There’s been a lot of interest (and plenty of concern) lately about when the next major recession will hit the U.S. economy. I’m interested, too. After all, you can’t be financially successful in this country without giving some thought to where the markets might be headed in the future and using some educated guesses to make smart decisions on where and when to invest.
I don’t have a crystal ball—no one does. But I do know a thing or two about finance, and I have my own prediction about when the economy will take a major downturn. This prediction is based on a few different factors.
First, there are two things that need to occur for a full recession or depression to occur. Typically, the equity market and real estate market do not simultaneously collapse on top of one another. This is a very rare occurrence, of course, but it does happen; just as it did in 2007, ’08, and ’09. What ends up happening is the equity market collapses and people flee from the market and invest in real estate.
Think about it this way: Real estate prices are going up, up, up, but people are also investing in the stock market. If the stock market crashes or has a major correction, people take their money out and say, “I’m never going to let that happen again.” So, where do they put it? They put their money in real estate—because it’s a solid asset that’s tangible. Well, this wave of investment has an effect on real estate. It drives prices over a tipping point that then causes the entire economy to go down.
There’s another factor, as well: The market operates in four seasons, just like the weather. There are four parts to the cycle. Just like any given year, winter or spring may last longer than we expect, sometimes a market “season” will last longer than expected, too. Consequently, it’s an art, not a science predicting when a recession is going to occur—kind of like predicting the weather!
Traditionally, the No. 1 indicator that’s been accepted as a predictor of a recession is called an inverted yield curve, which is what happens when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds. I’ve got some bad news: The Yield Curve inversion occurred in November, and usually a recession happens 18 months after that. The good news is, the yield curve may be obsolete as a predictor. We’re in totally new territory today.
That’s because monetary supply, interest-rate manipulation, and quantitative easing in first-world countries is on a different level than when the yield curve was being relied upon. It’s also because there was never a Donald Trump who was President. All of those things are now going on in the United States. It makes for a very interesting time to predict when a recession will occur. Job growth in this country is very healthy, GDP is 2.5–3 percent, and the Fed is dropping interest rates to lower the value of the dollar and create more exports. This ride could continue for years.
So, here’s my prediction: The recession will occur somewhere between 2024–2026. One uncertain economic factor here is that U.S. debt is unbelievably high; higher than it’s ever been. Donald Trump is spending like nobody’s business—more than any President has. However, debt relative to the GDP is lower than it has been with other Presidents.
Trump is a businessman who became a President. What’s unique about him is that, whether he understands all the dials and levers that he pretends to understand or people think he understands, the important thing to consider is that he’ll do whatever he can to ensure the economy stays strong because he’s a businessman. I definitely don’t see that changing through 2020, and I predict he’ll win the next election. Not because of any political preference I may have, but because I believe the election will be all about the economy.
Should he win again in 2021, he’ll continue to keep the market going exactly as he is now. Then in 2024, I believe he’ll be replaced by a Democratic president who will inherit a trillion-dollar deficit. The uncertainty surrounding this change and all the sociopolitical and geopolitical issues that the new President will inherit will trigger a major correction or recession.
This assumes we don’t go to war in the meantime, which could stave off the recession, and it assumes that a country like China or Germany does not suffer a collapse of its own, which could hasten it. It also assumes Trump wins the next election. If he doesn’t, a wave of market uncertainty could arrive much sooner.
My advice? Watch the stock market. In the absence of a major, extended stock-market correction, real estate prices will not be driven over a tipping point. Prices may increase, but they will naturally balance. But once the rush from stock to real estate begins, all bets are off.