Is the world coming to an end? Not quite...but yes.
History, it is said, never repeats itself, it just rhymes (or echoes). And you know you are in for a bumpy ride when people say, "well, this time, it's different!" And sure, 1929 was a unique year, but then again, so is 2025.
"But the stock market is at all-time highs! Everyone is making money!" Well, if by "everyone" you mean people who live off investments, perhaps you are right. But then again, due to inflation over time, stock indicies (along with any other major statistic) are always at or near an "all-time high!" In fact, when something goes lower, that is newsworthy. Going up is the norm. Humans are always expanding, interrupted only by brief reversals - brief from an historical perspective, unending for those who have to live through them.
I noted before that we lived through two real estate market crashes. The first was in 1989, when we bought our first house together. Prices crashed and then remained flat for a decade. We were still buying foreclosure properties as late as 1999! The second was in 2008. We had sold most of our investment properties by then - and bought two personal residences instead! Again, a decade or so later, prices are finally again on the rise - and then some!
Back in the 2000's. we would attend cocktail parties in Ft. Lauderdale - with other real estate investors, agents, mortgage brokers, house flippers, developers, appraisers, and everyone else in "the business." All were too enmeshed in the system to bail out, so the talk was whether we would have a "soft landing" or not. "The government will have to bail everyone out!" one real estate agent told me, "Otherwise everyone will go bankrupt!"
And some were bailed out, some were not - it was not a fair or orderly process. Like student loan forgiveness, it was an unevenly applied program, helping a lucky few (some of whom actually needed no help) and failing the vast majority. It also set expectations for a future collapse, as government bailouts have become a part of the landscape.
Fast-forward nearly 20 years and once again I am having the same conversation with someone in the real estate field. He acknowledges how things got out of hand in the 2000's and how risky oddball loans kept the party going longer than it should have. But, he argues, "This time it's different!"
I asked him how anyone can afford to spend three-quarters of a million dollars on an ordinary 3-bedroom ranch-style home that, only a few years' prior, was selling for less than a half-mil. What made it increase 50% in value so quickly? He replied that what was driving prices was the banks, who were willing to use unusual financial instruments to put people into overpriced homes.
This time, it's different! Indeed.
Back in the 2000's, it was "payment optional" variable-rate balloon notes, all written on the premise that some greater sucker will pay an obscenely larger amount for the same home in a few short years. Today, similar mortgages are being written, this time on the premise of the potential income a property might produce as an Air-BnB rental - even if it was not intended to be rented out.
Of course, potential income is just that - potential. A fantasy. If everyone puts their home on AirBnB, well, the market becomes flooded and prices will tank. What's more, many jurisdictions are reining-in where houses can be rented on a nightly basis. Moreover, many consumers are tiring of having to pay cleaning fees or do chores or be socked with penalties and hidden charges from AirBnB rentals. Hotels might be due for a comeback. It goes without saying that during a recession, the first thing people cut from their budget is vacation spending.
In the job market, there are already signs of trouble on the horizon, with many "tech" companies announcing massive layoffs and trimming their sails for an anticipated storm. What do they know that we don't? The auto business is in flux, as the number of days of inventory edges above 80, the highest level in five years. Worse yet, so many companies have invested billions in developing electric cars, while sales have yet to take off - and may never do so. Some of these high-priced electric SUVs, with price tags well over a hundred grand, have an inventory supply of over a year, some close to two years! Kinda hard to sell a 2023 electric SUV for $100K in 2025 as a "new" car.
On the other hand, historically, auto inventory is low, compared to decades past. But I think that is a result of the long-term trend of "just in time" inventory control. Back in the day, we had acres of new cars kept in inventory. Today, they get shipped out to dealers and sold as quickly as possible. No more waiting months to get a car that you "order" from the factory. So maybe the car business is doing OK. Tell that to Stellantis and Nissan though!
Housing "days on market" so far seems to be declining in recent years - again, a reflection of a hot housing market, or an overheated one. Agents we talk to tell us of a tight inventory as so many homeowners are reluctant to sell, thinking that today's hot prices can only go up even more. We saw the same thing in 1989 and 2008. If I sell now, I might get priced out of the market - forever!
So, economic indicators can be misleading. It is like an airplane crash - right before it flies into the side of a mountain, the airplane's engines are at full power and everything is running fine. It just is going in the wrong direction. I suspect a similar thing could happen to us - and rather quickly.
In the 2008 crash, the effects were felt virtually overnight, as a few traders discovered that the mortgage-backed securities, which were the foundation of America's bull market, were worth far less than they were selling for. Not worthless but worth less. Overnight, they plummeted in value, taking down the entire economy and bankrupting GM and Chrysler in the process. Yet things were going so well.
Maybe it won't happen. But when someone says, "This time it's different!" I can only assume it's not.
kak·i·sto·cra·cy/kakəˈstäkrəsē/noun
This is a word you may hear more of in the coming months....
Compounding this are the jackass actions of the new administration, which, after only a week in office, have caused prices to jump. Eggs, once a dollar-a-dozen are over fifty cents each. Orange juice, $12 a gallon. Trump's "concept of a plan" to bring down prices was a poorly written word salad (or AI-generated) Executive Order Memo vaguely instructing government officials to somehow bring down prices by, you know, doing stuff. Meanwhile, the fear of deportations is causing what few farm workers lare eft, to either flee or not show up for work.
And this will only get worse. Mass layoffs, mass deportations. I guess a former coder for Meta can get a good-paying job as a field hand. So, it all works out and the circle of life is unbroken.
Layoffs mean people can no longer afford their homes - or overpriced rentals in big cities. I can see tenants simply abandoning rentals even with a year left on the lease. Foreclosures on overpriced homes will follow. And that guy who paid over-sticker during CoVid for a pickup truck on a 7-year loan? It will get ugly.
Temper-tantrum tariffs will add gasoline to the fire, as much of the food we actually eat comes from overseas. Sure, America is efficient in growing corn and wheat, but we fall down when it comes to produce - which has to be picked by illegal labor (now deported) or slapped with tariffs if imported. Meat? Meatpacking plants are staffed by illegal labor - and will struggle to stay in operation. There will be mush waste and prices will skyrocket.
And those Midwest farmers growing corn and wheat? We export most of it - or did. Retaliatory tariffs will shut down that market pronto - although I suppose China will make an exception for American farms owned by the Chinese. Checkmate, Trump!
Will it get that bad? You betcha. And there ain't much you can do about it, either. If you have little or no debt and some money put aside, you'll do better than most - although you can expect to see your investments cut in half, if by nothing else, stagflation. Yea, I lived through this in the 1970s and it sucked, but we got by - mostly be lowering our expectations in life. Consider the ridiculously small and flimsy cars we drove back then, just to save a gallon or two of gas. People today have no idea.
For others, it will be like 2008 only worse. They can walk away from a lot of debt in bankruptcy, but not all of it. And those are the people who will cry the loudest for a "bailout" from the government. And yea, they all voted for Trump and will believe him when he says it is all Nancy Pelosi's fault. Some people never learn. In the depths of the depression, there were some pining for Herbert Hoover, again.
Of course, I could be wrong, but I doubt it. History has shown, time and time again, that economies follow a pattern of up and down cycles. Moreover, history has shown - in 1829 and in 1930 - that tariffs just make everyone miserable and destroy an economy, not save it.
But hey, that was 100 and 200 years ago. Time for another painful history lesson, kids!
