This Time Is Different And The Same

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During their latest episode of the VALUE: After Hours Podcast, Cochrane, Taylor, and Carlisle discuss This Time Is Different And The Same. Here’s an excerpt from the episode:

Tobias: How do you feel about the economy, absent this little metric? Do you have a view?

Matthew: Well, I won’t be surprised at all if we go into recession. There’s a lot of factors at play. We still have a persistent high inflation that I wish was lower. The Fed raised rates really fast. We just had some bank failures, fail from that stress. At the same time, I just wonder, and again, I’m not going to be surprised if we go into a recession. But Toby, we talked about this last week. COVID just made everything so funky, for lack of a better term. I feel like it just mucked up the picture so much. We had interest rates go to zero and now they rose the fastest they have I think ever. We had supply chains just you almost turn a switch off and now they’re being turned back on. You just had so much stuff going on. You had a whole bunch of stimulus go to the economy from the governments, and now you have tightening.

I just wonder if, say, at least maybe the steepness of the curve– I know you said that’s not really an indicator of the recession coming, but it does make me wonder though, with just so much mucked up, if this– Again, I’m not going to be surprised if we go into recession. In fact, if you made me guess, I would say I think we are, but COVID just really mucked up the picture, right?

Tobias: Yeah. It muddies the inputs, it muddies the data as much as anything else.

Matthew: Yeah, as much as a lot of muddiness there. So, I just wonder about all this.

Jake: Yeah, I think my counter to that, I agree, but it would be, like there’s always something weird, it seems like, going on that you make it– You always say like, “Well, it’s different this time, because there’s a housing boom in 2006, or there’s a tech boom in 1998, or rates were too low for too long, or rates moved up too fast.” There’s always shit going on.

Matthew: This time is different.

Tobias: This time is different. It’s never clear looking forward. At no point in my career has it ever been like, “Oh, this is obviously smooth sailing from here.” So, I don’t know. I bet if we read journal entries of ourselves at this point, we would say like, “God, it seems so uncertain.” And we’d been saying the same thing 3 years ago, 5 years ago, 10 years ago, 15 years ago. [chuckles] That’s just the nature of– [crosstalk]

Tobias: I distinctly remember how scary– The fourth quarter of 2008 and the first quarter of 2009, how scary those two were, just because the volatility was huge, the market was moving around so much. It was like March 2020 for those folks who haven’t been around for that long. [crosstalk]

Jake: But for months, not just for like a weekend.

Tobias: Yeah. It was a little bit like this. It had dragged on. We were down a lot. It had been for more than a year.

Jake: That’d [crosstalk] summer of 2007?

Tobias: June 2007 I think was the top. And then [crosstalk] whatever it was, September, October 2008, like a year and a quarter later, and then the fireworks started and it was two quarters back-to-back of massive dips and drawdowns in volatility. Funnily enough, through that period, I was buying net-nets because I thought if the market goes to zero, the net-nets at least have liquidation.

Jake: Liquidate.

Tobias: Might have been a little bit caught up in the moment. But I thought yeah, when they liquidate– I think that was a good place to be, because they don’t come around very often. But I still think even though the picture is muddied, if anything that suggests to me that there’s reasons to be cautious rather than reasons to dismiss those things, but I do take your point. I think it’s a fair one that the data is not very good across just every sector. You can’t have oil going negative.

Jake: What’s normal? How do you normalize anything?

Matthew: Yeah, it’s a great point. Everybody feels like they live in unprecedented times. That’s a great point. It’s a great point.

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