Saturday, August 26, 2017

The Crash is Coming


Will the market go down?  Well, it has to, eventually, which could really be the deciding factor in whether Trump is re-elected in 2020.

We are starting to see signs that the exuberant market of the last few years may be starting to turn.  The housing market is down, as housing prices are too high and nobody can afford to buy.  Builders are obsessed with building million-dollar homes, but nobody can afford them.  Meanwhile young people starting out find that there are no affordable starter homes available in their price range.  The two bedroom, one,bath home of my generation seems to have disappeared from the landscape.

Meanwhile, the car industry is in rapid decline. While SUV sales continue to hold on, the sale of automobiles, that is to say cars or sedans, are in the toilet.  It's a good time to buy a lightly-used off-lease four door sedan, as nobody seems to want them these days . But even sales of pickup trucks and SUVs - once you money makers for the Big 3 in Detroit are starting to fall - with huge incentives being used to keep them moving out the door.
Compounding this is the plethora of tech companies which have yet to make dollar one.  I was recently reading stories about Uber, which everybody assumes is a big money-making tech company - selling rides to people via cell phone app.  People assume that since the service is so popular that it must be a big moneymaker and must be worth a lot of money.  However, Uber is hemorrhaging cash, and whether investors will bite on an IPO remains to be seen, once they realize how much Uber is paying each driver and passenger to use their service.

Uber is just emblematic of a number of do-com companies or websites which have become wildly popular in the financial press, but have yet to make any money.  Eventually there has to be a comeuppance.  A company has to turn a profit or go out of business.  People will not continually lend money to a company indefinitely with no signs of return.

Each one of these aspects of the market would not be enough to predict a recession.  However, when housing, automobiles, and tech stocks are all in decline at once, it seems like a perfect storm to me. Throw in an inarticulate and possibly crazy president who keeps making weird and random threats, and I think we are headed for a downturn at least for a few years.

The trigger for this recession just might be the $1000 smart phones that both Samsung and Apple are offering this year.   They may find out that financially stressed consumers may take a pass on a smart phone that cost more than two laptops or three PCs.   When that happens - like the Windows 95 debacle - it may trigger a re-evaluation of the market that could have a domino effect.

And in today's paper, apparently a lot of people are taking money out of stocks - the most since 2004.   Interesting times ahead!