Great News: There’s Another Recession Coming

A Note from the Future: This article was first published in June 2017, and at the time of course we had no idea when the next recession would be. Some doomsday types thought it was imminent, and others thought the boom was just getting started. In retrospect, the correct answer turned out to be “33 months”, as the Covid Crash of March 2020 caused the fastest and deepest recession in history … which also turned out to be one of the shortest lived. At the time, many worried experts predicted years of high unemployment and economic carnage. And again they were wrong.

The lesson? Predictions and pundits are useless. The only advice that works is to understand that this is all an unpredictable, repeating cycle. So you should prepare accordingly as described below. And with that, we will climb back into our time machine and pop back to 2017.

If you’ve been keeping an eye on the US economy in recent years, you might notice that things are looking pretty darned rosy. Unemployment is at its lowest level in 40 years, wages are rising, and house prices have not only recovered from their fiery crash of 2009 – they have had several years of record breaking prices in most regions, just like the stock market.

A current snapshot of how expensive the stock market is – not in sticker price, but in the more instructive price-to-earnings (P/E10) ratio. In all of US history, it has only exceeded this expensiveness once – for the late-1990s bubble. Not something that should make you sell your index funds, but probably a clue about an upcoming bubble-based recession. Image source is the very useful site multpl.com www.multpl.com/shiller-pe/

In short, today’s situation is very similar to what Mr. Money Mustache, despite no magical forecasting skill, forecast back in 2013, in an article called “How to Prosper in an Economic Boom“. In that post, I suggested that we were in for some very good years, which made it a good time for getting ahead – make hay while the sun shines!

It’s a lot easier to fix your problems right now, with a stiff economic tailwind at your back, than it will be in just a couple of short years (or less?) when the high seas and lighting bolts and whirlpools are ripping at your pockets. Fair weather preparations include:

  • Rake in your big paycheck while it lasts and don’t blow it on temporary luxuries
  • Keep your living footprint efficient – in expensive cities this is a great time to rent, and not a great time to spring for the sprawling home of your dreams on a big mortgage.
  • Eliminate any last shreds of consumer and student loan debt
  • With the stock market at higher price-to-earnings ratio than usual, there is less harm in paying off your mortgage earlier, keeping six months of living expenses in cash or money market funds, and other non-stock investments like rental properties in low-cost cities (where reliable rent is over 1% of total property price per month).
  • Design your career and your self-employment side gigs so that they are resilient: multiple streams of income from different sources, and an easy answer for “What would I do if my job or industry ceased to exist?”

Of course, becoming less dependent on a steady job is always a good thing – it just happens to be much easier to build that independence if you’re surfing atop a giant economic wave like this one.

So, Here We Go:

With all those preparations in progress, I hope you’re ready, because there’s a recession on the way.

I can say this with confidence because there’s always a recession coming – we just never know exactly when. About the only thing I can guarantee is that we are about four years closer to the next recession than we were when I wrote that optimistic earlier article.

But it is very important to remind yourself of this, because when we get to this rosy point of the business cycle, things have been so good for so long that we  forget that crashes are even possible. If you’re a sagely 27 years old right now, you may have never experienced a recession in your adult life – all you have ever seen is the good times. You’re in for an interesting surprise.

However, on top of that folksy “It always happens” wisdom, there are a few other clues that suggest the time is approaching:

Household debt levels have risen back to their pre-crash peak, and with an even worse composition: more student loans, and a record level of auto loans, the most ridiculous and self-destructive piece of personal finance outside of mortgaging your shins to a loan shark to afford tonight’s cocaine.

Image from the very good Zero Hedge article linked above.

Consumer debt shouldn’t really exist at all – it’s simply a house of cards that allows impatient people to pull their consumption from the future, just a teeeeny bit forward into the present, in exchange for spectacularly bad costs, stress, and wrecking of lives. But because it exists and is profitable, a huge ($1.3 trillion in 2015) financial industry has sprung up to originate, multiply, and churn this debt.

Just like 2007, the financial industry is on top of the world again, with lots of easy money flying around into things like “subprime auto loans”. The Great Recession of that era was caused when the wild packaging and reselling of mortgage debt combined with a false sense of confidence that the party would go on forever.

The final piece of evidence comes from just how long the present party has gone on. If you look at the history of economic expansions – how long we have gone since the last recession – we are currently enjoying the third longest one in history:

When we put all Good Times since WW2 into a graph, you can see just how exceptionally long we have been riding high.

So we’ve had a good run. If we go on to tie the Clinton-era record, that still gives us a maximum of two years until the trouble hits. And if you happen to think that economic success correlates with the level of brainpower currently in the White House, then, hmm.. you can make some adjustments based on that as well.

“OK, But What Actually Causes Recessions? And What will Cause the Next One?”

In succinct terms, recessions are caused when a bunch of people lose confidence all at once.

Usually it starts with a mini-crisis: the prices of stocks and houses have been going up for so long that people forget the opposite can happen. A bunch of testosterone-fueled betting and speculation (often by overconfident and under-regulated junior hotshots on Wall Street) ensues. And in general, speculation is a dumb thing.

If you have ever heard of someone buying something, not because they actually want it or because it produces income, but just because they think it will be worth even more in the future, that’s speculation. When people buy apartments in Toronto and leave them vacant (or rent them out at a loss) in hopes of later selling them to an even Greater Fool, that’s speculation. Speculation leads to bubbles, and bubbles always pop, because there was no rational reason for the prices to get that high in the first place. They also happen frequently in the stock market.

When prices hit some random limit or wobble a bit, the bubble often pops. It happens as a fairly predictable cascade of events,  usually something like this:

  • Everyone gets scared and rushes out to sell before the price drops even further. Which makes the price drop even further, and with breakneck speed.
  • Suddenly, over-leveraged novices can’t repay their oversized loans, whether those are mortgages or margin loans, so they start missing payments.
  • Banks get scared of losing all that money, so they tighten up lending
  • Which causes businesses to scale back hiring and expansion
  • leading to layoffs
  • which cuts down on consumer spending
  • which cuts down business profits again
  • leading to even more layoffs and even lower prices for stocks, houses, and other assets
  • and so it goes on, with the problem feeding upon itself

Eventually, the prices of these valuable assets gets low enough that people with actual money like you and me perk up and start scooping them up at a discount. A pristine apartment building here, some shares of a few thousand established, profitable companies there via an index fund over there. This puts a floor under the dropping prices.

Meanwhile, the Federal Reserve Bank also steps in, lowering interest rates and flooding the system with cheap money to encourage people to start buying houses again and businesses to start expanding to soak up the pool of unemployed people. Everyone gets back to work, and the recession ends. Usually very quickly – most recessions last less than one year.

So, as long as you aren’t a Consumer Sucka, commuting to work in a bank-financed gas-powered racing sofa and/or borrowing money for furniture and appliances to outfit that last spare room in your suburban mansion, recessions are a great thing. Housing and profitable investments become cheaper, insanity and speculation is reset, and people actually start living more frugally again, getting back to the roots of what living a good life really means.

Most people who are wealthy today, achieved it by building and acquiring profitable investments in the past, when they were on sale.  A recession is just a big sale – on almost everything.

“So, Should I Be Worried?”

No, of course not! This is just money we’re talking about, and you should never be worried about money.

One of the joys of Mustachianism is that it makes you immune to the business cycle. You immediately stop living beyond your means, so you have stepped back from the cliff. Then you start to build a resilient mesh of skills, health, money, friendships, and peaceful personal badassity which further protect you from trouble.

After all:  who cares about the price of gasoline, or affording cholesterol pills, or how to make the next truck payment, when you’re a wiry and muscular Mustachian, riding your swift and sensible bike a few miles to work and banking almost all of your enormous paycheck every two weeks?

Then as you live this joyful existence for however many years it takes, the final stage of complete financial independence arrives automatically, and you are absolutely invincible.

Whether it comes in two weeks or four years, I hope all of us are prepared for next hill on this roller coaster – it’s a lot more fun when you know it’s coming.


In the comments: do you care for a wager on when the next “crisis” will hit and we’ll fall into recession again? What will be the thing that gets us this time?

  • PoF June 20, 2017, 8:04 pm

    Bring it on! As an aspiring early retiree with a one to two year timeline, I’d prefer to see the dip happen while I still have lots of dry powder deposited into my bank account every two weeks. It would be kind of a bummer to see stocks go on sale shortly after I lose the ability to buy more of ’em.


    p.s. Drink any good beers lately? :)

    • Pat the Shuffler June 20, 2017, 8:09 pm

      I was thinking along the same lines. If thinking completely rationally, then while I am still earning and have a huge Influx of cash coming in, the stock market being hugely undervalued is the best thing for me right now.

    • Garrett June 20, 2017, 8:56 pm

      Your timeline for retiring is 1 to 2 years. Why not defer your retirement for a few extra years in order to have extra cash banked up BEYOND retirement money, so that you can scoop up plenty of on-sale stocks? Wouldn’t that be a lot more Mustachian than wishing for stocks to go on sale BEFORE you’re at your FIRE number?

      • PoF June 20, 2017, 9:09 pm

        Good thought Garrett. In fact, I’ve already done that.

        When I discovered this site in late 2014 and learned about FI, I realized I pretty much had achieved it. You could say I’m on my third or fourth “one more year.”

        • Scott from Detroit June 21, 2017, 8:38 am

          That’s awesome, I love the concept of being in the “one more year” phase. I’m not there yet, but I hope to be there by the time I’m 40 (I just turn 34). To me, “one more year” means that I don’t really need to work, but aw heck, I’ll just hang around for another year and stash some cash away. I work in technology and my skills will quickly become irrelevant if I’m not constantly employed. There will be a day when I say “NO MORE”, retire, and start to willingly forget all the knowledge I’ve gained throughout my career, and ride off into the sunset on a kayak.

          PoF, I wish you the best of luck, friend!

      • TomTX June 21, 2017, 8:27 pm

        Because you are trading a year (or two or three or four) of healthy life doing work for money you don’t actually need.

        • PoF June 21, 2017, 9:14 pm

          They’ve been good years. The ultimate goal is to find the proper balance between retiring too soon and retiring too late. If the likelihood of regret is roughly equal, I’ve succeeded.

          I’d rather overshoot by a year or two and have some left over for charity or the next generation than undershoot by a year or two and be holding a highlighter at the Costco exit. Not that there’s anything wrong with that.


          • Ms. Frugal Asian Finance June 29, 2017, 6:03 am

            I don’t see myself retiring any time soon since I’ve been working at my first FT job for only two years. But I would love the option of being able to do something for my passion instead of worrying about the bills.

            I hope there won’t be a recession, but if there is and if Mr. FAF and I still have our jobs, we will take advantage of the low housing prices to buy a rental property.

          • economicminor July 17, 2017, 9:56 am

            I am mostly retired.. so I have a little perspective on it.. I have also helped my parents, my wife’s parents, my grandmother and another older couple thru their years of retirement to the end.. Not that I have seen it all but my advice is to not just retire but to phase out working for others if you can. Find something you love to do whether it is wood working or photography or travel or surfing but phase into something else.. either that or when you retire you won’t be happy and contented. I like to garden and do projects and I love to travel. If you don’t have the income outside of working for others to do what you like to do, you aren’t ready to retire.

            After all what is better than being content and happy.

        • ThatGuy2016 August 14, 2017, 4:22 am

          Possibly true, for sure. If the job sucks, and you’re comfortable you’ve made enough, I’d personally do what you’re suggesting — get out.

          But maybe the job is all right. Maybe that extra year (or two or three or four) of salary opens up a bunch of new opportunities that wouldn’t have existed otherwise. Maybe that makes the (20? 40?) years of retirement much more productive and enjoyable.

          Obviously I’m not PoF, just speculating, but I could see the latter case being true.

      • EricP June 28, 2017, 8:22 am

        That’s market timing in disguise. You shouldn’t have any cash sitting on the sidelines unless you’re about to make a large purchase. The Mustachian thing is to invest that money as soon as it becomes available as that is what is statistically proven to be the best thing to do with your money.

      • Alex Puthoff July 6, 2017, 2:02 pm

        I would say that the Mustachian thing to do would be to simply continue to contribute whatever you can consistently to your retirement and investment accounts, just as you have always done. That way, you:

        1)Don’t stress out trying to keep up with the market and make sure you “scoop up” at the right time.
        2)Continue to ensure your 7% return on investment by dollar-cost averaging instead of trying to time the market.

        If you’ve done it right, there should be no need to really worry about the market because you’ve invested over the long term.

        Keep on growing that money mustache!

    • Garrett June 20, 2017, 8:58 pm

      Plus what if things go on sale now, AND the dry powder dries up at the same time, leaving you without your $ amount for retirement, as well as no excess to put towards stock sales?

      • PoF June 20, 2017, 9:11 pm

        My job is very secure, so I’m not worried about dry powder running out as long as I keep a job — the biweekly replenishing powder pile will be a bit smaller starting this fall as I transition to part-time, though.

        Frankly, I am comfortable with whatever scenario plays out, but a recession and recovery within the next two years would be ideal.


    • FinanceLiberation June 21, 2017, 5:33 pm

      I agree, bring it on! We have a stash ready to go to get some bargains.

      • The Wealthy Healthy July 6, 2017, 10:18 pm

        Isn’t there a decent amount of literature/opinions urging against buying the dip? If I remember right, “The Intelligent Investor” even suggests against trying to time “buy low, sell high.” Thoughts?

