A Once in a Decade Event in Upon Us
But it could possibly be a once in a lifetime event too
Every week, when I sit down to write a new post, I always ask myself: why are you spending time writing this stuff?
And every time I ask myself that question, the same answer pops out: because sh*t is about to hit the fan and you can’t keep that knowledge to yourself.
And so, here we are - yet another week and another post of me trying to get as many people I can to realize what is about to happen so that they can prepare.
Look, this is not Noah’s Ark, and I’m not Noah. The world is not ending, and the globalist New World Order and the WEF network is not going cull 80% of the global population. At least, I hope not. The point is that there is a lot of speculation leading to many labelling such ideas as conspiracy theories.
What I’m talking about is not speculation. It’s straight up data, backed by historical cycles that we, as the human species, have repeated over and over again throughout our existence.
If there’s one thing that never changes, it’s us: humans. We never change, and history has all the proof to validate that statement.
When there is an imminent and potentially life altering event, you should learn about it, even if it is outside your domain. The current imminent event I am referring to has to do with our economy and financial markets. Even if these are not things that you are have an interest in, you should understand just enough to know the “how” and “why” so that you can at least prepare.
My job is to make things easy for anyone to understand the basic concepts - that is what I offer to you. If economics and finance are already in your domain of knowledge, additional perspectives can supplant what you’ve already constructed in your mind.
So what do I mean by potentially life altering? Let me show you - I’ve lived through two of them: the DotCom bust in 2000, and the 2007/8 Great Recession. In both cases, more than half the people I knew fell into hardship. They either lost their jobs, lost their house, lost their retirement savings in the stock markets, or some mixture of those unfortunate events.
This is a chart of the stock market that shows what happened in 2000 and 2007/8. It is a great chart made by Ron Walker over at Charting Prodigy that I want to bring to your attention because it summarizes what happened, and what is about to happen.
In both episodes, the stock market crashed over 50%. There were a lot of job losses - everybody, and I mean pretty much everyone I knew, at some point was worried that they were going to get laid off. There was much pain, and for many, it took years of tough slogging to get out of the quagmire they found themselves in. The worst hit were the older people who didn’t have as much time to recover, financially speaking.
However, there were a few who benefitted greatly from those collapses. Michael Burry from the Great Short was one of them. So was Ray Dalio of Bridgewater Associates whom I worked for. In fact, I was also one of the few who benefitted as well, even if I’m no billionaire.
Now, let me boil things down to three simple concepts that Sable (RIP), my Labrador Retriever could have understood:
Topping Process
Fed Pivot
Recession indicator
Topping Process
A topping process - with the keyword being ‘process’ - occurs when the economy and financial markets finally break down after many years of expansion. We are talking in terms of years, and even decades of growth and expansion - this is also known as a Bull Market. Everything is great, and towards the end, things become frenzied - as if everyone was on some drug induced high thinking that nothing will ever go down, ever again. Remember back in 2007 when people were hollering that house prices will never go down? I do, they (and that includes my parents) kept telling me to buy buy buy! And I kept saying hell no no no. Good thing I didn’t listen to them.
Well, there indeed is a powerful drug, and it’s called low interest rates - something that the Fed controls.
Now the key here is that it is a process. The economy and financial markets don’t slam on the brakes and make a U-turn in a week or even a month. Instead, it churns up and down and up and down over many months, sometimes even a year if the run-up to the topping process has been elongated due to reckless administration of the drug known as low interest rates.
Want to know what happened after the last recession we had? Make sure you don’t miss that red arrow:
That’s right - basically, since the 2007/8 recession, we haven’t had a real recession. We had a blip during Covid when everything shut down, but then the Fed and the Treasury went berserk and printed insane amounts of money out of thin air.
In fact, we have just witnessed one of the longest, if not longest, Bull Market in all of history. You might be wondering why. You also know the answer.
The Fed has pumped the economy and financial markets with so much drugs - that low interest rate thingy - that we’ve just been on an incredible high. And just like any drug, we need moar and moar of it to chase the high. This is all and good until Covid happened which spooked the Fed and Treasury so much that they decided to upgrade the drug from the stepped-on, low quality street stuff to 100% pure cocaine straight from Bolivia. How did they do that? Well, they printed a ton of money out of thin air which they’ve been doing, but this time, they literally stuffed into the pockets of people: enter the stimmy checks.
