Investors Writing on The Wall
After the yield curve inverted, Google searches for “recession” spiked four times higher than their average since 2004. Now, a Nobel-prize winning economist fears we could be talking ourselves into a recession!
Robert Shiller is not your run of the mill stock market pundit. When he speaks, everybody listens! As the author of several investing classics, Shiller calls out the claptrap in the markets! When analysts weigh in with their forward predictions, he’ll point out their past records. When companies report miraculously good earnings, he’ll point out the backdoor accounting which made them possible. He even has a financial metric named after him. Fittingly, the ‘Shiller PE’ evens out the earnings jiggery-pokery over ten years to give investors a better view of what stocks are worth.
Now, he’s comparing current recession fears to an outbreak of disease! Contagious by word-of-mouth, economic narratives and stories can apparently go viral and turn into self-fulfilling prophecies. Shiller singles out a loud minority who believe there’s a recession banging on the door for 2020. “People are fascinated by this idea of a business cycle,” he says. “So, they say that we’re overdue for a recession… and that gets amplified. A recession happens because people think it will.”
To play devil’s advocate, investors don’t fear recessions as a pleasurable pastime. It’s right to be vigilant. Factory orders have slowed, the trade war has weighed on growth, and retail sales did fall short yesterday. We already knew that “viral irrationality” was rife immediately before and after a bust, but whether it’s capable of causing all manner of economic events on its own is an interesting thought. Even the Bank of America CEO mused upon it in a congressional hearing this year! What do you think?