottom interest rates, and the Federal Reserve’s unprecedented monetary easing. All that is done now, and so the economy is coming back to reality. The “sugar high” is over, now comes the crash.
- The Fed is bound by LAW to get inflation under control, and they will do it. History shows us that they will hike into a recession if there is inflation, and they will keep hiking until that inflation is gone, no matter how much it harms the economy.
- Outside of the Trump boom year of 2017, the stock market since 2009 basically doesn’t go up unless the Fed balance sheet is expanding. The Fed balance sheet is no longer expanding–and interest rates are rising. The market is no longer being supported by the Fed, which means look out below.
- The only way for the Fed to get inflation under control is to cause a recession. The Fed can’t say this, because people would take to the streets with torches and pitchforks. But it’s absolutely true, and it’s absolutely what the Fed is doing right now.
Nearly all signs are pointing toward recession. The stock market likely has a lot farther to fall still.
Don’t say you weren’t warned.
I also wanted to add this after thinking on the subject for a few days now. Probably due to the proliferation of social media and online communities centered around the stock market and the economy, there are more people than ever before who are in tune with just how market cycles work, and what causes them.
In the 1990s, what percentage of the country do you think was aware of the fact that economic cycles are largely driven by the Federal Reserve and its adjustments of interest rates in response to changes in both unemployment and inflation?
Probably not a large number of people.
Today, virtually everyone who pays attention to the markets is aware that just about everything hinges on the Fed: when the Fed is keeping interest rates low and easing, there probably won’t be a recession and the stock market is going to go up. And we also know that when the Fed is hiking rates and tightening monetary policy, it will lead to a downturn.
The Fed hikes rates in response to inflation, and cuts rates when unemployment is a problem (so long as inflation is under control). The Fed’s solution to inflation is to put the brakes on the economy, crush demand, and send prices lower.
Thanks to the internet, we can all see this happening in real time. We closely monitor the Fed’s every word, and adjust our market and economic outlooks accordingly.
The curtain has been pulled back: market cycles are no longer a great mystery to the masses. We can plainly see that the fate of both the market and the economy is determined by the 12 Federal Reserve Governors who set interest rates and decide on monetary policy.
And right now, we can see that they are clearly very concerned about inflation and taking steps to bring it down. We know this. We know they will hike interest rates and wind down their balance sheet in response to inflation, and that the net result of this is recession.
The idea that a recession won’t happen if we all know it’s coming presumes that the People In Charge, if they know a recession is coming, will do something to avert it.
But the obvious flaw in this reasoning is that the People in Charge–the ones who are expected to avert the recession–are in fact the ones who are deliberately causing the recession. It’s part of their plan. They can never admit that it is, but it is.