Comes The Business Cycle Bullwhip

Max Can't Help It!
5 min readAug 22, 2022
Changes in real estate asset values and rents

I’m sick of listening to people talk about the coming crash in real estate, corporate bonds, consumer credit and so on. Yet here I am!…

In China, real estate is crashing on a scale never experienced in anyone’s lifetime. The Western press focuses on the fact that buyers bought into buildings that aren’t finished. The problem, we’re told, is that the developers don’t have the money to complete the buildings.

What isn’t said (which I believe, but can’t prove) is that there are no longer enough buyers to keep construction going and what buyers remain can’t afford the buildings, if they must pay the increased costs in materials (inflation).

It’s doubtful China has hit business-cycle bottom. I believe much of what’s happening in China is coming here.

China’s lockdowns have slowed down the economy, forcing many small Chinese businesses in bankruptcy and many foreign firms to re-locate. As if China’s debt problems aren’t enough, the region is going through alternating floods and droughts on a scale, again, never seen in anyone’s lifetime — All developments that will continue to make everything more expensive in the years ahead.

The reason I KEEP BRINGING UP CHINA is that almost everything we buy passes through Chinese assembly or manufacturing.

Sure, demand may fall and China find itself motivated to lower prices. The only obstacle is that if there’s one thing young people in both China and the West agree on — they’d rather eat noodles than deliver goods to boomers at 2019 prices.

War, famine, food lines, death squads, laughter out of dead bellies — all coming back. Already in Europe, in Ukraine and spreading.

A calmer chronology…

In 2020 Covid obliterated all business done through doorways.

Those who worked in non-doorway businesses worked at home and accumulated money. Lots of it. If they had kids at home, that was a pain, so they complained that teachers should teach their kids, in class, and if the school teachers and bus drivers got Covid and died, they shouldn’t have chosen to be old, fat, or whatever.

Humans are dicks and every generation proves it one way or another.

As the pandemic lifted in 2022 the accumulators took their windfall savings and went shopping for better doorways. Prices went up.

Everyone started talking about how doorways were no longer affordable.

What really struck this 61-year-old is that for the first time in his life he lived through a year (2021) where anyone could get a low skilled job at one end, or a tech job at the other (if they were qualified). Every day my mail box filled with tech job postings!

Some people I knew worked three jobs. I wasn’t a saint.

I wish this change in society happened earlier! Let me tell you, not worrying about getting work is quite relaxing! Even better, I have enough saved that I can take next year, maybe the next two years off! Even my daughter is in that position and she didn’t work in tech.

I predicted none of this; I predicted the opposite.

Now I keep seeing the same few jobs that every recruiter, from California to New York is trying to fill.

Lately, I’ve been strapping myself to my chair to prevent Zillowing my way off the cliff with the lemmings. I’ve done that in the past and the lemmings climbed back from the abyss and laughed their way to the bank. Truly, I hope they make a sucker out of this renter once again!

I’ve argued elsewhere, as have others, that demographics for the next 40 years won’t be like the last 40 years.

Current real estate values cannot be supported by current wages. The first wave is all the savers who bid up the properties they wanted. The second wave will be sellers, sitting on empty properties, who will lower prices to pay their increasing costs of ownership. It doesn’t matter what the reason for a whipsaw change in real estate prices; the fact is what jumps up, falls down.

I don’t feel I’m making the above up. Long ago, I read about it in an economic textbook from the 1920s.

“Business Cycles” Wesley Mitchell 1927

If a person comes in to buy a house or fancy car and their income shouldn’t make that possible then don’t you think he was either given money or borrowed it?

What enrages many who study economic history is that business cycles have been studied for 200 years. As of yet, there is no cure.

Yes, a mostly bull market run since 2008 suggests governments may have figured out how to tame the cycle. Recently war in Ukraine, China’s surrounding Taiwan with its navy, and inflation suggest otherwise.

Here’s a data from the unemployment insurance data I collect.

I could talk for hours about this chart. I’d sound nuttier and nuttier. Both initial and continued claims have never been lower. The media likes to repeat the argument that this shows a healthy job market. Perhaps. I believe it shows extreme levels of income inequality — which will lead to violence and throw a bucket or two of cold water on the whole economy.

It shows a low-turnover unhealthy job-market. Changing jobs is part of a healthy economy.

I believed the business cycle would turn in 2019. It didn’t. Was the pandemic the downward end of the business cycle? Or did fiscal and monetary policy disrupt the U.S. business cycle with consequences to come? Or did they get it right and human spirit will prevail?