New lows, recession woes, and market bottoms. We’ve heard about an inevitable stock market crash or a housing market crash so many times recently, it’s becoming old news.
No matter what industry, everyone is being affected. And while I have no real desire to try and time the market, I really don’t think that prices have even started to drop as much as they will.
So are we headed for a market crash? Well, there’s one crucial factor that’s missing.
Pessimism.
Recent history leading to the recession and bear market
So you already know that people (i.e. news, analysts, and the randos at your train station) have been talking about the US being in a recession and what that may mean. Debates over a “soft landing” have been all over the news too, as well as the idea that we will have a small but long recession.
So analysts are gonna analyze. As for me, there are two important trends that impact my decision-making.
2 Messages About an Upcoming Crash From Late 2022
1 – Every couple of months, the news gets worse.
In July we heard that we were kind of sort of in a recession and that it was just a technicality. In September – a soft landing was out of the question. In November, a recession was guaranteed… but just a little one.
At some point, we will hit a bottom – both in terms of the market and in the news coverage – but for now, it’s still a downward trend. And it’s an important trend.
2 – Everyone is still optimistic.
So far, at every turn, everyone has been as optimistic as possible. There’s been a clear “it won’t be that bad so don’t sell” kind of message, telling us to hold on to everything.
I’m not sure if it’s rose-colored glasses or a nefarious plot by big investing firms to hold on to access to our invested money. (Which, I will point out, is how they get their big bonuses. It’s a percentage of assets under management… not profits!)
So why haven’t had a market crash yet?
As long as people are optimistic about prices and the near future in general – we’re not going to have a crash worth talking about. I’m not talking about little corrections here and there, I’m talking about a big whopper like the crazy era of 2009… after which a lot of normal people like you and me could get rich with a few smart moves.
There are even metrics for how bullish people are on the market, and the bullish sentiment is still strong.
Probably, the most important metric for all market timing attempts is the fear vs greed index. And it’s still strong in the Greed category, and has been for almost a year.
So when you get a whole bunch of wealthy people looking for deals, you know what you get? No deals. If market prices ever go down even a little bit, they just get snapped up right away.
My personal evidence of lack of market crash
Currently, I happen to be one of those people with money waiting for a deal. You know I’m into real estate, and I’ve started throwing lowball offers at houses that have been listed for over 3 months.
I’ve got zero takers.
Zero.
On my own street, I gave an offer that was as high as I could go without going cashflow negative. The selling agent literally laughed at me… then kept the house on the market for another 2 months waiting for a better offer. Now that’s optimism.
The owner is sitting with an empty house hemorrhaging thousands of dollars a month (I have some intel that they’ve spent $26K on just mortgage taxes and HOA fees during the last 6 months) but they have their sights on a certain pre-rate-hike price, and they won’t budge.
Know what’s even more dumbfounding? That’s the cheapest house on the street. The other ones – that are in way worse shape, actually – are listed for at least $100K more.
If sellers are thinking that it’s worth waiting for the prices to catch up to their expectations in my little area, then the optimism is strong everywhere.
There are a lot of things that could still go wrong
Interest rates are still going up. Tech companies have started declaring bankruptcy post interest rate hikes. Mass layoffs from big tech are underway.
Crypto is in panic mode, and traditional retail seems to be going down the toilet too.
Central banks are hoarding gold and even worse some countries are secretly hoarding gold, which is likely a bad sign of someone getting ready for a cataclysmic event.
Plus there’s something fishy between Taiwan and China.
Fiscal policy takes a long time to have consequences in the real world, so who knows what’s going to happen in the near future. All of these factors can trigger some serious pessimism.
So what should you do?
I don’t know if the markets are going to up or down after the recent “little” 20% dip we’ve had. For now, I’m sticking to my standard “everything feels expensive” investing mantra.
Yes, it would be nice to catch a spontaneous 20% upside, but I’m not hopeful that investing right now will be abnormally good.
For me, that means keeping 70% of my investments in stocks. Yes, bonds have been pretty horrible this year, but I’m not intent on changing my plan.
This saves me mental space for more effective uses of my money at a time when no one knows if the markets will be going up or down. For now, I’ll keep investing as per normal because it will work out in the end anyway. It always does.
So what’s different? Right now what I am doing is looking for someone desperate. Mainly, I’ve started lowballing houses to see if there are any takers. (So far, none, but I too can be optimistic.) I’m just doing it casually now, but in the next few months – once the reality of the recent rate hikes sets in – I’m going to put my aggressive hat on.
TL;DR
- We haven’t hit a crash yet because people are too optimistic for us to have hit full crash territory.
- For now, just keep plugging along as per normal, and get your recession-investing self in order.
