The Last Market Cycle (as explained by Netflix)
In the first of a three-part post about the nature of housing markets, I talked about our position in the current US housing market, in part described through the rationale laid out J Scott's Recession-Proof Real Estate Investing. As someone who has been in the real estate market for less than 5 years I have had the pleasure of seeing only one sentiment towards real estate investing: namely, that it works, is easy and essentially guaranteed to make money in a year or two.
That is, however, subject to change at a moment's notice, and inevitably will change over the span of months and years. As Keller/Jenks/Papasan point out in Shift:
"there are three types of people who emerge when a market shifts. First, those that fearfully predict the worst and are unnecessarily pessimistic; second, those who hopefully with for the best, believe they can't fail, and are unrealistically positive; and, third, those who respect the fact that they might fail, actively prepare for the worse, and strive for the best." (24)
Enter everyone's favorite replacement for quality time with friends and family:
With palpable concern regarding the long-term ramifications of today's current market volatility and uncertainty, I've been watch and re-watching the Netflix Decades miniseries (consisting of the Seventies, the Eighties, the Nineties and the 2000s) to attempt to identify trends. What I've found, whether intentionally or not, is this CNN original series has essentially chronically & summarized the entirety of the last full market cycle:
-Recession: 70s Ep 5: "The State of the Union is not Good"
- Recovery: 80s Ep 3: "Reagan Revolution"
-Expansion: 90s Ep 6: "Information Age", and
-Peak: 00s Ep 6: "Financial Crisis"
As a modern day, younger investor without the boon of exposure to differing market cycles, I think so long as that programming remains on Netflix it offers an excellent opportunity to look critically at what the last cycle has felt like in all parts of the cycle. If we are to trust ourselves to not freak out and sell at the bottom of the next crisis, whenever it comes, it would be of value to know something of what the bottom felt like to others who have experienced it in our lifetime.
With that, let's review and critically analyze the news clips and expert interviews CNN felt was most representative of the times.
Example 1: The Peak Phase. The 2000s Ep 6: "Financial Crisis"
Market Clues (as described by Recession-Proof Investing):
There's Irrational Exuberance among the masses (73):
"There was a sort of euphoria where the American dream of owning a home converged with the American dream of risk-free investments. Or, you might say the myth of the risk-free investments."
"People were saying to themselves 'you're going to give me a mortgage when I don't have any money in the bank. When I don't have a job, when I can lie on my form & sign it, and you'll give me the money anyway; essentially giving me a free option to buy a home? I'll do that all day!' People love free options."
Banks are offering risky loan products: See the subprime mortgage crisis
The gurus are out in force (74): Bernie Madoff, Bear Stearns and Enron are mentioned in the episode as "guru" institutions promising steady, predictable growth on what ended up being smoke & mirrors.
Unemployment rate has leveled off at full employment (74): (c/o Business Insider)
Housing supply hits an inflection point: (c/o Fed Reserve Bank of St. Louis)
What was the media reporting?
"The idea that these big, powerful businesses are going to restrain themselves and play by the rules without oversight is revealed to be a fantasy"
"There was this rampant fear of missing out. People were quitting their jobs to buy houses and resell them for a profit"
When Bear Stearns faced collapse: "the fact that a Wall Street firm could lose 90% of it's value in one weekend, has some convinced that markets in the economy has farther to fall"What can we learn?
Crippling fear/panic breaks out very quickly:
"They say on Wall St that nothing happens until the lines of fear and greed cross. And there is no better example of the lines of fear and greed crossing than the Lehman bankruptcy of Sept 15th, 2008. The markets were fearful."
"Nobody understood what was happening. They couldn't believe that these grand institutions were about to come undone. And they were waking up in the morning and realizing it's worse now than it was before."
Problems that initiate market shifts are deep seeded, multifaceted and difficult to predict.
"That $700 billion projected price tag isn't pretty, but the president said 'it is a big package, because it is a BIG problem.' "
"that's why Wall Street has always been a very dangerous place. And it remains a very dangerous place. There's plenty of reasons why the same thing could happen again, in the near term."
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