The Next Recession Will Start ....

Daniel Shainberg
September 13, 2018

One of the most famous perma-bears is economist and NYU professor Nouriel Roubini who stated today that "although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it." How in the world does he know that? 

It is true that we no longer have the same policy tools as our national debt and leverage ratios are stretched. But calling the timing of the next recession? That is silly, and it's no wonder it came from the economist who had the timely call on the day of the post Lehman market low forecasting another massive leg down! On the exact day of the market bottom in March 2009 Roubini was extremely bearish. Those listening to this self appointed market guru missed the greatest rally in 70 years. Again in 2010 Roubini warned that "stocks are likely to continue their aggressive decline and shed another 20% as the world economy weakens." He continued "there are some parts of the global economy that are now at the risk of a double-dip recession. From here on I see things getting worse." 

A broken clock is right twice a day. And Roubini will be right about another recession but not because he has a crystal ball on the future of the economy. It will come because it always does. That's capitalism: Bulls & Bears. Greed & Fear. 

The most we can do as investors is prepare for the inevitable. Those who get carried away with the momentum hype may see their profits disappear quickly as we have seen with the dot-com, housing and most recently, the crypto boom & bust cycles. Some people like to ride stock trends thinking they can liquidate their positions as soon as volatility enters. This is a dangerous way of thinking although it could make you look and feel smart for awhile. 

The beauty of value investing is that while short term pain is always to be expected in the stock market, over a 5-10 year period, value investors can rest assured that if there diligence and research is even mildly accurate, they should see decent risk adjusted returns. 

John Kenneth Galbraith was one of our most famous economists. Commenting on the ability of economic forecasters, Galbraith stated: We have two classes of forecasters: those who don't know - and those who don't know they don't know. 

Warren Buffet also has great quotes about forecasters: "A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting."

Here's how I think of it... I do not know what I'm going to do next week. I certainly have no clue what you will do next week. How in the world am I supposed to predict the the behavior of the equilibrium of the entire world's outlook well off in the future. It's silly. The next recession will happen. Nobody knows when.  

Dan Shainberg
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