Am I The Only Person A Bit Worried About The Economy?

The economy has been on a pretty good path for the last 8 years or so with slow but steadily improving job numbers, reduced unemployment, and a rising stock  market.  Many have argued that the slow growth is ‘bad’ but I argued a few years ago that slow growth actually provides a more stable foundation and a softer landing when things do start to turn.

I’m starting to wonder if that turn is starting to happen.  Moreover, I’m wondering if we’ve been used to things moving up for so long that people might be missing or ignoring the signs.

I’m not in outright panic mode but here are a few little things I’ve noticed that add up to a little bit of worry (Disclaimer: You should make absolutely no investment decisions based off of this article, which is 100% opinion).

Why I’m Worried About The Economy

  1. The market is in a trading range. The stock market has bounced up and down between around 1,800 and 2,100 for well over a year now.  The only people making money are the ones that have learned to trade in this range.
  2. Job growth really seems to be slowing down. For most of the last eight years, we’ve seen month after month of new job creation.  However, the numbers seem to be slowing down, with only 38,000 new jobs created last month.  This pales compared to a couple of years ago.
  3. Job growth numbers are being revised down.  Job creation numbers are actually estimates.  Later, the actual job numbers are refined.  Lately, the actual numbers have been even lower.  This is concerning.
  4. A top reason given for equity recovery is kind of BS (and kind of frightening). Have you noticed how much information the market is able to shake off?  It seems like a lot.  Part of it is that other parts of world are seeing market declines.  They’re putting their money here.  That’s all and good, but is it a ‘real’ reason?mb-2015-06-chart
  5. Interest rates. We’re in an extended period of ultra-low interest rates.  Debt has been financed on the cheap.  This has left cash on the sidelines that nobody really knows what to do with.  So they are often buying stocks.  It seems like this is a poor reason to invest.
  6. WARN Notices are on the rise.  Here in Michigan, when mass layoffs take place, the company must file advance notice with the State.  This info appears on their website specific to this information.  Last year, for the first six months of the year, there were 20 notices filed.  This year over the same period, there have been 32.

No Doomsday Predictions Here

I’m not sounding the alarm and not panicking.  I do think there are signs that the growth, as slow as it’s been, may be flat lining at best.  So far the markets have been shrugging off every bit of negative data that comes out.  Still, I don’t trust markets as any sort of leading indicators these days, not with a majority of shares traded each day being done by computers.

Readers, what do you think about the state of the economy right now? Where do you think it’s headed next?

19 thoughts on “Am I The Only Person A Bit Worried About The Economy?”

  1. Living in California, sometimes it’s hard to see the market slowing. We seem to have great booms and great busts. The stock market definitely seemed to correct itself earlier this year, but so far our housing market is still going like gang-busters. If the economy is slowing, I’m guessing we’ll see it later this year in CA. And if that happens, our real estate market might plummet again. But it’s too soon to tell.

  2. I am also a little bit worried about the current state of the economy. It seems like every time Janet Yellen sneezes, the financial writers seem to quake in fear. I really wish they would have raised interest rates long ago. These near-zero rates combined with the enormous amounts of money pumped into the system via quantitative easing leads me to believe there has to be a market correction. Lucky for me, I’m in for the long game and will be able to purchase funds at bargain rates. I’m more concerned with the Baby Boomer generation’s will to weather the storm, particularly if they are in retirement. Home values are another concern for me as we recently purchases a house. Great article, thanks for posting!

  3. No, you’re not the only one! I’m in neutral at the moment with a leaning towards uncertainty. I’m not seeing all the signs that you are (I didn’t know about the WARN notices, for example) but as Little House noted, our real estate market is still high and doesn’t seem to show signs of slowing down yet. I’m thinking that we might be ok to hold more cash in case we see a serious market correction in the next year.

  4. Im not going to lie I have had the same sentiments since late last year. To me it feels like it has no where to go but down but what do I know.

    Its good to have the thoughts in the back of your mind though to prepare if anything bad does happen.

  5. Uh huh. There’s a fair amount of strangeness going on. Just read a piece by Paul Krugman in the _New York Review of Books_. In reviewing a book by Mervyn King, he remarks, “[King’s] assertion that we haven’t done nearly enough to head off the next financial crisis will, I think, receive wide assent: I don’t know anyone who thinks, for example, that the US Financial reforms enacted in 2010 were sufficient.” If that observation doesn’t raise the hair on your head, then look up Paul Krugman: he won the 2008 Nobel Prize for Economics…

    Get out of debt. Pay off the house. Position at least some of your assets in cash.

  6. The problem is knowing what to do with that uneasiness. Here in Colorado, at least in the Denver area, real estate is booming — but we’ve seen this pattern of boom-and-bust before. In fact, Colorado went into it before the rest of the country (including Michigan) did.

    I agree with paying off the house. Not having to pay a mortgage is extremely helpful. Having a regular source of income is extremely helpful — but so are being able to earn money in several different areas. (‘streams of income’)

    Worrying about it isn’t going to change anything, though. And I keep thinking about Buffett’s warning to be cautious when others are not — and vice versa. I did buy some Barclay’s Bank stock when the bottom dropped out after the Brexit vote — and it’s been doing reasonably well, in only a few days. Now may be the time to snag a few profits before you get out into cash. (If cash isn’t devalued, that is.)

  7. I’m worried, and therefore cut costs by refinancing a mortgage and am saving AS MUCH AS POSSIBLE over the next two years. Things are fading, and cash will be king.

    The bond market at record highs is a good indicator for weakness in stocks and real estate.


