Financial Disasters Don't Repeat, But They Rhyme

 
"I'm never going to make that foolish mistake my parents made!" you said.
 
And I said.
 
And everyone else said.
 
Experience counts…
 
Once you touch that hot stove yourself, you know you will never touch it again. And when you see family members make a life-changing mistake, you learn that you don't want to go through that yourself.
 
The problem is, we are fooled by experience…
 
We put too much weight on what we have actually been through.
 
The same thing happens in the financial markets…
 
Many young adults today saw their parents get crushed in the housing bust a decade ago. They saw them end up-upside down on their mortgages, and they swore they would never end up in that position.
 
But young adults are making this borrowing mistake in other areas. And they don't even realize it…
 
"Americans' love of pricey pickups and sport utility vehicles is stretching their wallets," Bloomberg news reported last week.
 
Who needs a $70,000 pickup truck? I have no idea.
 
But a Ram "Big Horn" truck can set you back $70,000 or more. For a pickup truck!
 
Guess what… According to the Bloomberg article, the Ram truck brand has an average loan term these days of 73 months. 73 months!!!
 
The article says that two out of three vehicles sold in the U.S. these days are "light trucks" – a category that includes SUVs and most pickup trucks.
 
With a six-year loan term, it wouldn't surprise me at all if a number of these loans end up in financial disaster like mortgages a decade ago… where the borrower defaults on an asset that they are upside-down on.
 
The student-loan market is in the same boat…
 
In 2009, total student-loan debt was about $771 billion – a huge number! Or so I thought…
 
By October last year, that number had soared to around $1.5 trillion. It nearly doubled!
 
Student-loan debt is another financial disaster in the making. You can easily make a case that we could see hundreds of billions of dollars in defaults.
 
It's not just financial disasters… You can make mistakes on the upside, too…
 
Young people bought up cryptocurrencies like bitcoin with big dreams. But in late 2017, it turned into bubble, like many others in history.
 
I love learning about financial history. I love finding parallels between today and a time in the past.
 
But one clear lesson from history is this: It never happens the exactly the same way the next time around.
 
That's why it's easy to be fooled… to think that "this time is different."
 
Financial disasters and bubbles don't repeat… but they certainly rhyme. Don't you forget it!
 
Good investing,
 
Steve
 

Source: DailyWealth

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