        • mikeinmadrid July 9, 2017, 4:05 am

          If you mean Ben Graham’s book, he advises a 50/50 portfolio of high quality stocks and bonds in normal market conditions, and shifting towards 75/25 when stocks are cheap and 25/75 when stocks are particularly expensive. Clearly with current market valuation he would be advising 25% in stocks as the median stock in the S&P500 is more overvalued than at any time is history.

          • Miss Rainbow Mustache July 13, 2017, 10:19 am

            This has nothing to do with the post, but you live in Madrid? Are there more of us in Spain?? I live in Santander!

          • Isaac July 15, 2017, 1:04 pm

            Sadly these days stock and bond prices are highly correlated so you don’t get as much benefit from diversification as in Graham’s day

            • lurker July 22, 2017, 9:15 am

              then you need to look for uncorrelated assets to allocate into….right?

          • Sebastien on Quebec October 24, 2017, 12:59 pm

            Does MMM or someone else can suggest a fund that is about 75% bond and 25% stocks? Seem that the VBINX is a balanced one. Does MMM have a better suggest? It will also be appreciated if MMM could say what is his personal strategie in a period like that one…

            • Bob August 12, 2018, 10:49 pm

              I like vanguard Wellington. 2/3 stocks, 1/3 bonds, lg cap value

    • BestPal July 1, 2017, 12:29 am

      Well, let’s say “bring it on!” call is heard and delivered upon. What percentage of investible capital should one keep in money market to be able to meaningfully capitalize on the opportunity?
      I’m an aspiring mustachian well on the way to FI and would love to hear 3M and other members’
      opinion on the actionable steps (provided one believes the article has merit).

  • RetirementManifesto June 20, 2017, 8:06 pm

    I’m in for the wager. There’ll be a 13% drop in the DJIA on July 18th, followed by massive volatility en route to a 48% correction that will bottom on November 20. GO TO CASH! Buy Gold! Sell everything! (Note – no year cited…NOT an oversite).

  • Pat the Shuffler June 20, 2017, 8:07 pm

    You’ve got it good, Australia has actually been recession free for over 26 years, we are currently in a housing bubble comparable only to Toronto’s (before it recently dipped).

    The property speculators have grown to be so sure of themselves that property can never crash it is terrifying.

    When the recession does hit Australia (and as you said it definitely will eventually, because it always does) I fear the result will be simultaneously spectacular and destructive at the same time.

    As you suggest though it is a time to be ready to pick up the pieces at a huge discount because I’ve been living well below my means for a long while now.

    • Sean June 21, 2017, 1:06 pm

      Been waiting for a recession to hit Vancouver. It hasn’t happened since before I was in grade school, and I’m well into my 40’s.
      It won’t happen b/c if the Bank Of Canada raises interest rates above the historical lows they are now at, mass forclosures will follow. I went through my late 20’s and all my 30’s waiting for a housing crash. I’m the bigger fool and am now priced WAY outta my community. Vancouver SUCKS for this.

      • Caron June 21, 2017, 6:37 pm

        Totally agree with your comment about what will happen if the Bank of Canada raises interest rates. Can you imagine what would happen if mortgage rates went to 5 or 6%? That popping noise is the sound of all those housing bubbles bursting.

        I’m old enough to remember the early 80s and 18% interest rates, it was an awesome time to be a saver, sucked if you had a mortgage or other debt.

        • Kyle June 22, 2017, 10:48 pm

          Mortgage rates will tend to follow the overall bond market rather than the BoC overnight rate. In Canada, our markets, including bond market , are overshadowed by a much larger market, therefore, as I understand it, the BoC can keep it’s overnight rate at near 0, sit and watch as our dollar turns into toilet paper as the U.S. Fed raises it’s rate, and our mortgage rates rise regardless.

      • Pat the Shuffler June 22, 2017, 12:09 am

        It definitely sucks when all of the conventional wisdom says you shouldn’t get into overpriced assets, but because it is so important to the national economy the powers that be are doing everything they can to keep them irrationally inflated. It sucks that following the best advice means you miss out. I still believe that a downturn eventually has to come, it is just a matter of when the powers have no more levers to pull.

        For this reason I see buying property merely as a hedge against the real estate market. I will by a property simply so no matter what the property market does, I will have a property to live in.

        • The Gib Jr June 28, 2017, 11:15 am

          Pat, I view property ownership not so much as an investment but as a means to fix your housing costs. Once you have a mortgage, your monthly housing expenses relatively fixed. At least here in the US, property taxes can only move by a certain percentage, and property insurance stays relatively flat.

          I live in Detroit and we have seen rents double in the last seven years, due to the strong job market. I am glad I bought my house and I’m still paying the same amount for housing today as I did five years ago when I purchased it.

        • fajensen July 11, 2017, 1:09 am

          Assets are always overpriced or no one would ever sell :).

          I do pity the people who have to buy property in Stockholm, though. The Stockholm property market is way more “bubbly” than Tokyo was in the 1980’s. With zero wage inflation to carry it.

          On the other hand, so many people, voters, and people of importance are in on this so surely some scam will be devised when the bubble pops.

        • CMAC January 23, 2019, 3:56 am

          Hey Pat, just read your comment from 18 months ago and at Jan 23rd 2019, oh how times have changed here in Australia!

          I’m not sure whether you bit the bullet and plunged into AU property back in 2017 or not. If not, maybe the FIREsale (pun intended..) you’ve been waiting for, is now here.

      • Bliss July 5, 2017, 5:47 pm

        Hi Sean
        Can you live part of the year in Point Roberts, WA? FYI it’s probably 50% off the cost of real estate in BC even with the 1.25X currency difference?

        contact Matt, American (he wouldn’t like to be referred as such though :) 36-yo retiree in Pt Roberts :)

        look up savingsustainably.com

    • Sandy June 21, 2017, 4:22 pm

      And good on you Pat for living below your means. When I lived in Oz in 2000, I was shocked at the average level of credit card debt that most Aussies have. Shocked I tell you. I believe it was in the vicinity of 13 grand way back then. God knows what it is now.
      Overall though, I think Australia has mostly been immune from recession because mineral mining prop up their economy. I hear that its getting hard to find work now, even in that industry, and the insane pay rates and bonus perks have all but dried up.

      • A boy named Sue July 17, 2017, 6:20 pm

        Mining production is still ticking over and there is work for experienced workers. It has been hard to get into the industry for a few years, but things are picking up now. The biggest drop off has been in capital construction projects in both mining and oil and gas. The export gas work has finished and probably won’t pick up again for 20+ years, however there is a shortage of domestic gas for consumption in the South East Corner. Some coal seam gas in NSW has been sterilized for political reasons, and even conventional gas in Victoria has been put “off limits” by that state government. The Victorian decisions in particular contributed to blackouts in South Australia last summer. The South Australian government has responded by putting in a new Lithium Ion battery and the Federal government is increasing the pumped hydro….I’ve drifted off topic a little!

        Anyway, in Australia their is a constant flow of skilled migrants who bring in capital and pump up the GDP. On a per capita basis we’ve had a few recessions, but population growth has hidden it from the headlines of the newspapers so the “animal spirits” can remain strong.

    • Eliza June 21, 2017, 5:58 pm

      I’m really curious about what’s going to happen in Australia as well Pat, given the years of talk about the bubble bursting. Can you imagine what would happen if it actually did? We’ve also been living below our means for a long time, but I fear the consequences could be quite far reaching.

    • Jay July 31, 2017, 1:10 pm

      Australians should be terrified. When I was there 18 months ago I was horrified by what I saw in the housing market. It’s like nobody thinks it’s a bubble. My friends live in a house valued at $1.5 USD. It’s on a busy four lane road. I wouldn’t take that house here in the US if they gave it to me. At one party I attended friends of friends were mocking each other about their failure to subdivide their properties enough and get three lots instead of two. My friend’s daughter just got married and paid $750K for a 1000 square foot house on a flag lot tucked behind a 1940s vintage rambler. The Chinese buy up expensive properties in the nice suburbs and leave them empty. I asked why the Chinese government wasn’t stopping this capital flight only to be told that the investors ARE the Chinese government officials trying to get their money out of China. Worse yet is Australia’s lack of a true social security type pension system. They fell for the whole 401K self-managed BS that enriches banks. The “Superannuation” is a constant topic at cocktail parties, which funds to invest in etc. The whole place reminds me of the 1990s Tech Bubble in America. Any thoughts I had of emigrating there vanished after a two month tour of everywhere from Adelaide to Sydney including Tasmania.

      • CaptainReality August 13, 2017, 2:39 pm

        I’m Australian and left in 2011. The country had a housing bubble then, and it has only become more insane. The government has juiced the whole thing with a very high net overseas migration rate – around 1% of population per annum. That’s 3 – 4x the US rate. That’s done to avoid technical recessions – per capita GDP drops, but gross GDP keeps rising.

        Wages are falling, living standards are falling, and the whole economy is based on either red dirt or the monstrous debt-driven real estate bubble. When it goes, it’s going to be a doozy!

        I shifted every cent I had out of that economic madhouse years ago. They will feed everything to their housing bubble, and when they’ve got nothing left, it will fall over, leaving the wreck of their economy exposed.

    • Richard in Brisbane September 20, 2017, 5:47 pm

      It seems most people agree that Australian property is overpriced (if not a massive bubble). The problem is that there’s no real end in sight, and if you stayed out of the property market when people first started talking about a bubble, you’d have been renting for at least 10 years, and there’s still no real end in sight. As far as I can tell, as long as people can keep paying their mortgages and unemployment stays low and the Australian government keeps propping up the housing market with tax laws/negative gearing, prices are unlikely to drop anytime soon. We delayed buying a place for a while, because I was scared of the bubble, but when people’s specific timeframes for when the bubble would burst continued to not come to fruition and we needed somewhere to live, we just bought anyway. I’m not happy about it, but rentals suck so much, so it’s a tough choice.

  • Tom June 20, 2017, 8:09 pm

    I’m not an economist by any means, but I think the next recession in Canada (and perhaps in the United States) will be created by raising interest rates which will strap the ability of consumers to buy suburban houses and large vehicles. I see variable mortgages here offered for 1.69%! It will be a painful road to recover to more historic norms.

    On the bright side I’m looking forward to purchasing bonds with yields greater than inflation.

    • Juan June 21, 2017, 5:57 am

      +1 for raising interest rates to be a big factor. Along the same line, the Federal Reserve looking to shrink its balance sheet so that might play a role as well. I actually think we are in for some years of sideways / slightly downward movement in the stock market rather than a big flashy crash. Auto loans and student loans are not being packaged and resold the way mortgages were in the 07-08 crisis, are they?

      Maybe something that can make it a fast and furious crash is some big Geo-political event (not far fetched given “the level of brainpower currently in the White House”).

      My guess is as good (bad) as anyone’s :)

      • Greg June 21, 2017, 12:51 pm

        I agree w/ both the above comments. Although consumer debt is back up, on a per capita, inflation adj. basis I think we’d have a ways to go to get back to ’07. More importantly, because rates are so low, it’s still extremely affordable to have debt: https://fred.stlouisfed.org/series/TDSP (as cheap as it’s been in 40 years!). So, everyone will keep levering up, and then get crushed as it slowly gets less and less affordable (but that is prob still a few yrs a way).

        Since it’s a timing bet, I’ll go with July 2020. Scenario: Huge tax cuts w/o corresponding entitlement cuts have put US finances in jeopardy and it is an issue in the election. It looks likely D’s may win and raise taxes. That outlook combined with a more indebted US household and interest rates which have been steadily rising put US consumer in an increasingly fragile spot.

        Match that sparks the fire? Margin debt on securities accounts. Already at all time highs (but very small vs. economy – http://www.marketwatch.com/story/margin-debt-hit-all-time-high-in-february-bullish-indicator-or-warning-2017-03-30). These could plausibly go much higher assuming we still have a few yrs left in bull market. The popular robo-advisors like Wealthfront have started to recommend them (http://www.reuters.com/article/us-wealthfront-loans-idUSKBN17L2AJ). You could see running some margin debt at low rates becoming standard investment advice like indexing, tax-loss harvesting, etc if its offered by these types of companies (“you’re paying a few % to earn double-digits in equities,” “it’s only 30% of the acct value,” etc)

        • Juan June 22, 2017, 8:41 am

          I like the way you think, Greg. I forgot about the timing part. I’ll go with October of this year (2017). The margin debt is indeed dangerous stuff, but I’m going to go with a government shut down due to failure of raising the debt ceiling. I say the gov’t won’t be shut down for long, but long enough to cause enough panic to begin the downward spiral.

          • Chris M September 19, 2017, 8:21 am

            This is more general than a specific reply, please keep in mind that debt levels were drastically increased because of the fraud occurring with NINJA loans and other lending that didnt make a lot of sense. Regulators are still beating banks over the head and it is a lot different environment that prior to the last crash. With low interest rates banks will probably continue to be relatively conservative until a better upside presents itself, thus without the right catalyst there isnt the incentive to be so greedy or stupid.

            I think the biggest factors to fear is the dollar going into a downward spiral, hyperinflation and taxes going up dramatically. (A weaker dollar could have some positives for multi national company’s). From a retirement standpoint, I would put my two cents in and say investing in a Roth and Real Assets maybe a good idea for the future.

      • Holly June 21, 2017, 3:09 pm

        oh man…. google “auto loan securitization” or “student loan securitization” for some spooky bedtime reading. They securitize anything with a regular payment.

