When I was a kid I loved a TV show called The Beverly Hillbillies. It was about a family of hillbillies who struck oil, got rich and moved to Beverly Hills.
The family matriarch was Granny and she had a cure for the common cold that made the family’s banker (the greedy Mr. Drysdale) very excited b/c he thought he’d get rich selling it.
But the cure worked like this – cold sufferers drank her awful tasting medicine, and then got plenty of rest and lots of fluids, and in a week to ten days their colds got better – every time.
In other words, correlation was not causation.
I think of that story every time I read about recession predictions, as they have been surfacing everywhere lately.
RECESSION INDICATORS
According to this WSJ article, there are numerous indicators of a pending recession including:
Stock market sell-offs
An Inverted Yield Curve (short-term rates are higher than long-term rates)
Increasing Corporate Bond Yields
Negative Consumer Sentiment
Negative Business Sentiment
Increasing Initial Jobless Claims
Declining Industrial Production
Declining Aggregate Work Hours
Declining Retail Sales
Economist Surveys
So, is a recession coming? Most likely not – in the near term at least.
Economist surveys came up with only a 22% chance of a recession in the next 12 months. In addition, the article points out that we only need to worry when we see multiple indicators pointing to a recession, as opposed to just one or two. This week, recession fears were allayed by strong retail sales figures and rising oil prices, and the Dow had a record day as a result.
Back to The Beverly Hillbillies. Irrespective of the indicators and expert predictions, the only thing we know for sure is that a recession will come sooner or later.
So, here’s my prediction: we will experience a recession in the next two to seven years b/c my coffee is cold.
WHY RECESSIONS AREN’T SCARY
Lastly, a recession is not particularly scary in any case for many of us in the mortgage and real estate industries for several reasons:
(1) our industries are already in a recession; (2) rates will fall again when a recession hits, creating both refi and buying opportunities; and (3) the overall market remains huge and opportunities abound no matter what is happening in the aggregate.
