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Have you felt the negativity as of late? If you’ve flipped on the TV or browsed the world-wide web at any point recently, it’s impossible to miss. News headlines swarm with warnings of an economic free fall, yet it’s not mirroring what’s happening in today’s reality. In the real world, retail stores, airports and restaurants are packed.READ THE ARTICLE
The reality behind your screen: Summed up here, we are “in this weird spot where everyone thinks the economy sucks, but everyone acts like the economy is booming.” So, which is it? Current economic data is mixed. Employment is high, inflation is bad and consumer sentiment is very low. If enough people act on the negative feelings they have toward the economy and progressively spend less, we could create recession territory - Or, a “vibecession”.
Mean reversion: Simply put, an explanation of today’s bad vibes can be described as a concept called “mean reversion”. Over the past two-plus years, we experienced so many strange economic occurrences all at once that after some time, the environment became our “new normal”. For a period, the market rebounded and produced high returns, interest rates were cut to zero and spending soared following trillions in stimulus packages. Nothing about this was normal, but it was euphoric. Now, as we return to a more “real normal”, it feels as if everything is crashing; however, that has more to do with our current perception of reality, versus the reality itself.
My thoughts: The assessment of mean reversion as an explanation for much of today’s weirdness may be one of the cleanest, non-sensical conclusions that should also give you some confidence in where we are headed.