        • tom June 21, 2017, 10:18 pm

          So they’re being securitized, but as long as Moody’s and Standard & Poor don’t hire 20-year olds to rubber-stamp the highest-risk loans as AAA investment-grade, and so long as pension funds aren’t buying them, securitization of debt should not present any significant danger to the economy.

          The big problem in ’07 was that the ratings agencies allowed greedy people to pass off high-risk loans as extremely low-risk loans, and sell them to ignorant (and possibly greedy) people with massive piles of other peoples’ money.

          I haven’t come across any reading that suggests auto or student loans are being mis-labeled or bought by bagholders in large volumes. Have you?

          • Jim June 25, 2017, 2:32 pm

            Just curious, was there any real heads up about what the rating agencies were doing in 2007? Weren’t they also, in some cases, knowingly giving junk higher ratings? Why would they behave differently now?

            • Mr. Money Mustache June 26, 2017, 7:01 am

              I read the non-fiction book “Stress Test”, by former Treasury Secretary Timothy Geithner as well as the faster-paced “The Big Short” over the last two years. They helped fill in many of the holes in my understanding about that financial crisis (and crashes in general) that the shorter stuff like Economist articles wasn’t covering.

              So in 2007 – YES, plenty of people knew that the ratings were fictional and some were even ringing the alarm bell. But there were so many other people happy to be making money off of the situation, that collectively we were able to plug our ears and yell “LALALA THIS IS ALL JUST FINE!” and keep shopping.

              This time, the rules are stricter on how crazy financial institutions can go – although the current government is proposing removing exactly those rules, which was the reason for my “brainpower” quip in the article above. But there is still plenty of wiggle room for unsustainable bubbles in our lending and debt system. So you’d still expect panics, but smaller ones, for now.

            • daniel son June 26, 2017, 7:20 am

              True, many people did know that the ratings were fictional. But those ratings weren’t known to be fictional because an expert could look at them and say “this is an incorrect rating”. It was more that nobody including outside experts could un-rap a Mortgage Back Security and understand what they were actually composed of let alone the quality of the “materials” being used to create the security. Derivative instrument smoke and mirrors.

            • Leesa July 20, 2017, 9:38 am

              Have you read The Sale of a Lifetime? It’s by Harry Dent, it’s all about the great bubble burst of 2017-19.

            • Mr. Money Mustache July 21, 2017, 6:23 am

              No, but I just looked it up. I see the guy has an interesting book marketing strategy: make an unrealistically precise prediction, and if you’re wrong just make a new one. Eventually you’ll be right and look like a genius. Here’s the description text from one of his earlier books called “The Great Crash Ahead”:

              “With incisive critical analysis and historical examples, The Great Crash Ahead lays bare the traditional assumptions of economics, outlining why the next financial crash and crisis is inevitable, and just around the corner— coming between mid-2012 and early 2015.”

              The lesson: don’t try to predict the date, the cause, or the extent of the recession. Just know there has always been a cyclical business pattern in the past, and therefore don’t assume a crash will never happen again (which is what you are doing implicitly when you get a mortgage so big that it depends on continued, constant employment to keep making the payments).

            • Chris M September 19, 2017, 8:55 am

              I am very agreeable to your position and perspective.

              I have worked in the financial industry for the last 15 years in Commercial Lending. The environment is better than prior to the crash but it could transition quickly if regulations change and interest rates increase yielding more profitable spread.

              One thing I would like to mention is that currently most banks are not as profitable as they should be given the risk they have on their books (commercial paper not residential mortgages which are not the banks books b/c it is sold off in the secondary market)

              This is inherently risky in itself!!!…..and is a result of the current rate environment. The industry is one big balancing act and many times not a good one.

          • daniel son June 26, 2017, 7:12 am

            Sorry, but that is not what happened. Basically, commercial banks would make loans to anyone which created a surplus of bad mortgages. These mortgages would then be sold to Fannie May and Freddie Mac who would then bundle them in the a Mortgage Back Security (which is a separate derivative instrument) and functioned like a bond with consistent monthly payout amounts. These securities were then sold the world over by the investment banks as sound investment that delivered consistent monthly returns. They were tied in to everything not just pensions. For example public companies that kept their money in overnight high interest accounts were actual transferring funds in to an account that was invested in Mortgage Back Securities, etc. Many US public company literally woke up one morning and found that the investment banks had lost all their money. This was a primary reason as to why the bank actually received the bail out from the government.

      • RichardP June 21, 2017, 3:28 pm

        Yes, auto loans ARE being securitized and resold like mortgages. Specifically, SUBPRIME auto loads are being packaged and resold. The American Institute for Economic Research had an article on this last month. Also, the default rate on subprime auto loans has been rising.

        • Caron June 21, 2017, 6:43 pm

          The Big Short – Part 2, anyone?

          • Juan June 22, 2017, 8:43 am

            Yeah! $$$ making idea. Short the subprime auto loan securities :)

      • luytterlinde June 28, 2017, 6:47 am

        It’s never *exactly* the same crisis, but it is always a crisis. Has anyone else noticed just how many Joe’s and Jane’s at the office/neighbouring patio table are suddenly talking about being ‘invested’ as small time landlords these days (half of whom seem to have gone Air BnB)?

        And am I the only one who’s noticed just how dependent all levels of gov’t (e.g. Canada, Ontario, Toronto) have become on the housing market for their (multiple streams of ) revenues? Income taxes (housing and housing-related being pretty much the single engine of the economy lately); land transfer taxes (multiple gov’t levels); sales taxes (ditto on the single engine); property taxes etc.

        It’s the cumulative knock-on effects when things go ‘pop’ that can make things truly interesting.

        • ralsmom July 12, 2017, 10:33 am

          I was reading an article ( in Canada) they talked with a Realtor from Toronto who stated he see’s the next ” Big Short” coming as he meat a taxi driver that had 7 homes he bought on ” speculation”. Crazy to think the Banks would let someone become that indebted… I cringe at what may happen. Fyi I live in Victoria BC ( The 3rd most expensive place to live in Canada, where 70% of the population works for the gov at some level… aka .. good incomes, not 1.5 million dollar home incomes) .. no fundamentals have can explain the price increase here… just greed … sad…

          • lanforod July 19, 2017, 4:38 pm

            Fellow Victoria owner here.
            Retiree money and transfers from boomers to younger partly explains the price increases in Victoria (and Vancouver).
            Foreign buyers only make a small impact at this point.
            Market is starting to cool here though, finally.

    • LennStar June 21, 2017, 1:08 pm


      The central Banks are rising interest rates o prevent overheating of the economy (more heat = bigger bubbles). Te more they do it, the less steam in the bubble – and plopp! When people start to think it will get hard to rise prices more.

      You could say it is a double-sided self-fulfilling prophecy.

  • Mr. FWP June 20, 2017, 8:11 pm

    Fantastic questions! I’m very curious how everyone responds. Great perspective, too: statistically, we all know it’s coming, we just can’t be as sure when, or how.

    Bet you a nice six-pack that it’s 2018, maybe even after. (Though what qualifies as “it” is the question….say a 20%+ drop in the S&P 500?) And I’m totally guessing. As for causes, I’ll go with an external shock: political troubles or international affairs/wars. But who knows…

    • Jason June 27, 2017, 8:37 am

      I’m guessing that some upsets or fiscal issues around Brexit will tip the US and Canada over into a recession.

      Started working to tighten my belt hardcore around my house a while ago and I’m actually looking forward to a bit of a drop to cool things off and put stocks back into a “GO BUY THOSE INDEX FUNDS NOW” range.

      • New Father Finance July 19, 2017, 9:46 am

        I agree that Brexit could be a large hit. Also, so much of the stock increase after November was around the idea that Republicans will fix taxes. If they fail, which given their track record so far it’s not looking good, we could see a massive correction.

        While I haven’t slowed my 401k investing, I have been prioritizing other goals like saving for a down payment and looking at other investing classes like Fundrise. I’m excited for the inevitable correction to come so I can jump back into the market head-first!

  • anonymousengineer555 June 20, 2017, 8:12 pm

    If we aren’t supposed to time the market, and we’re already saving and investing, isn’t a recession just business as usual?

    • The Wealthy Accountant June 20, 2017, 8:26 pm

      Yes, but it is fun to watch. God, I love when a sale is imminent!

      • mike June 20, 2017, 10:50 pm

        Would that mean you have a lot of money in cash, or something other than stocks?

        What if the market goes up another 10-20% and one is on the sidelines waiting for the recession? If that’s the case, the market has to go down 20-40% before investing to break even and then to make money.

        Just wondering Wealthy Acct, I love reading your blog.

        • MikeM June 21, 2017, 4:02 am

          ‘what if the market goes up another…’ is the reason most people lose in a recession. The ‘not yet’ syndrome. Problem is, it goes up slowly but comes down fast.
          It is only a sale if you have cash to spend.

          • tom June 21, 2017, 1:45 pm

            Actually, the market does not “go up slowly but come down fast”. If you search “tastytrade Karen supertrader” you can find a person who made bajillions of dollars trading really simple S&P options for many years based on the principle that markets don’t “crash” up. However, I looked up historical biggest days, and the results surprised me.

            Which are biggest: one-day %gains or one-day %losses?

            one-year %gains or one-year %losses?

            I think most people will be surprised when they look these things up for themselves. I had believed “conventional wisdom” for a long time until I looked these up myself.

            • GosusGo June 21, 2017, 8:16 pm

              Do you mean Karen Bruton, who was fined big bucks and restricted in her trading activity by the SEC? Karen the Supertrader who was pulled up short for fraud? Not a great reference for how to make bajillions…

        • Janson June 21, 2017, 6:13 am

          Trying to time the market is a fool’s errand. Dollar cost averaging, where you just keep buying no matter what, works remarkably well in back testing, especially compared to timing strategies.

        • The Wealthy Accountant June 21, 2017, 8:09 am

          Thanks for reading my blog, Mike. What I mean is that I always have some unallocated funds laying around and more keeps coming in. It would be nice to see new money get a better entry point, but I don’t wait around.

  • Mustard Seed Money June 20, 2017, 8:12 pm

    Since I am a couple of years away from FIRE. I am all about a recession. Buying cheap stocks on sale with my current 70% savings rate. I’d be perfectly happy and content scooping those cheap S&P 500 shares :) Now my guess on when that happens. I’m going to say 2019-2020 when the next Presidential election comes.

    • ErikH June 20, 2017, 9:14 pm

      I think we all need to remember how devastating the last recession was in America. It destroyed families. Suicide levels went up. Rising unemployment caused death rates to go up. MMM is right that this is the time to start planning for the downturn. It’s fun to think about lining our own pockets when the market crashes, but we also need to remember how tragic and life altering it can be.

      • mrsmopp June 21, 2017, 4:42 am

        Glad someone mentioned this. Yes, people with stupid debt levels might be made to rethink their lifestyles (hopefully), but people will also really get hurt.

        • James June 21, 2017, 12:01 pm

          Exactly. And most of the ones who suffer most will be folks who are unlucky or who were born without the part of the brain that the rest of us use to become wealthy. Folks like my Mom, who was a fabulous person, but who was a financial disaster.

          • mable June 21, 2017, 10:51 pm

            Or like my friend’s adopted son, James. Prenatal alcohol exposure caused enough brain damage that he will never be able to advance beyond fast food work, if he doesn’t land in jail because he so desperately wants to fit in that he’ll do anything smarter kids tell him to—like shoplift for them, again and again.

        • Kerrie June 21, 2017, 12:07 pm

          Stupid debt levels here … house, monstrous van to cart my big family, braces payments, credit card at about $6k, small savings, decent 401(k) … stepping back from the cliff TODAY and teaching the kids the same. Going for a walk while I’m at it … why not get healthier and save money on medical junk? So much gold on this site.

          • Mr. Money Mustache June 21, 2017, 7:28 pm

            Wow, what a great comment and I hope you are serious, Kerrie! It absolutely makes my day.

          • tim June 26, 2017, 12:10 pm

            Good choice!!! Let’s do this Kerrie!!

      • Jwheeland June 21, 2017, 9:07 am

        I think there’s a great argument that rise in FIRE popularity (especially among the 30 to 40 crowd) is because of the experience of living through the “Great Recession.” (approximately 2007-2009). For most of us who were finishing school or just starting our careers, it was a worldview-altering experience. And, I’d say we are better for it now.

        And, I think most of the FIRE bloggers who are now FIRE profited greatly from sticking out or being able to earn and invest money in that stock market downturn. I’m thinking of Jeremy from GoCurry Cracker, Firecracker from Millennial Revolution, MMM, the wise JLCollins from New Hampshire and others.

        • Mrs. Adventure Rich June 21, 2017, 12:15 pm

          Agree with you, Jwheeland. Horrible situations can breed the best results… it can be the needed wake-up call to remind us that we need to change our habits and test the norm. FIRE popularity is a great example of this!

        • Venturing July 20, 2017, 6:33 pm

          That is certainly true in my case. I graduated from university in November 2008, probably one of the most unfortunate times in recent history to be entering the workforce. Thankfully I had done well in a degree that still had good demand but many of my friends with more generic grades or degrees weren’t so lucky. I learnt right there that you can’t ever count on being employed. Make hay while the sun shines but you can’t depend on it continuing.

      • Scott from Detroit June 21, 2017, 9:21 am

        It is sad to think how some people will be affected. However, it’s a lot like seeing people swimming out into an angry ocean with no life vest. These people believe they’re fine and they can make it back. It’s not up to us to go out and tell grown adults to be more careful, the undertow is strong, and to put on a life vest. All we can do is watch safely from shore and hope for the best.

