If the Book of Revelation in the Bible (about the coming of end times) were written by a mortgage guy, there would be entire chapters devoted to the impact on interest rates (which is why I am pretty sure nobody asked a mortgage guy to write that book).
“…There was a great earthquake. The sun turned black like sackcloth made of goat hair, the whole moon turned blood red, and the stars in the sky fell to earth…and interest rates fell sharply as a result…” See? It just doesn’t sound right.
Anyway – readers of this blog should understand this axiom by now: Apocalypses usually mean lower rates.
More Crash Predictions than Ever
I share all this because social media has more financial apocalypse predictions than I have ever seen.
This morning, I woke up to comments on X about bank runs and failing banks, trade wars, sovereign debt crises, Europe’s economic collapse, China’s enormous problems, the total lack of hiring, crashing oil prices due to a lack of demand, record high commercial real estate vacancies, the AI bubble, the gold and silver bubble, the housing bubble, and of course, the stock market bubble.
Ed Dowd, Peter Schiff, Nick Gerli, and Darth Powell are examples of people predicting crashes. Dowd makes the strongest case, focusing heavily on the lack of fundamentals in the stock market and “the AI bubble,” making a case that there is no way the massive amount of investment in AI can ever generate returns high enough to justify the expenditures.
Rosy Predictions Too
There are also plenty of rosy predictions, too, like this one from Charles Payne. Payne makes the case that stock values are justified by our America First agenda and the resulting massive amount of investment in artificial intelligence, computer chips, robots, quantum computing, rare earths, drones, rockets, advanced military, and re-shoring.
Despite the rosy predictions, I think the case that Mr. Dowd makes is much stronger.
So, the question is, what is taking so long for this long-awaited correction or crash to occur?
And the answer is that it always takes much longer than everyone thinks.
Former Fed Chair Alan Greenspan made his famous “Irrational Exuberance” comment about excessively high stock values in 1996 – over four years before the stock market actually crashed (after prices increased more than Greenspan could have ever imagined).
Michael Burry (from “The Big Short” fame) started to bet against the housing market in 2005, along with several other prominent investors – three years before housing actually crashed.
More recently, Warren Buffett has famously been on the sidelines for a few years now, missing out on massive stock gains.
One of the reasons it takes longer for crashes to occur, after the accurate predictions start, is because governments have figured out how to artificially prop up economies and equity markets with stimulus and more importantly, liquidity infusions via lower rates, the encouragement of more bank lending, government spending, and even specific types of government borrowing.
Unfortunately, though, those types of policies just seem to make the inevitable corrections that much worse.
Takeaways:
- Be like Warren Buffett and the Portuguese Biscuit Maker – and ignore social media. Warren Buffett famously ignores social media, and yet, he somehow seems to do OK. And I often blog about the apocryphal biscuit maker in a small town in Portugal. He just makes and sells as many biscuits as he can every day…no matter what is going on in the larger world; he just doesn’t care.I know many Realtors like that; they do enormous volume in every market – but they could not tell you anything about geopolitics.
What truly amazes me is the number of mortgage companies that have done nothing but wait for rates to fall for three years now – without changing their strategies. Many have lost money every year since 2022 – which is just crazy.
- Remember that most corrections are not actually Armageddon; America always bounces back! I have been through many corrections and crashes now in my almost 40-year career, and somehow, I lived through all of them. Even when corrections last longer than we expect, such as post-2008, new opportunities often surface. Short sales, bank-owned properties, mortgage refinancing (for the mortgage folks), flips, and picking up investment properties on the cheap are a few examples. I saw a lot of agents and investors do extremely well after 2008.
- Rates Fall. Interest rates almost always plummet when crises hit, with COVID being an extreme example. And lower rates bring buyers back into the market and create opportunities for all of us.
Anyway – the market could remain hot for another year, or it could crash tomorrow… And we’re just going to keep making as many biscuits as we can.
