On Whether The Recession Will Be Long And Deep Or Not
The most insidious part of the Information Age (decided to dust that old term off) is how quickly bad information gets spread around.
I’ll tell you how humans are: if we hear something 3 times it becomes religiously true.
How do I know this? Well in relation to the recession I’ve heard 12 non-economists tell me that we’re in for “a long, deep recession”. Those exact words.
Illiberal Groupthink is responsible for some of the worlds most powerful terrors and yet we’re never really taught the value of thinking for ourselves the way we’re taught to say, carry ones or located Zimbabwe on a map.
You would think with literally millions of avenues of information available to us nowadays the diversity of information and beliefs would be dizzying. Instead the opposite is true: More is less.
Disbelieving the incessant stream of (often contradictory) hysteria makes you feel like a moron, and if it doesn’t your fellow human’s by nature are designed to do just that:
What? You’re crazy for not being invested in Real Estate right now – 2004-2006
What? You’re invested in real estate? You’re crazy — 2007-2009
Compare:
Between my limited edition beanie baby and PetFood.com stock I plan to retire at 35— 1999-2001
Well now with 9/11 and terrorism the economy will be in the shitter for 5 years -2001-2002
(the economy bounced back by March of 2002)
The problem with our big dumb consensus nowadays is that the spectrum is so flat.
When one year the Group is telling you that you MUST invest in real estate and it will continue to grow in value forever and then they suddenly tell you that your real estate is worthless, you should be skeptical.
Let me declare that there is no science to Supply and Demand— the principle which dictates most of our financial markets.
Rewind a year ago when people on the news said that they weren’t going to be able to visit their families for the holidays because gas prices were so high. Remember?
Let’s call that the Gas Price Demand Hysteria.
(Above: an attempt at humor made by a proud Prius owner)
At $4.50 per gallon gas was very valuable and consumption was at its height.
“It’s gonna get worse… they’re forecasting it will reach $8.00 per gallon by summer”
If you want to identify an idiot, note the common use of the word “they’re”: Saying ‘they’re’ is deferring to the hysterical masses; it’s telling you that everyone else believes this already, you should agree.
In Philosophy books they call this an Ad Populum fallacy or “Appeal To The Gallery” fallacy— it concludes that a proposition is true because many or all people believe it; it alleges that “If many believe so, it is so.“
Did you know that during this time Toyota Priuses and Smart Cars were being sold for $5,000- $10,000 over their invoice price? Spending that much on something that gets 45MPG is a little laughable now that gas is $1.65 but it was only a minority who noticed this then— even if prices remained the same (an impossibility) they would never see much of an upside on their investment of a car that only gets slightly better mileage than a regular economy car. But the masses at that time said:
If you have the money, buy a Hybrid!
Now Gas is 50-60% cheaper, at around $1.65 cents per gallon. This will not cause an increase in demand—people will begin to see gas as a somewhat worthless commodity.
All of the hysteria-induced automobiles— the SmartCar clones— will be arriving at dealerships in your area in a year or so for way too much money and now that gas is a buck and a half per gallon nobody will want them. You’ve probably heard the figure of speech that the pendulum always swings too far.
The problem with stupid people is that they always think that everything will always be the way it is right now.
You saw this problem with housing during the housing boom: every jackass with a tie was in the real estate business and everyone with two dimes was buying a house on credit at ridiculous rates. If you ask them why they consented to these “predatory lenders rates” (why the dickheads with ties lent it is self-evident) it’s not because they were fooled— no no no— it’s because they thought the value would increase and they could cash out not based on equity paid in but on a reappraised value before the low interest rate had expired.
Q: Are you telling me that these people thought that housing prices would continue to skyrocket at ridiculous rates and they would make money simply by being at the right place at the right time, in other words make “easy money”?
A: Yes. They were being endlessly greedy and stupid.
Now these same numb nuts are trying to tell us about the economy? I don’t think so. Here’s what will happen in the next few months.
Commodities’ and shiny trinkets left over from the boom (Houses, BMWs, Louis Vuitton, etc) will drop in value sharply. While rich guys have taken a hit they’re still rich guys and all things are relative.
They’ll buy your house that you paid 700k for 250k and your BMW that you paid 50k for 15k—- and then when you get back on your feet, and start earning an income again and missing your stuff— they’ll sell you the house for 500k and the BMW for 30k.
They’ll make 265k and you’ll be in the hole 1.25m.
Guess who you’ll be there to lend you the money at 10% APR? Ha Ha.
Remember a “Recession” and a “Boom” are only a 3-4% difference in Gross Domestic Product.
You’ve seen the movies where the rich guy says “It’s simple, you buy low and sell high”, and you’re like “Well Duh”.
Where do you think that 3-4% shift comes from? Someone is taking advantage of an undervalued product or commodity and selling it for a higher price at a later date. Except unlike your plan with your house and ARM mortgage—- they’re right.
Essentially: Subscribing to Groupthink— subscribing to the beliefs of the masses— is a bad strategy and an especially bad investment strategy, in good economies and in bad.
Economics in many ways is a sum-zero game.
In order for some to be rich the majority must be poor.
Don’t listen to the majority when it comes to financial advice.
Thank you please.
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Tagged with deep recession, greedy, groupthink, hysteria, idiots, long recession
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very well written and so true. I’ve thought most of this myself and it applies to several different topics other than economics. Groupthink is a real pain in the ass. you hit the nail on the head.
Thank you sir. Just today I’m reading the USA Today and every financial expert says that we’ll see the markets bounce back this year due to underweight stocks and commodities. Duh.
Galileo had a good theory.
Quite honestly, greed and selfishness is what causes the infighting that destroys empires… a recession is more accurately forecasted by the insidiously selfish consumerist filth that is idolized in our society.
will someone please fill my hemp bag with whale fur?
yeah, it didn’t make sense to me either, but it sounded stimulating.
good article, reminded me of adbusters.