        The same applies to finances. I’ve tried warning my friends making 100K+ that are living from paycheck to paycheck that they need to change, but the do not listen. Some people do not want to take steps to avoid disaster. They want to consume. Most of these people are out of our reach. The best we can do is look for people that might be ready for the change and show them the MMM light.

      • SteveB June 21, 2017, 3:54 pm

        ErikH – Kudos to you for bringing this up. As a young professional living in Chicago, working in downtown, and living on the west side, I see all different forms of people making bad decisions with their money. I try to take it upon myself to educate as many of my peers as I can about the dangers of debt, and NOT viewing your paycheck as a license to attain more and more debt and worthless items. In the end, a more educated group of people will help reduce hurt during recessions.

    • JessDarb June 21, 2017, 2:12 pm

      I’m so glad you made this comment. I was scrolling through hoping someone would bring up how disastrous and hurtful another recession will be for some people, especially if they haven’t recovered from the last one. I’m thinking in particular of those who graduated in 2007-2009 and had to run to catch up with their careers.

      • MrTater June 25, 2017, 4:50 pm

        Yep. Same here. I graduated in 2009, couldn’t find a steady job, and went to grad school (read, racked up absurd student loan debt). I’m still paying that down at a clip of about 20k a year after refinancing to lower rates and making double payments, with about 2 years left to go before reaching paydirt.

        While I am personally doing everything within my power to limit spending to achieve this (eliminated CC debt and car payments, lowered my rent situation, opened multiple bank accounts to better manage money flow, max 401k, etc), a recession in my industry at the wrong time could severely hurt my long term financial planning. I am sure I am not alone in this regard.

        So while I generally agree with the general sentiment of living beneath ones means and extreme saving as a means of achieving financial independence, I can’t help but roll my eyes whenever I see people downright giddy at the prospect of “another sale” via recession. Sure, everyone should be frugal and think long term, but let’s not pretend like people don’t get seriously hurt during these harsh downturns.

        Yes, people should be educated in methods for securing their long term financial security, but let’s not be so cavalier about heading into choppy economic waters when we know how many people have not got a life vest on. Some people simply entered the market at an unfortunate time, and wishing a sharp and sudden downturn for ones personal gain at the expense of thousands of your fellow citizens seems uncouth, to say the least.

  • Mighty Investor June 20, 2017, 8:13 pm


    For anyone in the asset accumulation phase and who is living mostly off of work-related income, a recession is a boon. You get to scoop up index fund shares at much better valuations. So, so long as you keep your job, a recession is hugely helpful to your long-term finances–assuming you keep investing through the entire cycle.

    • Curtis June 20, 2017, 9:26 pm

      Assuming you have a job… These are lost during recessions, too.

      • FISeeker June 21, 2017, 7:51 am

        Many of the folks who I saw during the last recession who lost their job were not willing to make the sacrifices needed to support themselves. I heard “I don’t want to move because my kids would have to change schools”, or “I’m close to my family who I visit twice a month”, or “I don’t want to move to another state, I’ve never left this county!”

        I fully get there were a lot of people who couldn’t move because they were tied to a oversized mortgage payment or they didn’t have the funds to MAKE the move even if they got offered a new job somewhere else.

        But for many people, the simple fear of change keeps them in place.

        • Lynne June 23, 2017, 2:07 am

          +1. Almost every good career opportunity I’ve had has only come my way because I’ve been willing and able to relocate, sometimes majorly. Being able to do that can really put a lot of wind in your sails. Of course some situations make that difficult or even impossible, but I have also seen people hamstring themselves by voluntarily staying in one place even though moving would definitely be feasible for them and almost certainly improve their position. Fear of change is real.

  • Luke June 20, 2017, 8:14 pm

    I know a lot of people say “You can’t time the market” but for anyone who reads up on finance regularly you can start to see the cracks before the eventual crash. This post describes that brilliantly! The situation is the same here in Australia, consumer debt levels are almost 200% the average wage (and still growing) through an insanely expensive housing market, rising electricity costs, rising education costs and rising petrol costs (although petrol has been pretty stable for a few years now). I’m guessing we’ll see some sort of correction in 12 months, maybe 18 months. Also, Australia has been officially recession free for 26 years now. I’m pretty sure that can’t last forever.

    Also, thanks to this blog, my wife and I are debt free, renting a nice apartment in a nice suburb, and saving as much as we can each month. No fears of the recession here!

  • Mrs. Adventure Rich June 20, 2017, 8:15 pm

    I like the premise “the next great recession is coming”. It is so easy to get lulled into complacency and comfort when things are going well… it allows one to assume that the current state of plenty is guaranteed. Far from it! It reminds me of the advice a coworker of mine once gave me. He suggested that I never rely on the annual bonus, citing that he had seen years when it was a whopping $100. That always stuck with me and made me realize that I had to prepare for whatever came my way, good or bad. And if we do that, like you mentioned above, we won’t have to worry about the money! Thank you for another great post, MMM!

    • Mrs. Adventure Rich June 20, 2017, 8:46 pm

      And my wager is Q2 2018…give it 1+ year with the new administration.

      And I wager a case of fine Michigan craft brew.

      • Paul June 20, 2017, 9:14 pm

        I won’t wager, but statistically most stock crashes crashes happen at the end of q3, beginning of q4. Q3 2017 to Q3 2018 sounds about right to me

        • LennStar June 21, 2017, 1:10 pm

          People come back from the long summer holidays, where their money-driven endorphine levels had time to go down, then they look at the real numbers and… SELL!!!

      • Mr. TYMP June 21, 2017, 2:09 pm

        That’s pretty generous if you’re using that as a basis, I give it exactly one year from DDAY (January 2017), so January 2018.

        Offered up is one IPA variety case from Flying Dog Brewery in beautiful Frederick, MD.

  • Nick June 20, 2017, 8:15 pm

    I say the next recession will hit by Q3 2017. Reason for the recession? I’m picking a slow down in global credit growth as a % of global GDP (aka ‘credit impulse’). Usually takes 9 months for the impact to be felt and it went negative in Q4 2016. Looking forward to buying some assets on sale. If I’m wrong, I’ll donate $100US to a charity of your choice and if I get it right, you can donate to a charity of my choice. Game?

    • Kerry June 21, 2017, 3:21 pm

      Hi Nick, I’m with you on the timing, for the same reasons. Banks in New Zealand are already requiring loans to be subject to a debt to income ratio, even without being regulated to do so, and loan to value limits are already being applied. I am not a betting person but am preparing for September to be increasing my assets … I think there will be something that happens in August that might tip things over the edge, concurrent with that timing. Likely to be something to do with Mr Trump …

    • CBT14 October 26, 2017, 5:43 pm

      So, Nick, which charity got your $100? :D

      • Mr. Money Mustache October 26, 2017, 6:15 pm

        Indeed – I found these predictions to be ridiculously specific. You just CANNOT predict recessions or stock movements based on news headlines, graphs, or guesses on the macroeconomic picture. The best we can say is, “There is very likely to be another recession sometime, and probably within the general range of economic cycle lengths”

    • Common June 26, 2018, 1:52 pm

      9 months later, and despite some enormous 1st half 2018 volatility – the S&P 500 is still +6% since the end of October 2017. Pretty good return for 9 months.

  • Kevin June 20, 2017, 8:16 pm

    The next recession will be due to the Trump/Russia scandal. When the actual depth of this historical scandal comes to light, it will spook the markets, which are up ~10% since 45 took office.

    Trump, Pence, Kushner, Ryan, Sessions, McConnell all caught up in a treasonous scandal.

    • J.C. June 20, 2017, 9:04 pm

      I seriously doubt that will be the reason. From what I can tell, the “Trump/Russia scandal” is blown out of proportion and not something that is going to shock most of the public. The recession will be triggered by something else.

      • Rob June 21, 2017, 9:34 am

        Yup – almost zero chance Trump/Russia amounts to anything. Many, many Dems have said there is no evidence, the FBI and others said no evidence, etc. Worse thing that may happen is someone below Trump may have missed a financial disclosure and get slapped on the wrist. I’d put better odds on Trump getting re-elected by 10:1 than Trump/Russia taking the market down.

        The real question is the FLAVOR of the recession. If its like 1991-1992, it’ll be fairly mild and you are better off not trying to time it. If it’s like 2007-2009, you should get out of equities sooner rather than later. At least in the US, GDP growth this cycle has been so abysmal compared to typical boom periods that I believe a recession will look more like 1991-92 than 07-09. Only thing that could happen that could cause another 07-09 IMO is China imploding with debt. US underwriting has been much, much better this cycle than last cycle and while total debt is back to peak levels (nominally), incomes in nominal terms are up 15-20% so the inflation adjusted debt still has a long ways to go before reaching pre-recession debt.

        My best guess is the next recession is 2-3 years from now and will be brief/shallow.

        • Bill June 21, 2017, 1:48 pm

          I was only 11 in ’91, can you please explain the differences a bit ?

        • tom June 21, 2017, 3:05 pm

          This guy’s right about everything.

          Especially how silly comparing NOMINAL debt to real debt. The economy has expanded both in number of people, and trade per person per year since ten years ago. The dollar has also had it’s value eroded by inflation. In real terms, we’re nowhere near pre-recession debt.

          • Mr. Money Mustache June 21, 2017, 3:32 pm

            These are good points, Tom – sloppy on my part. Maybe another year before we get to inflation-adjusted debt per-person parity with the previous peak?

            • tom June 21, 2017, 10:03 pm

              I wasn’t accusing you of being sloppy!

              I’ve read multiple articles that press that true fact into a headline the past few weeks. It’s true. It’s also true that a more nuanced view of real vs nominal debt is probably a better indicator of the burden debt has on consumers, because as you mentioned, consumer demand is part of that spiral that drives economic cycles up or down. We should probably also consider household debt vs income, at median, and, say, the 25th percentile, which might well already be much worse than ’07. Or nowhere near as bad. I don’t know.

              But WOWsers! I only check multpl every few months, and we’re at Black Friday levels today!

              I’m struggling to see the bubble this time. With mortgage crisis, there were plenty of people betting against it, shouting from the rooftops more than 12 months before things fell apart. It was pretty obvious.

              This time, mortgages are pretty reasonable, and there is no obvious repackaging of toxic mortgages, nor auto loans, which have crept up (doubled) but still a small fraction of the total. Student loans are crippling millennials, but $1.5T is not that much, and as long as the highest-risk student loan debt isn’t being rubber-stamped AAA-grade by Moody’s and Standard & Poor and resold to pension funds, it should pose no catastrophic risk. It’s more like a mild cancer, obesity, or mild diabetes. Not yet life-threatening to the system, but not exactly healthy.

              Every day I’m thinking to myself, Googling, and asking real people in real life, “What’s the bubble this time!?” For the life of me, I can’t figure it out. But if you look at prices of stocks vs other assets or vs GDP, they seem to be getting a little bubbly, and all the other indicators you bring up suggest we’re close to the edge.

              Also, congrats on near-perfect timing advice on the previous article predicting bull market and telling everyone how the whole stock market was on sale. Spot on!

            • LK Beland July 13, 2017, 2:14 pm

              A better way would be to compare household debt to gdp.

              That ratio is much lower than in 2006 (and stable).


        • Dave June 21, 2017, 5:31 pm

          Please. Please. Please. Do not conflate or confuse a economic recession (two consecutive quarters of negative GDP growth) with a correction in the stock market (a decline of 10%).

          The lack of knowledge regarding macro economics in this MMM posting (and many of the comments) is staggering.

          For those readers who are still working, cheering for a recession is problematic in that many jobs disappear, perhaps yours.

          A 10 or 20 percent sell-off in the US stock market is no big deal, but many FIRE bloggers weren’t in the job market let alone heavily invested in stocks during the 2007-2008 correction.

          Readers, how will you actually react if you lose your job (as part of the “coming” recession) and your stock portfolio drops 40 or 50 percent?

          MMM postings are usually outstanding – well research, well written, and, best of all, thought provoking.

          This posting is NOT up to your normal high standards MMM.

          • tom June 21, 2017, 10:10 pm

            That’s true. Recession != stock market dip, though the two often coincide.

            What do you think about GDP growth? Can’t we all prosper while GDP shrinks? I certainly am more prosperous retired, and I spend and earn much less than I did as a clueless jobby. My contribution to GDP is probably 1/4 what it used to be, but I’m fitter, about as happy, and spend my time farting around instead of grinding for the man.

            I’m not worried about regular recessions, but I’m pretty deeply worried about humanity becoming unemployable.

            If we look at the “Great Recession”, many jobs were lost that never came back, and the jobs that have come back are lower-paying, less stable, and lower-skilled.

            • Dave June 22, 2017, 9:59 am

              Given job losses that occur when GDP shrinks, it is not possible for “all to prosper while GDP shrinks”. Those who lose their jobs aren’t better off, they may burn through their emergency fund, and they might end up with a job that pays less than the one they lost.

              MMM and many, many other FIRE bloggers are spot on by relentlessly and meticulously writing stories about the joys that accompany frugality and the miseries that accompany consumerism.

              In the US, the “living happily with less income” is most significantly challenged (I think) by access to health care. Controlling consumer purchases is easy compared to showing up in an ER with a broken leg or fill-in-the-blank bad luck medical outcome. It’s not prudent to self-insure medical risks and for many, getting insurance is problematic. Luckily, U.S. Senators are on the case.

      • Kevin June 23, 2017, 8:44 pm

        Get back to me after you read this: https://www.washingtonpost.com/graphics/2017/world/national-security/obama-putin-election-hacking

        This will turn out to be one of the biggest political scandals in US history. It involves many in the Trump Administration and many top GOP members.