  8. I AM concerned on many levels….the up coming election….real estate prices….a lack of wage increases….And check out the price of autos, specifically trucks and SUV’s. But my biggest concern is THE DEFICIT. No one seems to care any more about the national debt and it has been increasing and financed for the last 7-8 years with very low interest rates. Compound interest is a pretty amazing thing. When you plug in the numbers to an amortization model the difference between 2% interest, todays interest on Treasuries, and 6-7% the historic “norm”, it can be stunning. Will the US be the next Greece….Puerto Rico…If so, how much will “the social safety net” have to be cut to “right the ship”?

    • You’re right. As far as the deficit, I’m honestly convinced that it’s basically because we went from wondering how we’d ever pay it off to basically understanding that we never ever will.

  9. Great article, but I don’t exactly share the opinion. Everyone is focused on the historical business cycle patterns and that we are due for a recession, or something. But, I don’t buy it.

    First, we live in unprecedented times where central banks around the world have done unprecedented quantitative easing. I believe that history will show that the business cycle has been permanently altered.

    Second, central banks around the world have infinite time horizons. They will outlast any blogger, Wall Street trader, bond vigilante, or politician. I believe that rates could stay this low for decades that the Dow could go to 50,000+ (not without volatility and scariness) in the coming decades.

    Third, further to what I’ve said above, I believe this will happen because we will have very sluggish GDP growth for decades and rates simply won’t be able to go back up in fear of a depression unlike anything ever seen. Ironically, it will continue pushing stocks higher.

    Fourth, companies have record trillions in cash all around the world. This buffer will cause them to be able to withstand business fluctuations. Also, they will use part of this cash to continue buying back shares and raising dividends.

    All in all, sure I’m worried, but I don’t think history can guide everything based on continued central bank involvement. I believe the long term upward trend in stocks is not exhausted yet.

    • Personally, the idea of Central Banks changing things to the level that they are demonstrating brings me both fear and loathing. I see no positive value. That said, I don’t disagree at all with what they’re doing. I just think the risks and implications are very negative downstream.

      Basically, the Fed can’t outright introduce money into the economy without creating a bunch of inflation, which they know is contrary to their purpose. So what they’re doing is basically pumping that money straight into the stock market. It increases paper wealth and since it’s not being ‘spent’, inflation stays low. The stock market goes up, and everybody’s happy.

      Well, not so fast.

      See, one of two things will happen that will wreck this. Actually both probably will. First, eventually people will start to take money out of the markets. If the markets keep going up, eventually people will start cashing in some of that wealth and so inflation will happen. That in itself wouldn’t be so bad but I also think that the second part is where it will get concerning. That ties back to the fact that once the draw of these ‘paper profits’ starts, it’ll end up tanking the markets. And with the fact that 80% of all ‘trading’ is done by HFTs, once this draw starts happening, things will fall fast and furiously. See, the markets won’t collapse when mom & pop cash out their stocks to buy that new vacation cottage. But, when one HFT algo breaks ranks and starts cashing that out, eventually the tide will turn. Maybe not the first time or not even the tenth time, but I guarantee that the selling at some point will be the way the algos go, and you’ll see the markets fall, which of course creates even more selling.

      Where this really enrages me is because when it’s all said and done, the middle class will largely be the ones holding the bag. They’ll enjoy the ride up like most average Americans do, largely by investing in IRAs or 401(k)s. So when the computers start cashing out, mom and pop aren’t going to ‘get out in time’. No, they’ll just watch their gains evaporate. But, the rich elite behind the algos will have already cashed out and will be fine sitting on their cash pile.

      This current Central Bank manipulation (and let’s call it what it is) is basically guaranteeing further destruction of wealth for the middle class at some point down the line. And where it really kills me is knowing that this is basically robbing future generations of the potential of gaining wealth, all so the rich today make more money. They’re basically going all in on this one, or at least they will be if your scenario of DOW 50,000 comes anywhere near true.

      Sorry, but I believe that my children’s generation and those generations after deserve the opportunity to make money, but I think Yellen, Draghi, and all those ‘in charge’ today are slowly robbing them of that chance. Or at least making it a heck of a lot more difficult.

      One other item that scares me is that the current low interest rates or zero interest rates or even negative interest rates seem great, but what’s left? Do people honestly think that will kill any potential financial catastrophe for decades? Yeah, it’s worked for eight years. Fine. But people act like because it’s worked for eight years, it’s set in stone that it’ll work for the next eighty years. What happens if it doesn’t? How many more bullets are left in the chamber?

  10. Exactly. It feels like growth for the past years has been improving slowly, and there are really reasons why it is so. Hope after the election, it produces something good for the economy.

  11. Money Beagle, great points. Yes, the “middle class” will end up holding the bag (as always). The scum HFTers (and others) will borrow middle classers shares (who are investing for the long-term), drive stocks down quick, then buy back at a lower price, thus locking in a profit for themselves. Middle classers and retirees will be left in horror as the DOW drops thousands of points…prompting some to sell. It’s just really messy.

    This is a tough issue. I think there is too much emphasis on cost in investing. Every investor and company offering a 401k or 403b wants to know that their costs are low and that makes them feel proud because the group think accepts modern portfolio theroy blah blah blah…which is great when markets are functioning normally and trending up reasonable. But, where is the risk management??? Why don’t retirees and 401k investors have access to more powerful risk management based, institutional type investments? In my 401k, if I’m willing to pay more, why can’t I invest in a hedge fund that is near 0 beta, but leveraged up to get gains in any environment so that I have a chance at outperforming the scumbags short sellers and HFTers???

    IMHO, this is a major problem that is not at all being addressed because every company is scared to offer “expensive” investments in fear of getting sued. Meanwhile, the scum HFTers and others will take advantage of the good, honest folks who are saving for retirement or already retired. It is very sad.

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