Covid unleashed a lot of unintended consequences, but the most significant one nobody talks about is how it gamed the Fed and Treasury to panic and unleash the inflation genie, effectively ending one of the longest Bull Runs in history.
The result of this was something called inflation, and that was the canary in the coal-mine portending an upcoming end to this artificially juiced Bull Market that has been extended way too long. Imagine having a stomach ache and instead of going to the bathroom you just pop more pills to calm things down? Well, at some point, you’re going to have to go - it’s inevitable, and the longer you wait before you go, the more violent things get!
Fed Pivot
The Fed Pivot is what occurs when the Fed, after increasing interest rates for many consecutive months, pauses and then eventually reverses course and starts cutting interest rates.
Remember that pesky thing called inflation that was unleashed by the Fed and Treasury as a result of getting spooked by Covid? Well, there’s medicine for that. It’s called: high interest rates. It’s the opposite of low interest rates, and just like Narcan, the drug they administer to people who have overdosed on opioids to save their lives, high interest rates can combat inflation.
So basically, after over a decade and a half of doling out the drug of low interest rates to juice everything up and keep elected officials happy and in their posts, and unexpected phenomenon called Covid barged into the scene and ended the party. These academics at the Fed and Treasury thought they could get away with printing and stuffing money down people’s pants without raising the inflation genie from the lamp. When inflation came to the party, they poo-pooed it as “transitory” for the longest time until it finally - like Joe Biden - became too obvious to hide. And that’s when they panicked and raised interest rates to combat the now non-transitory inflation at a record pace.
Let me pull up that chart from above once more:
You see those squares at the tops of the 2000 DotCom bubble and the 2007/8 Real Estate bubbles? Those were the topping process where the Fed decided to pivot and start cutting rates after raising them. In fact, the last time a significant pivot happened was on Sep. 18, 2007 - one day after my birthday.
Guess what’s about to happen this time around - yes, you got it: the Fed will finally pivot and cut interest rates at their meeting on Sep. 18, 2024. You can’t make this stuff up - unless you don’t believe we are living in a simulation, but that’s another post for another time.
You know what will happen once they pivot - just look at the past.
Recession indicator
Ok, so for this third and final concept, I will not go into the depths of financial jargon and lingo. At the same time, I am also not peddling “trust me bro” logic so if you’d like to dive into it, here’s one of the many places you can learn.
Put simply, there is something that has always predicted a recession - without fail - for the past 70 years. Some academics might try to argue it gave a false signal once, (once in 70 years? stop it now) but even that is debatable and why waste time splitting hairs on minutiae when in aggregate, it is inarguably a very, very, very, very accurate predictor. It is in fact the most accurate predictor, even if some crazies will try to sell you the “this time is different” Kool Aid spin.
If you ever meet someone in finance who utters the phrase “this time is different,” run away as fast as you can.
It has a name befitting of snobby nerds: Yield Curve Inversion.
Forget about the name. It doesn’t matter. What matters, is this:
See those grey bars? Those are recessions. Whenever that blue squiggly line goes below zero, bad things happen. But bad things don’t happen immediately. In fact, bad things happen only after it gets back up above zero again, after some lag. This chart is nice enough to show you the lag for the past recessions.
So, guess what just happened this past week? Yep, we went back above zero (for the nerds out there, this is called an uninversion, and for the hardcore geeks, it’s a bull-steepener uninversion, which is doubly bad) after being below zero for the longest time in history. That’s right, the only time we were below zero for this long was in 1928… you know what happened after that? It’s called the Great Depression.
Now, if you look at the lag times, we’re talking about months but not years. Remember what I was saying earlier about the Topping Process? It’s the same time frame.
So if you’re reading this and haven’t done anything to prepare, there’s still time. But time is indeed running out, and trust me, you don’t want to get caught with your pants down when your job or business is on the line sometime next year when the hammer comes down.
Want moar? Well, you can upgrade from three to five signs I’ve been watching over here:
Can you elaborate more on what we all can do to prepare better?
I f.e. atm in the process of buying a house (not in USA). And seems by all sources buying a house before recesión is a bad move. Tho thing like family security is pretty hard to calculate.