  • Gwen June 20, 2017, 8:16 pm

    I say bring it on! I think it will hit sometime mid-2018. Bet ya a case of the winners alcoholic beverage of choice! I’m not worried at all about a recession. It’ll be the perfect time for me to snap up low priced shares and real estate.

    On thing though, as a 26 year old I was impacted by the Great Recession. My stepdad lost his job, a few friends couldn’t go to their college of choice anymore because their parents couldn’t pay for it, and I watched friends not be able to find gainful employment after graduating. So not a direct impact like losing shit tons of cash, but still vivid enough for me to be thankful I wasn’t losing everything.

    • James June 20, 2017, 9:14 pm

      My beverage of choice is Remy Martin Louis XIII. You’re really betting me a case of that? Might I ask what you drink? ;)

      (I’ve never actually had Louis XIII because I’m not stupid and I’m not a billionaire. But if I had a choice and wasn’t paying for it . . .)

      • Gwen June 21, 2017, 6:42 am

        Since my bet is with Pete, I’m playing off his practical nature and am assuming he would go for a case of local brew instead of a case full of bottles that go for ~$3500 each.

  • Jeremy June 20, 2017, 8:16 pm

    Recessions always seem great, except for the chance of loss of a Job and troubling finding another one during a recession

    Anyone have any additional advice for a young guy who has never had a recession during their adult life?

    • Seth June 20, 2017, 8:39 pm

      Buy as much stocks as you can and if you’re interested in home ownership try to buy then as well.

    • Steve June 20, 2017, 9:46 pm

      frugality. frugality. frugality. Best thing a young guy can do no matter what. Get your personal profit margin up by cutting expenses to the bone. if you have work you save more, if you’re outta work, you got more time to find something.

    • Jamie June 21, 2017, 12:13 pm

      Frugality, Savings, Investing.

      Build up your 6 month low-risk cushion. Jobs take longer to find in a recession, but if you can’t take a month or two to find a new one, you risk being under-employed, and taking something worse, and sticking yourself for years to come. Make sure you have the buffer.

    • arcyallen June 21, 2017, 9:58 pm

      The scarier things look, the more you want to invest. And don’t try anything fancy like making exchanges in your 401k trying to time things – you’ll only make things worse. If you’re living simply and saving like your hair is on fire, the slightly increased chance of a job loss shouldn’t be an active concern. Get excited when the market goes up (“Yes, I have more money!”) AND when the market goes down (“Yes, I’m buying investments so freaking cheap!”)

      It’s all fun when you know you win in the end either way!

  • saveinvestbecomefree June 20, 2017, 8:17 pm

    I hope it comes soon although it may be years out yet. I’m sitting on more cash than I like (to manage sequence of returns risk) since I might be giving up the big paycheck in a year or two. A good recession now would be wonderful.

    I’ve already moved a lot of my investments to outside the US based mainly on valuations but if the US market tanks, foreign stocks will tank too and there should be some very nice bargains both overseas and in the US.

    I’ll keep my fingers crossed that it happens. I’ll be picking up investments on sale when it does.

  • Mark June 20, 2017, 8:21 pm

    I think housing prices are super high now, but not because of the same reasons as before. We have too little building and not enough housing for people. Before it was too much building and easy credit. The quality of loans for housing is much higher than before. I could see a slow down and the other factors you mentioned may cause a recession, but I would not count on housing prices plunging.

    • MikeM June 21, 2017, 3:57 am

      House prices are a product of ability to pay and interest rates. Supply and demand are secondary- housing (of the right type) is always in short supply.

      • MartyfromMaine June 21, 2017, 1:02 pm

        Thanks for bringing up housing, because I’m a real estate broker in Maine, I’ve been through the last crash and I tend to agree with your analysis that the mortgage banking industry is (on the outside) more stable, absolutely no hybrid ARM sub prime mortgages on any banks books, so the toxic assets that ruined the world 9 yrs ago aren’t from the housing sector( this time) . I agree also, prices are up because supply is historically low, just last month prices were up 9% but sales volume down 8% , so its so good its bad ;) so if demand shrinks for housing due to a stock market and consumer recession – we should see prices fall or at least stabilize. The wild card is always mortgage rates, however those are based off the 10 yr treasury in the US, so bond prices would have to collapse for rates to go up high enough to crash the housing market, which in an event like a stock equity selloff the opposite happens in a flight to safety. I’ve been in cash and real estate ever since 08….always been waiting on a stock correction (wrongly so far) but even a sever 30% would still leave the markets and wealth invested intact .

  • The Wealthy Accountant June 20, 2017, 8:23 pm

    I do not care to bet, but I will anyway. A case of Spotted Cow, Wisconsin’s finest micro brew.

    Since my crystal ball is cracked and clouded I firmly state, as every respectable economist does, that the next recession will happen when it does. It will start next year unless it leaves the gate sooner or after 2018. It can go either way.

    The cause? Well, it could be debt or weaker than expected demand. If it is like most previous recessions the economy will not actually contract, it will only slow down.The inflation adjusted numbers is decline for at least two quarters only.

    The Fed could also cause the recession with higher interest rates. Then again, I can find just about any excuse I want for why the next recession happens, or why any previous recession happened. Heck, they still debate what cause The Great Depression!

    Ah, forget about the bet. I’ll just bring the beer and we can enjoy a cold one.

    BTW, I like the charts you used. I review the Shiller PE Ratio chart and similar charts from the same website frequently. (Must have been looking over my shoulder!) My investment strategy doesn’t change, but I am always interested. Call me a good student.

    • Hard L June 20, 2017, 10:43 pm

      It’s important to emphasize the impact of the Fed to the Fi/FIRE community. The Fed’s zero interest rate policy since 2009 forced savers into the stock market and this 8 year run-up may crash harder because it is manfactured. Does anyone care why the stock market roars, as long as it does so? Maybe not but know it was not market forces and there’d be nothing wrong with further controlling expenses and growing your cash position as the Fed bumps rates up. While this community’s advantage is that it mitigates market risk through frugal living, it is that lifestyle choice that enables sound sleep.

    • MikeM June 21, 2017, 4:07 am

      There is a big difference between the cause of the recession and the trigger. The cause is always some form of irrational exuberance, the trigger can be almost anything- and does not really matter. If not one thing it will be another, because the time is ripe.

    • Emily H. June 21, 2017, 7:05 am

      Honestly, Spotted Cow is one of the things I miss most about living in Wisconsin. Maaaaan.

      • The Wealthy Accountant June 21, 2017, 8:13 am

        One day, Emily, I am going to have a Spotted Cow party either around my office for my readers or I’ll pack the car full and drag it to Colorado so MMM knows how to really party Wisconsin style. BTW, I rarely drink beer, but when I do their is a cow on the label. (You know, that would make a nice meme.)

        • Josh Jensen June 21, 2017, 6:02 pm

          I have a feeling MMM might be into Moon Man or Black Top, given the hop levels typical in Colorado. I have family in Wisconsin Rapids, and every time I visit my suitcase is full of New Glarus beer cushioned by laundry for the flight home! Beautiful brewery too, worth the visit if you are near Madison.

        • Dave June 21, 2017, 6:57 pm

          The Wealthy Accountant –

          Hard to argue with Spotted Cow, but Two Women and Moon Man are pretty, pretty, pretty good too.

          Lots of excellent beer being brewed in Wisconsin. I’m about 10 miles from Central Waters in Amherst, and about five miles from O’so inPlover.

          The “Paradox of Choice” is a good thing when it comes to beer in central Wisconsin.

      • Andrew W. June 21, 2017, 8:59 am

        Forget beer, I can get good micro brews in VA. I need a place that can get me quality deep fried cheese curds…or even just cheese curds period. That is the true void created by moving out of Wisconsin.

  • Anthony C June 20, 2017, 8:26 pm

    I’ve been waiting for the next recession since the 2007 one when the condos in my complex in fancy Arvada, CO we’re going for $50k, which was 50% off. If only I had the scratch then I could be rolling in crazy rent income now.

    Next recession in CO will be due to Feds cracking down on marijuana business and people leaving, causing a glut of newly built houses and apartments, plus people who spent too much on rental properties at the height of the housing boom won’t be able to afford their huge mortgages.

    • Stacy H June 26, 2017, 1:49 pm

      My question is about a house I’m renting out now. I bought it when the local bubble burst (luck, not skill), and it’s now almost doubled in value. If I sell this year, I don’t have to pay capital gains tax and will clear about $175K. If I hold, I’ll be about $450 cash positive each month, but will have to pay the capital gains when I sell later on. I’m stuck in analysis paralysis.

      • BestPal June 30, 2017, 11:26 pm

        Now is a good time to sell especially if you can avoid capital gains. Sell and reinvest into different asset class or if you subscribe to this article’s view as I do, there is nothing wrong with holding a bit of cash for a while until it’s time to jump in again. It’s the cosy of opportunity. Good luck with your decision.

        • BestPal June 30, 2017, 11:29 pm

          I meant to say: “it’s the cost of opportunity”.

        • Stacy July 6, 2017, 2:33 pm

          You’re right, and we’ve decided to sell. I have some emotional ties to the house, and I always thought I would keep it forever, but it seems nuts not to cash in now and avoid the tax, given how long I’d have to hold it to break even with the current numbers…all the while dealing with maintenance, tenants, etc. Letting reason prevail and the ‘stash grow.

  • Troy Rank June 20, 2017, 8:26 pm

    Ahhh I can hear the screeching mangled economic wreck from subprime auto loans now… It will be a great wake up call for those wasting their life’s resources toting around a couple thousand extra pounds for chuckles.

    • MAD Wealth June 21, 2017, 9:50 am

      Auto Loans are definitely getting out of hand. Virtually every car on the road today is obsolete due to the advances in self-driving/electric vehicles coming en-mass. I even wrote about it last year. I follow all the loan sectors mentioned above. It’s not good, but that’s not the real icing on the cake. You can find that in the public sector.

      I’ll put in a wager and I’ll donate a bike to a person in need as my wager. I think we start to see a crisis starting to unfold in 2018 and continuing into 2020-2021. Although I don’t think for the reasons a lot of people believe. I think this crisis will find it’s starting point in international public sector debt markets with a simultaneous surfacing of issues in domestic public sector debt markets. That has the potential to carry over into private sector debt markets. A lot of people besides those deep within finance don’t understand the financial system risks gov debt poses.

      MMM you summed up everything very nicely, and I’m glad you noted it comes down to confidence. All it takes is confidence to erode in a sector or two. I was just explaining all these points to an eager to learn young lad. Hope the lesson stuck. What most people erroneously believe is “speculation” only exists in equities. They forget there are debt markets, real estate, commodities, etc… Speculation exists in every market. When the crowd takes it to far to one side rational valuations don’t support the price anymore, confidence disappears, and that’s when things go south.

      Even though I rarely use Uber I like to use the following phrase right now.

      “While it’s certainly scary to think markets may crash at any given moment I’ll really worry when my Uber driver starts giving me stock tips”

      • Jason June 22, 2017, 8:25 am

        > Virtually every car on the road today is obsolete due to the advances in self-driving/electric vehicles coming en-mass.

        Not so fast. Self-driving/electric vehicles only really *obsolete* conventional vehicles for “clown car” driving -and even *in* that case, it’s still a clown car for the same reasons the old cars were. For transporting the whole family between cities on occasions where it’s necessary, there’s really nothing so wrong with a reasonable gas-powered, human-driven car.

        • rachel July 19, 2017, 1:27 pm

          Really? 35,000 people died in the US alone in motor vehicle incidents last year. I know we’ve come to accept that as normal, but it doesn’t have to be…that is so many people, so much loss, and so avoidable. Highway driving is fundamentally dangerous and self-driving cars will (admittedly imperfectly) ameliorate that. That definitely matters for transporting the whole family between cities.

          Plus, clown cars become a whole lot less clowny when we don’t expect we need to full-time own them and let them sit empty outside the house/work/store a majority of the time.

  • Mike MPLS June 20, 2017, 8:35 pm

    PE ratios are just a distraction to try and get the steady handed investor to break from their financial plan. Timing the market is a fools game and some people even pay an advisor 1% to play that game for them. Keep rebalancing your portfolio at your current interval and reap the rewards of buying low / selling high through rebalancing. Mine is age-10 in bonds and the rest in stocks plus a rental property.

    Since a recession is imminent, now is the time to sell your car, pay off the mortgage, and bike everywhere. Lets get this party started.

    • Dave June 21, 2017, 5:47 pm

      Mike MLPS –

      What is the duration of your bond portfolio? What happens to the vale of your bond portfolio when interest rates rise?

      I agree that rebalancing one’s portfolio to keep stock and bond allocation consistent with one’s ability to tolerate risk, but bonds are not risk-free assets.

      • Mike MPLS June 25, 2017, 12:20 pm

        Half my bonds are in inflation protected index (vanguard vipix avg duration 8.0) and the other half are just Total bond index (vanguard vbmpx avg duration 6.3). I’m not sure what that duration means, if there is some easy to understand literature I’d be interested. I’m looking for low correlation between my different assets. Im 76% stock (30% int / 70%) 24% bond (50/50 tips/non-tips), plus 1 rental property and we have no debt and save 70%.

        • LosPadresHiker June 27, 2017, 10:51 am

          Here is a good explanation on bond fund duration and interest risk.

          In summary for the fund with an average bond duration of 8 years a 1% rise in interest would decrease the value by 8%.

