This time it’s different, or not

Opulent housePhoto courtesy of raymondclarkeimages

If there’s one thing we are biased toward, it’s the sense the present is somehow different from everything that came before. This can refer to financial affairs, sure, but it also refers to anything: education, technology, social interaction, you name it.

But it’s just a feeling. It’s actually never different. Or rather, it’s always different but in the same way.

Here’s what I mean:

The dips

I can remember a few financial bumps in the road: I had graduated college right before the dot-com bust of the early 2000s. And I was in the workforce when the housing bubble burst in the Great Recession of the late 2000s. Both times were a little scary, though the latter hit much closer to home.

I remember seeing gas prices hit $4/gallon, and I believed thought that soon it would hit $10 or even $20. Our economy, so tethered to the car, would collapse, and we’d all be in big trouble. I remember taking a roadtrip in 2008, partially because I thought it might be the last time I would ever be able to afford to take one.

Meanwhile, a few days ago, I filled up my car for under $3.00/gallon. I’m still waiting for that economic collapse.

(I’m still waiting for us to be less tethered to cars too. By no means am I suggesting that artificially low gas prices like we have in the U.S. are a good thing. )

The bumps

But at the same time, I remember the “irrational exuberance”.

I remember my lab partner in my last year of college talking at length on his day-trading exploits. I don’t know if he was particularly skilled at it (though I have a guess), but I do know that he was making lots of money just by doing arbitrage. I wonder how much he lost when the game was over.

Similarly, I remember the mid-2000s habit of “flipping” houses for extreme profits. As a case in point, not only was there a TV show called “Flip This House“, there was also, unbelievably, another show on at the same time called “Flip That House“. I’m not joking.

Both launched in 2005 and were (unsurprisingly) off the air by 2009.

Today

Which brings us to more recent times.

Today, the stock markets are trading at record volumes. Just look at this chart:

Stock chart 2017

All charts from Google Finance

That is the Dow Jones index (blue), S&P 500 index (red) and NASDAQ index (yellowish), from the beginning of 2017 to today.

Isn’t that exciting to look at? The money just grows and grows. 30% returns!? Happy days are here again

Here’s another graph:

Stock chart 2006

Note the date

Another happy time! How much fun is this?

Except, this graph was from mid 2006 to mid-2007, and was followed immediately by:

Stock chart 2007

This in one downhill that’s no fun.

Up and down, up and down

Now, my point here is not to suggest that we are due for a market crash. I, like so many others, predicted a giant cratering of the market following the U.S. election of 2016. That never happened, clearly. We might be due now, but I really have no idea.

And I’m not even suggesting that a huge market crash is a bad thing. Not to get all hakuna matata on you, but it is in the nature of our economy that things rise and fall in cycles. I don’t time the market, and I don’t want you to either. Leave your 401(k)s alone, even if you believe a giant crash is coming.

What I’m suggesting, rather, is that we appear to be in a state of “this time it’s different” once again. Valuations are high, people are confident, and everyone seems to be a bitcoin millionaire. But how is that any different than being an IPO millionaire 20 years ago?

I only hear weak concerns about how these particular fun times can’t last. As always, these contrary voices are drowned out at the party by people who are loudly winning.

This time is not different. Or rather, “this time is different” is the only thing that stays the same.

But enough about me. Are you worried about today’s economy?

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey
Posted on January 21, 2018