          Average Bond Duration * (-1)* (Interest Change) = Investment Value Change.
          2% Interest rise
          6.3 *(-1)* 2% = -12.6%

          1 % Interest Drop
          6.3 * (-1) * (-1%) = 6.3%

  • Colin Weir June 20, 2017, 8:39 pm

    There are two big crises sneaking up on the country right now: one is retail, and two is student debt. A quick Google for “retail crisis” will give you some job loss numbers from the Atlantic.

    • Malinda June 21, 2017, 8:29 am

      Thanks. I read the article, but I was confused in the end, since it says that warehouse jobs are increasing and warehouse jobs pay 25% higher. If that’s true, then it isn’t really creating a jobs crisis. It’s just a change.

    • Mrs. Adventure Rich June 21, 2017, 12:21 pm

      Yikes! It is amazing how much momentum retail disruptors have picked up recently. It has been devastating to traditional brick and mortar businesses but a boom for online retailers. Thank you for the Atlantic article suggestion!

  • vinyl1 June 20, 2017, 8:40 pm

    One thing you might want to look at is index funds. Right now, index funds are holding about $6-8 trillion worth of the S&P 500 stocks, which have a total value of $21 trillion.

    “Investors” are putting money into S&P index funds at the rate of about $800 billion a year. They apparently believe that in the long run, they will make lots of money.

    However, in the past, hardly anyone invested in index funds. They owned mutual funds, which picked individual stocks that the fund manager thought were good values, or picked the stocks themselves. Now trillions of dollars are moving on autopilot, without any thought involved. The whole premise of an index fund is this: we don’t do any thinking. If there is a large-cap stock trading at a ridiculous price, we buy it. In fact, the more ridiculous the price is, the more we buy, because our fund is cap-weighted.

    Does anyone see a problem with this? The closest analogy I can see is the housing bubble of 2002-8. Backward-looking analysis showed that house prices had never declined substantially across all regions of the country in the past 200 years, so therefore it was considered safe to make large mortgages to anyone, because house prices would always rise. But in the past, you had to put 20% down and be able to afford the payments, so the backwards-looking analysis had a fatal flaw.

    I am afraid index funds are the same thing. While they worked well when few people used them, now everybody and his brother is putting every cent they can lay their hands on into index funds. Will this end badly? I predict it will.

    • MikeM June 21, 2017, 4:17 am

      Of course it will. In the past, money was made in the market at other’s expense (‘smarter investing’). When it is all (or mainly) indexing, a problem arises. As companies enter or leave the index, funds are forced to buy or sell at the same time as many others. Prices move, and they get a bad deal. Oops! The price changes are also a form of positive feedback- on entry to the index the forced buying ups the ‘value’ even more. Opposite for leavers. Ask any engineer about the effects of positive feedback.
      Suggestion- sell stock as it enters an index and buy it as it leaves- you get fire-sale prices.

    • Janson June 21, 2017, 6:42 am

      I am not sure about the doom and gloom, but the observation on index funds transformation of market dynamics is spot on. The future is unknowable, but the growth in index funds shifts my expectation for a recession further into the future, not sooner. Add nine months to whatever else you were thinking. Also, the Fed is at 1%. It has never induced recession below 4%. At a .25 hike every other meeting, that would take 3 years. Fed is irrelevant to this cycle.

      Losses from sitting out are identical from losses from being in, even if psychological biases conceal it. Buy regularly and rebalance.

    • Kermit June 21, 2017, 8:06 am

      I’ve heard about the index theory. If everyone would buy and hold for 30-40 year, yes there would eventually be a problem. However we (out society) do not buy and hold. They go to the next best thing. Right now it’s indexes. When the indexes start to have trouble and “Smart Beta” (or insert the latest and greatest strategy”) does a little better, there could be another shift. Also indexes are not the indexes of 15-20 year ago. We have so many “specialty” indexes now, it’s approaching “active management”. If the theory holds true, eventually someone, somewhere with a good marketing department will create the next best thing. Alternative were hot back in the day, 120/20 funds were hot, cold, hot, cold, mutual funds were hot, CITS were hot way back when, ETFS are hot, it’s all cyclical.
      While the average MMM follower understands the value of index funds, they are in the minority in terms of why they purchase and for what length of time. Since 80% of our society tends to “WANT” the next best thing, I doubt the index theory will become reality.

      Next recession? 3-4 year off. Trump administration will have a hand in starting it, but won’t be around to clean it up.
      Why? Slow rise of interest rates…should be at 2% by now. ( they wont’ have any “tool” to combat it”
      Peoples debt – as mentioned subprime car loans won’t help . It’s supper easy to give up on a car payment, houses were a different story.
      Our current President will say something stupid and cause a negative reaction.
      BRIT Ex will cause things to slow
      Trumps plan of – Made in America will make things more expensive, and slow the world economy
      Tax cuts will get botched and not work as intended.

      Triple M’s advice in this article is priceless.

      Right on Triple M! Nice article about bikes the other day. Keep it up!

    • Andy June 21, 2017, 9:17 am

      My personal opinion on index funds is that they smooth volatility out rather than contribute to mass sell-offs. If an investor is smart enough to stash as much cash as possible into an index, they’re smart enough to leave it there.

    • Rob June 21, 2017, 9:44 am

      My financial adviser and close friend since grade school agrees with you

    • Paul June 21, 2017, 11:40 am

      I think what you are describing is that speculation is essential to efficient-market theory. I agree, but at the same time if companies ultimately return profits to shareholders (via dividends or share buybacks), relative ownership drives relative wealth which drives relative purchasing power. Meaning, really, I don’t care what price the stock market is if everyone else is buying it the way I do… I just need my fair share of business profits as returned to the investor community. But if everyone isn’t buying via index like I am, then the outliers become a check on the system. Either we all buy in herd mentality via the index and we all maintain our relative wealth, or some break away and speculate, ultimately providing resiliency to the index. I won’t worry either way!

    • Tara June 22, 2017, 9:21 am

      I got a little nervous a few weeks ago when I read in Bloomberg Business Week that there are now more index funds than individual stocks. Will it end badly? Probably.
      So…diversify your index funds? LOL

  • Brent Weaver June 20, 2017, 8:41 pm

    This has to be one of the few financial blogs out there that is in someways gunning for a recession. Crazy how a mindset thirsty for challenge to express badassity changes the way you look at a world event that most fear and abhor.

  • 26 Years and Sagely June 20, 2017, 8:41 pm

    The real question is… what is that creation of newspaper and tinfoil doing?!

    • Micah June 21, 2017, 9:12 am

      This was my exact question. How has this not been answered. Inquiring minds want to know, whats up with the “eagle surprise” ?

      • Peanuts June 21, 2017, 4:46 pm

        It kinda looks like a burrito from Freebirds.
        What is it?

    • Shannon June 21, 2017, 5:55 pm

      Brick of black tar heroin??!

  • GS June 20, 2017, 8:43 pm

    All for buying more when stocks go on sale, but what about your current asset mix? Do you scale back the ratio of stocks to bonds (assuming they are otherwise well-balanced for your age/nearness to financial independence)? Market timing is a fool’s errand, but as you cite, P/E near historic levels and the length of time since the last recession make for reasonable inference, if not a precise one. Thoughts?

    • Kenneth June 23, 2017, 12:22 am

      I have recently set my Vanguard account to 25% VTSAX, 75% VUSFX (total stock market and ultrashort bonds, respectively). I might be early but I do smell trouble brewing. I’m retired and living off of social security and a small pension, plus some part time Uber driving. I am not going to touch my Vanguard IRA until age 70 1/2 required minimum distributions. I’m still saving 33% of my monthly income thanks to a paid off home and frugal living. Yes I am market timing but we all do it our own way.

  • Ian June 20, 2017, 8:43 pm

    As someone who started working in the financial regulation industry fresh out of undergrad a few years ago, I am interested to see what a recession looks like on the inside & how far beforehand it becomes obvious there is an impending recession. Some of my older colleagues have recounted numerous stories about the Great Recession and some of the craziness they saw going on in banks in the years leading up to it.

    Seeing that P/E chart makes it tempting to hold out for the inevitable stock sale. But as MMM has frequently pointed out on this blog, trying to time the market and catch a falling knife is a fool’s errand that isn’t supported as a good investment strategy by the statistical data!

  • Mr. Atypical June 20, 2017, 8:49 pm

    As an aspiring mustachian myself, market fluctuations just don’t matter. I just put my money in the market religiously each month as soon as I have the money. I don’t pay attention to whether the market is up or down or when the next recession is expected. So long as you put your money in each and every month, everything averages out.

    It seems the more effort you put into trying to time things, the more money you are apt to lose. Keep it simple and we can all be mustachians.

  • myFIinthesky June 20, 2017, 8:50 pm

    Yes, I love a good sale. I just wish the housing market would soften sooner rather than later… I’ve been putting off buying a house in Los Angeles because the market is crazy, but it just keeps going higher. I hope I don’t finally give in and get caught at the top.

    People have been saying we’re overdue for a recession for years now though, so like MMM says, an impending recession should just influence our future behavior, not present investment decisions.

    • Mal June 20, 2017, 10:37 pm

      Same in Seattle. Renting fairly cheap out in the suburbs now and wanting to buy in a year. Prices are insane, so I wouldn’t hate a recession as we’re rapidly getting priced out of several areas despite good salaries. Went to a first time homebuyer’s class recently and were encouraged to jump in now with 0 percent down…!!!

      • Dan June 21, 2017, 10:07 am

        Unfortunately Seattle will be completely recession proof so long as Amazon stock price keeps going strong and they keep importing high paid workers from other parts of the country/world. Recessions are often not countrywide so temper your expectations for Seattle housing prices accordingly.

        • Greg June 21, 2017, 3:05 pm

          Amazon is not recession proof: a huge chunk of their revenue comes from household discretionary spending, which will be hammered in a recession. Layoffs will come fast and hard if the market takes a big drop.

      • HeadedWest June 21, 2017, 12:06 pm

        I think Dan might be right. My wife and I reached FI in Houston, then bought a house in Seattle and will work longer in order to pay off our new, bigger mortgage.

        Take a look at the projected job growth in Seattle, then look at a map of Seattle. It looks a lot like SF 6-7 years ago – crazy influx of high paying tech jobs, combined with geographically and socially driven restrictions on the number of new homes being built. At the risk of buying in near the top, we took the plunge because the odds are in favor of prices continuing to rise.

        I certainly wouldn’t go in with less than 20% down, however. We had to put 25% down on ours because it was classified as a second home.

        • Dan June 21, 2017, 3:55 pm

          Great point. One other thing about Amazon is that it is itself diversified because the bulk of its earnings and a growing share of its revenues comes from AWS – not retail. AWS is a stalwart high margin business that is like a utility and thus quasi recession proof. And it’s retail business is anlittle like Costco or Walmart (basic goods value prop competing on price which is a type of retailer that actually does comparably well in a recession). Amazon is a beast that can’t be stopped. It’s literally hiring 10’s of thousands of 6-figure jobs per year.

          And while Amazon is the 80,000 lb. gorilla in Seattle, there are many other major companies setting up significant shops in Seattle. Facebook opened a huge 3,000 person office last year. Google is building four new buildings in SLU. Apple is setting up shop too.

          Also note the IPO stream will continue as well. Apptio last year. OfferUp is coming soon. Those liquidity events (along with Amazon’s 4-year vesting schedule on all of its employees’ restricted shares) is unleashing a huge stream of capital into Seattle’s housing market. Tough to compete with that if you don’t have funny money.

          • Chris I June 23, 2017, 11:25 am

            And don’t forget Boeing, with 60,000 employees, and a 6-7 year backlog with mainly international customers. Boeing had minimal layoffs during the last recession, even though it hit aircraft financing pretty hard.

        • Mal June 26, 2017, 10:55 am

          Agreed that Seattle is relatively recession proof. Even though this will be our home to live in long-term, possibly forever, I take some comfort in knowing that we could likely sell for a higher price in 15-20 years and move to a lower priced area if we wanted. I was just horrified at the mortgage company urging us to buy with 0 percent down. 2008 was not that long ago! I remember it, and I’m a “millennial”!

    • Ericka June 21, 2017, 1:31 pm

      I’m in the same situation as you are, myFIinthesky. I’m looking to buy in Orange County in the next year and every time I check the home prices, they just keep rising. Do I just jump in now or wait for this recession and hope home prices come back to reality? It’s a frustrating spot to be in.

      • MyFiIntheSky June 21, 2017, 5:53 pm

        I’m struggling with the same thing. We almost bought about a year ago, but were beat out by all-cash offers that were for less than our financed offers. Now, the same houses are about $100k more expensive. I’m leaning towards trying to get a duplex and living in one unit. The ROI is terrible compared to most of the rest of the country, but at least there’s some monthly income from the other unit to take the sting out of paying a temporarily underwater mortgage if values drop. And duplexes aren’t really that much more expensive than a SFH. Let me know if you decide to take the plunge!

  • Vis June 20, 2017, 8:50 pm

    We just went through an oil boom and bust in South Saskatchewan, Canada. During the heady days near the peak of the oil boom, the frugal were able to pick up everything on the cheap second hand. Many people with higher incomes (blue collar jobs could pay as much as 250K/yr) would toss out perfectly good equipment, clothing, furniture, etc for fancy new stuff from the store. When the recession came, and it came quite suddenly, a lot of the relatively new stuff came on sale- at a greatly reduced price. The mustachians were licking their chops let me tell you! I found it most interesting that many of the highest earning folks who were in their fifties never did buy big homes, new cars, or toys during the ride up but seemed to be waiting on the other side of the wave for all of the deals on every material thing including the fancy new homes. They had seen it before, a few times. It was a microcosm of what MMM mentions here. The principle is the same though. What is powerful and exciting to see is the young person in their twenties playing the game like they had the experience of the fifty year olds. Saving shrewdly on the way up and taking full advantage on the way down. Some did and have they have lept ahead financially, shaving years of their FI date. Let’s hope we all can do the same on this next big one MMM is predicting.

    • Mags June 20, 2017, 10:52 pm

      Watching people’s behaviour in Alberta and Saskatchewan with the oil boom and bust always fascinates me. I have very little sympathy for people in the industry who whine about the low price of oil and not being able to pay off their ridiculously-large-truck loans. If you work in the industry you should know beyond a doubt that it is always boom and bust and you should plan accordingly.

      • Vis June 21, 2017, 7:28 am

        3 months after the oil correction I was shocked to see so many guys going bankrupt. I mean, I knew these guys personally and they seemed somewhat normal. After 8 years of super high wages, not a penny in savings. Not a penny. Amazing to see.

        However, when I talk to my friends in Ontario and BC where housing has become extremely high priced I get the same Heady Day feeling. Different culture and people but the similar ease with spending. Several people I know feel that they are making 100K a year in appreciation on their homes. New cars, toys, holidays, are no problem and easily justified. The bank is happy to help out of course. Just like MMM says there will be a change in the future at some point and people should plan accordingly. There is always an opportunity for the mustachian.

        • Tracey June 21, 2017, 10:08 pm

          My partner has worked on the rigs for 15 odd years and was made redundant just over 2 years ago. Thank god he’s always been a saver so we were fine, although we did decide to sell our house that had a tonne of equity in it and buy a cheaper (and better!) one leaving us with a much smaller mortgage. After 6 months of him being out of work he started his own Handyman business which has been a great success. He’s now back on the rigs but still keeps up his Handyman gig on his 4 weeks off (he does a 28 day on, 28 day off roster) to keep a bit of extra cash coming in and also as a back up if he gets laid off again.

    • Chris June 21, 2017, 12:18 pm

      Too bad our government didn’t learn this lesson.

  • KevinH June 20, 2017, 8:53 pm

    I’ve been waiting for the Shiller PE for the S&P 500 to hit 30, which it did at close of trade on 19 June. I am thinking, though, that the rise in this indicator is because of how investors value assets (both houses and stocks) in this lower interest rate environment.
    One sign that the recession is just around the corner is the current trend towards higher interest rates. It has started for you in the US, but not yet here in Australia. I fear increases are just around the corner, then all the fun will start.

  • Dan June 20, 2017, 8:57 pm

    A recession is always coming, but I feel this time around it won’t be like 2001 or 2009 because the amount of exuberance is no where near as high. Then again maybe we have a blow off top in the market, setting up a much bigger fall. Who knows.

    I do think this time around it’s a hawkish Fed going too far that tips over the business cycle. We’ll see. It’s also possible a world of cheap oil and relatively cheap rates is here to stay for longer than any of us predict, setting up a huge stock market run.

    Sage advice from MMM though, this is a time to be conservative with new investments (and expenses) and to keep ones powder dry.

  • Joe June 20, 2017, 9:01 pm

    I understand the impulse to celebrate an imminent sale on stocks when you have money invest, but the level of enthusiasm is a bit too much for me. If it’s a collapse in subprime auto loans that triggers a financial meltdown, the people worst affected are going to be some of the relatively poorest Americans. No reason for those more fortunate, whether through their own wisdom and foresight or dumb luck, to gloat.

    • ZJ Thorne June 22, 2017, 6:22 am

      I’m with you on this. So much human misery happens during recessions. Suicide increases, death rates increase, and just general violence increases. Hunger increases. It’s not a nice thing.

    • Stacy June 27, 2017, 7:12 am

      Remember that he is speaking to a speaking to a specific audience, which includes many who might have been ruined by a recession before they started to grow their own ‘Stash. For folks working towards FI, even those of us who have yet to reach it, learning to weather and even thrive during a down time is very empowering. And his emphasis on the non-consuma-sucka way to happiness means that growing a ‘Stash is possible for nearly everyone in our society. Your empathy is most excellent, but instead of worrying about whether MMM’s positive reframe might be insensitive to those who will be hurt – we should be reaching out to those folks with this information to help them prepare as well.

  • mikeinmadrid June 20, 2017, 9:03 pm

    That Shiller p/e graph needs a few adjustments for the embedded corporate profit margin. If you believe that margins are mean reverting and not on a permanently high plateau then the current pe10 is adjusted up by 8.5%/6.5% to 39x, and likewise the pe10 at the peak in 2000 is adjusted down by 5.5%/6.5% to 37x. Stocks have never been more expensive, and therefore future expected returns have never been lower. 0% over the next 10-12 years is the expected return. Is 0% with a good chance of a 50%+ interim drawdown really that attractive?

    If you are retired and don’t have large sources of future income how will you buy stocks in the coming recession? Can you stand a 50-70% drawdown without panicking? Ben Graham recommended 25% in stocks and 75% in high quality bonds at times like these. More than 25% invested in stocks right now is sheer lunacy.

    • Rob June 21, 2017, 10:36 am

      I’d argue bonds are more overvalued than equities at the moment (nearly $10t of negative nominal yield debt in the world currently, probably 10x that negative real yield debt), hence the problem on deciding to invest in equities or debt. Inflation expectations are also much, much lower now than they typically are at this stage of the cycle, which again favors equity multiple expansion. This cycle growth has also been very soft and will likely last longer because of it. Lastly, right now, you can get a 2% s&P 500 div yield off equity growing 5+% a year or 2% of high quality bonds with no chance of growing, why choose bonds? If you own bonds in your own portfolio solely, you may not care if the face value of the bonds drop, but if you have a bond fund, your value just dropped a lot.

  • Miles June 20, 2017, 9:05 pm

    So let’s say I’m about to lose my (less-than-double-of-minimum-wage) job to the forces called outsourcing, and have zero confidence in getting hired because I earned my bachelors in engineering and managed to still spend a whole year unemployed before finding this bottom-rung job I’m about to lose, how do I prepare for the recession?

    I don’t mean to be a complainypants but it’s clear to me that I don’t know where to direct my energies and need some perspective from someone who does know about this kind of thing.

    • James June 20, 2017, 9:17 pm

      Career mentorship seems like a possibly good option. Or a career change? Maybe you aren’t suited to this line of work.

      Unemployment is near historic lows, and wage growth lately has been pretty strong. If you’re not doing well in this environment and you have a bachelors’ degree, there’s been a breakdown somewhere.

      • SocraticGadfly June 20, 2017, 9:23 pm

        What world are you in? U-6 is still high and labor force participation is still low. Just about all the post-Great Recession “recovery” went to the top 1 percent. Obviously, you’re not in the real world, or mine.

        • James June 21, 2017, 10:59 am

          U-6 is just about at its pre-recession minimum, FYI.

          • Rob June 21, 2017, 12:23 pm

            It’s (U6) not terribly far off 2007 lows, but what the current unemployment metrics don’t show is wages (flat/down for bottom half of income earnings), hours (eg: someone working 32 hrs a week b/c of ACA but wants 40+ still is employed and doesn’t show up in U6 or U3 as an issue), and over 95% of the wealth creation since 2009 has gone to the top 5%. Also depends on where you live. If you live in a large city (SF, Miami, NYC, etc) or even fairly large (Charlotte, Nashville), you probably didn’t have a lot of issues finding a good job this economic cycle. Outside of those type markets though, job growth has been pathetic to non-existent. A lot of people that aren’t willing to move will complain about job opportunities more than people who consider themselves mobile.

        • Dave June 21, 2017, 6:36 pm

          Or mine.

    • Ryan June 20, 2017, 9:32 pm

      Start your job search now. By avoiding all the distractions and shopping trips the next few weeks, I am sure you could find a job before the recession hits.

      • Malinda June 21, 2017, 8:54 am

        I think there must be some problems in the engineering field that most of the world doesn’t know about. My brother (engineer with years of experience) lost his job 2 years ago due to his company not getting enough contracts, and he just got hired at another firm, almost 2 years later. If the young people have to compete with experienced engineers for jobs, it might be a very tough job market for them.

    • Frank June 21, 2017, 8:22 am

      America is the land of opportunity. That requires us to go to the opportunity. If you can’t find work, you may be in the wrong place. If there are plenty of opportunities where you are now, you may need to fix up that resume, network and work on your interview skills.

    • BicycleB June 21, 2017, 12:28 pm

      Study job skills – political, technical, team member skills. Get certifications. Network, network – make friends with people in your field who do well, copy them in everything you can, build a de facto advisory board of smart people who will smile when you something right and look at you funny or offer you a suggestion when you don’t. Follow their suggestions. Get on LinkedIn, study the people who get hired, sharpen your profile by using theirs as a model. Interview every time a recruiter contacts you. If they’re not contacting you, update your profile/resume and start exploring the profiles of recruiters in your field. They’ll notice you and start messaging you. Read a book on interviewing and practice what it says. Consider reading What Color Is Your Parachute – spend an hour per day following the instructions, it could empower you forever. Join professional groups so you can hear how the smart people think. Listen, watch, copy; contribute where you can, even if it’s just bringing the pizza/tacos/cucumber water. Start a success journal that records every problem you face at work, and what you did to solve it. Update your LinkedIn again based on the new skills and successes. Repeat until you are a confident badass giving this advice to others. :)

      • The Gib Jr June 28, 2017, 4:16 pm

        Miles, follow BicycleB’s advice. Besides your education, you need to develop relationships with others in your field,interpersonal skills, and interviewing skills. There is a great demand for engineers nationwide, however, they tend to be focused in larger cities. I live in the Detroit area: there are lots of companies hiring engineers for the automotive industry.

  • Frank June 20, 2017, 9:11 pm

    I understand everyone’s excitement for stocks to go on sale, but do recognize recessions often cause quite a bit of hardship for people, and people you may know, through job loss etc. as for the prediction I’m no fool so I won’t predict timing, but I think corporate debt to finance dividends and share buybacks may be one thing that bites a major company big. Also rise of non-GAAP accounting may reveal some Enron style issue where a company has been manipulating numbers.

  • J.C. June 20, 2017, 9:12 pm

    My prediction is that the next recession will begin on October 31, 2017 or January 8, 2018. Don’t ask why.

    Also, while we’re making predictions, I think Bitcoin will hit $5,000 at some point during the next recession.

    • Money Cruise Control June 21, 2017, 12:21 pm

      I agree – crypto-currencies are a good hedge (in my opinion) from the next crisis. As always – don’t invest what you cannot afford to lose!

    • Bob June 22, 2017, 6:58 am

      I’ll take a guess that the speculation referred to in the article ends up being Bitcoin and cryptocurrencies =)

    • Jon July 12, 2017, 12:34 am

      This was my first thought but i’m not sure.

      Essentially bitcoin is a non-income producing asset completely powered by speculation.

      Not sure if it won’t get hit by the same issues as other asset speculation.

      note, i own bitcoin

  • SocraticGadfly June 20, 2017, 9:17 pm

    Michael Hudson, a good left-liberal to leftist economist, has said it’s coming indeed, but that it will be more a slow leak of air out of the bubble this time, at least relative to the Great Recession.

    I saw, on time, about the end of 2018.

  • Laura June 20, 2017, 9:19 pm

    Yep, just waiting. Around here the past few months there have been a few large layoffs (100+ employees at at least 3 companies and guessing more to come). Is it odd to say that I just “feel it”? After being through it twice now, gets easier to see it coming, kinda like when you’ve lived in tornado country for a while, you know when the clouds look “wrong”.

  • Carrie June 20, 2017, 9:23 pm

    we made soooo much money during the last recession. Hope to make more money this time around as well!

  • Mr. Hammocker June 20, 2017, 9:25 pm

    It’s always nice to buy the future at a discount. Would you recommend increasing cash reserves now to scoop up cheap investments when prices tumble? Or would you recommend maxing out tax advantaged accounts? It is impossible to get the timing right. It is probably more prudent to be consistently investing rather than trying to get the timing right. I agree that recessions are always in the near term horizon. It is also true that the stock marking is trading at historically high P/E ratios. It could also be possible that the market goes stagnant for multiple years until P/E ratios return to more healthy levels.

    It is unfortunate that student load debt and car loan debt are at their current levels. This will not be helpful when we go into our next recession. It just means more debt to default on. Thanks again for reminding us to be frugal and prepared for the future!

  • Anthony June 20, 2017, 9:26 pm

    Sorry, this post is irresponsible and completely amounts to timing the market.

    We’ve never seen interests rates this low for this long in all of history. Frankly, we’re in uncharted territory. What if growth continues another 10 years? Or, at least doesn’t recess. Then, if you sat there waiting for a house that never dropped you just wasted tons of rent.

    Moreover, what “knobs” does the government have to pull us out of the forthcoming recession? MMM says they’ll drop interest rates; guess what, they don’t have that capacity!

    • Tim June 21, 2017, 10:50 am

      Except he specifically tells you not to time the market. Paying attention to what the market is likely to do and not panicking because you’ve built enough flexibility to withstand changes is what MMM recommends.

      He would probably also recommend reading the entire post.

  • J.D. June 20, 2017, 9:30 pm

    One thing that could make the next recession uniquely dangerous is federal deficit spending. Between declining tax revenue and the inevitable panic spending that the politicians will engage in to show that they are “doing something about it”, annual deficits will probably soar to $2 trillion. Monetization of debt would probably occur soon thereafter, leading to all kinds of financial misery that could severely damage even the most savvy and frugal among us.

    • GU June 21, 2017, 9:29 pm

      Yes, for all of the musings about private debt in the comments, we’re not hearing much about public debt. The fiscal imbalance at the state and local levels is treacherous in many parts of the country. There are only a few ways to fix these problems and they’re all pretty ugly. And the ability to print money is the only thing propping up the federal government’s otherwise completely unsustainable spending.

      A government debt default/hyperinflation/some combination of both in the U.S. is not unrealistic, and it will make the Great Recession look like a walk in the park.

      • Mark June 26, 2017, 3:28 pm

        I’v been thinking the same thing, GU. Nobody’s been talking about government debt. We’re racking up debt in relatively good times. It’s going to be very ugly if there’s a recession.

  • Kathy June 20, 2017, 9:47 pm

    This year I’m going to be $8,200 short of maxing my retirement. I’m supposed to get a sizable bonus this month. I could direct $8,200 of that to my 401k and avoid paying taxes on that chunk of money and max out my contribution. But, I’m worried about buying that much at once particularly where I’ll be possibly buying high. I could figure out how to space that amount biweekly through the rest of the year and then just adjust my deduction again for 2018 but then I’d have to pay myself from this bonus money throughout the year which is a pain too. What would you do? All at once or do it over the year?

    • Mr. Money Mustache June 20, 2017, 10:52 pm

      In general (according to a well-publicized Vanguard study) you win by doing it all at once. And we’re only talking $8200 here – nothing to stress too much about :-)

      • Mr FOB June 21, 2017, 1:07 am

        Could you please share a reference to that study?

      • Kathy June 21, 2017, 9:22 am

        Thanks for the reply!

      • Rob June 21, 2017, 11:22 am

        Ah this is excellent, I had this exact question about my Roll-Over 401k. I cashed out “all at once”, but now I have 10+years worth of maxed-out 401k contributions just sitting in a Vanguard IRA… Lump Sum or DCA!?!? Lump Sum it is and VTSAX for the win! If the market drops tomorrow, you’ll know that I took your advice today! ;) That’s just the kind of lucky guy I am…

    • Paul June 21, 2017, 8:42 am

      Warren Buffet recently gave a very interesting interview in which he made a few comments about how expensive the stock market is relative to interest rates. This interview has been written about extensively on the website “Seeking Alpha”. Using P/E ratios to judge how expensive the market is can be misleading if you do not consider interest rates. Buffett observed that if interest rates remain “low” the market looks quite cheap right now. (I believe he gave the interview in May, 2017) If a recession is truly coming sooner rather than later, chances are interest rates will remain low and money will remain cheap. Stock market returns for the long term investor over the next 5-10 years could be well within historical averages, if not better, if interest rates remain low.

      Just food for thought.

    • Jwheeland June 21, 2017, 9:24 am

      Also, you win from putting it in the tax-deferred account. Madfientest has great posts as to why. The tax savings most likely more than offset the “negatives” of investing it all at once.

    • Eric June 21, 2017, 12:05 pm

      Think of bonuses like this on a lifetime scale instead of a yearly scale. Chances are you’ll have at least 5 more “windfalls” of around $10k throughout your life. Bonuses, inheritances, house sales, etc. Even if you invest them they day they hit your account, you’re still “dollar cost averaging” over your lifetime. Yeah you might get hosed on one or two of them, but that will be made up for with the win you get on the rest of them.

      If this was a lottery win of $10 million I think you might be better off being cautious, since that’s a once in a lifetime event and you only get one chance at it. For $10k, play the odds (invest immediately). Even if it doesn’t work this time, when you do it again in two years it probably will.

    • Tree Man June 21, 2017, 1:53 pm

      Don’t look at the $8200 as an all at once investment into equities! Ask yourself how does it effect your overall investment plan. Most people don’t beat the market when investing, it’s statistically impossible. Timing the market is very difficult if not impossible. Figure out how much in the way of fixed investments, participatory equity, bonds and cash let you sleep well through market gyrations.

  • HP June 20, 2017, 10:02 pm

    I would guess it begins with the private markets (AKA private equity…Uber and the like) and causes spillover to the public markets. It won’t be big, but instead will be concentrated in tech hubs. (SF, Austin, LA, Boulder, etc) it will certainly be a good opportunity to buy blue chips on sale as the baby is thrown out with the bath water.

  • Jibba June 20, 2017, 10:05 pm

    I’m not worried about subprime auto loans. The average age of the US vehicle fleet is 11.6 years, and trending older. This means that overall, cars are more reliable and lasting longer, and implies that people are keeping them longer (or buying used). Nowadays every car company seems to be giving cars away at 0% (or up to 1.9%) financing. At that rate, you pay nothing today, with a nominal cost close to the inflation rate on incremental payments, and can use the lump sum you would have spent up front to invest with.

    Student loan burdens and increasing health care insurance costs are making the economy grow slower than it could otherwise, since there is less money to be spent at the consumer level. That is effectively pushing a recession out further, by slowing our growth down to moderate levels (and backstopped with an accommodative Fed). A healthy economy chugging along at 1-2% each year is not one that is begging for a recession. It is just sort of plodding along.

    A serious correction in another part of the world could create problems in ours. Almost half the S&P500 earnings are had overseas now. A big drop in earnings that is sustained, could leave investors reaching for safety and drive up treasuries again. I hope this doesn’t happen, as the Fed doesn’t have much left to give us on interest rates. The yield curve could invert quickly, with short term paper offering higher rates than long-term.

    War could break out in Syria, and involve Russia to some extent, driving up the price of energy to Europe, leading to inflation there that cannot be overcome by the fragile economies of smaller EU member states, leading to more bailouts and more countries leaving the EU. Losing stability in Europe, and war, is a huge wild card.

    Puerto Rico bailouts could force a strangle precedent in the US, and open the door for State bailouts of various indebted areas of the country. Unfunded pensions and the like could sink the deficit, and lead to all kinds of nefarious political unravellings, leaving the citizens with a loss of confidence, which could lead to businesses not hiring new people, not investing in equipment, not shipping items, and layoffs.

    A huge earthquake could level silicon valley, with massive casualties at some of the largest companies, with major disruption to the ongoing work there.

    Uber could go bankrupt, and lose all of those VC’s 10’s of billions, and lead to a silicon freeze.

    • A A Rod June 21, 2017, 2:12 pm

      I’m a loan officer at a small credit union and I can tell you what I am seeing here in the trenches. The average age of a vehicle on the road may be 11.6 yrs but places like Ascend Federal Credit Union are not making loans on vehicles that are older than 10 years. It does not matter if the applicant has a 800 credit bureau score, the vehicle has low mileage and is in great condition. I would do a loan on a 2007 Honda Accord in a heartbeat but a loan on a 2007 Ford Whatever…. nope.

      Another thing I am seeing. Places like Regions Bank are not doing loan for people with score below 630 and 620. It used to be that 600 was their bottom limit. It think it is telling that they have raised that number.

      • Paul D. Bain June 26, 2017, 2:53 pm

        A A Rod wrote:
        places like Ascend Federal Credit Union are not making loans on vehicles that are older than 10 years. It does not matter if the applicant has a 800 credit bureau score, the vehicle has low mileage and is in great condition. I would do a loan on a 2007 Honda Accord in a heartbeat but a loan on a 2007 Ford Whatever…. nope.

        A. A. Rod,
        Thank you for posting this information. It confirms what I have read elsewhere (the readers’ comments on ZeroHedge.com), and explains why the price of cars >10 years is so danged low as compared to, say a car that is eight or nine years old.
        — Paul D. Bain

  • Steve June 20, 2017, 10:23 pm

    It’s always entertaining to read the ‘bring it on’ folks. While I understand the sentiment, they also probably underestimate the process of going through the pain. Also, unlike other painful natural cycles like forest fires and hurricanes that ultimately promote biodiversity and reset for renewed growth, it is questionable that human finance follows this path when you have to resort to TARP, quantitative easing, and propping up a ‘too big to fail’ system. Maybe we come out the other side of this next ‘big one’ at a similar state of prosperity and cooperation where the FIRE ideal is reinforced – or maybe not. Any number of things could go wrong, just look to history. USA was certainly not always #1 and it’s hard for any dominant culture to endure for much longer – power/wealth structures take hold and restrict progress, innovation stagnates and rests on its laurels, or the system simply supports too much growth for its own good – and relieving the pressure of the bubble becomes chaotic. I’m not predicting imminent gloom and doom, but perhaps we are analogous to a larger version of Japan – the torch of innovation for the next generation could conceivably go to China and then India, with their rise of the middle class market and skilled labor (augmented by outsourcing and globalization), and where the largess of US trade imbalance flows have ended up… Just a thought, I certainly hope Americans don’t become complacent that each market downturn is simply a better opportunity to ‘stock up’ and collect rents via the US stock market…

    • Mark July 4, 2017, 4:52 pm

      Excellent points about propping up a “too big to fail” system. Propping up the failures doesn’t allow the system to cleanse itself. I think that’s part of the reason why the recovery has been so slow.

  • Jfig June 20, 2017, 10:31 pm

    Also think a recession hits in 2018. A lot of the stock speculation currently is based on the idea that huge corporate tax cuts promised by Trump will create higher corporate earnings. Eventually the reality of congressional inactivity (often a good thing) will burst that bubble. I remember all the pundits touting the “New Economy” in 2006, in which the market always increases. Sadly, I’ve seen similar pundits spouting the same theories this year. No greater example of this than Tesla stock, a great company, but worth no where near its stock valuation. Of course I just read the “Tesla stock could hit $1000” article from an “expert investor” (who of course has a financial interest in the stock, which he’s probably hedging while touting), that I’m sure is being used to draw more investing moths to the flame.

  • Friendly Russian June 20, 2017, 10:41 pm

    I am not worried about these cycles of ups and downs. We don’t have any debt; zero, nada, ноль.
    We both have really good jobs, and 6 month worth of living emergency fund.
    The only thing I am worries is my down payment fund. We are saving for a house and keep all the down payment money in one of the S&P500 fund. The only question I have is “what to do with this money?”

    • Nathan June 21, 2017, 9:44 am

      Near term, that money you are saving for a down payment should be in a high-yield savings account… not stocks or even bonds. There is just too much risk (that is probably not being priced in the markets).

      If you are looking to use any monies in two years or less, it should be stored in a much more liquid, stable asset. Ally bank now offers 1.05% on its online savings (other online savings banks maybe near that level too).

      Unless you are willing to put off the house purchase for several years, I’d pull the down payment monies from the S&P 500. MMM’s post is a good wake up, that things won’t be going up forever. A good rule of thumb is Money you Need in the Next 2 years should be in a simple savings (FDIC insured) account. Even bonds are subject to swings in valuation prices.

      • Ashley June 24, 2017, 11:31 pm

        I have an online savings account with GS bank (Goldman Sachs online branch). 1.20 % APR…I like having some money parked there, and i’ve been happy with that account

      • Jeremy July 5, 2017, 6:13 pm

        I’m in a similar boat as Friendly Russian. I have a lump sum of taxable $$$ sitting in Fidelity and invested in the S&P500 or Total Market funds as well as another smaller lump sum invested in various fee-free and low-cost ETFs. I’ve been reading up on real estate and trying to prep myself for investing in property when the next bubble comes. It it a pretty ‘safe’ bet to assume that real estate prices would drop in conjunction with the stock market dropping due to a bubble? On one hand, it hurts to have that much $$$ sitting around not growing but I suppose it would hurt more to see it disappear in the course of a week or day! The other thing that I’m wondering is if I should pull *all* taxable monies from the S&P 500 and put it in a high yield savings account or CD, even if I may not plan on using all of it for the purpose of a downpayment. It’s tricky trying to figure out how much I’d want to set aside for a downpayment(s) in the case of waiting for the next bubble to purchase.

        • Mystic July 20, 2017, 2:08 pm

          Look into Harry Browns permanent Portfolio or Ray Dalio’s All weather style fund. If you had good run in the stock market and want to protect your upside, its wise to modify your portfolio if you think there are good chances of market correction in 1-2 years. If the market goes up 8-10% next two years, with above mentioned portfolios, you maybe up 6-8% but with much less volatility, whereas in event of a correction or crash, you won’t loose as much. In 2008, if S&P lost 38%, all weather lost 3.4%. Maybe you want to look into those portfolios.

  • kuk June 20, 2017, 10:41 pm

    As someone who has experienced hyperinflation in my lifetime and whose grandparents experienced 5 or 6 currency changes, all started with either complete old money being completely useless or ridiculously devalved: True independence comes from you being happy with riding a bike instead of the clown car and you being able to fix it yourself and your carpentry skills. All the stocks are imaginary.

    • Diego June 21, 2017, 5:47 am

      I am in the same boat (called Brazil). :)

  • Kiwigirl June 20, 2017, 11:28 pm

    This was my favourite line “bank-financed gas-powered racing sofa ”

    • Trip June 21, 2017, 1:06 pm

      How does he just keep coming up with this awesome one-liners? Perhaps he moonlights as a stand-up comedian…

      • BestPal June 30, 2017, 11:15 pm

        I think he meant to use the word “luxury” too in this statement, so in being true to MMM nature it really should read: “bank-financed gas-powered LUXURY racing sofa”.


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