So... the Fed has continued to drop "helicopter money," though not as much as last year, to prop up the economy as a whole. Assets are overvalued in dollars that are quickly losing value. My predictions for early 2021 didn't really happen. I still expect a 30%+ drop in stocks in 2021, followed by a much needed real estate crash, down to realistic (sort of) prices. That's what recessions and depressions do (This IS officially a depression- Over 10% drop in GDP last year, Q2).
But The Fed's unparalleled creation of new money in the last year and a half has completely warped financial reality. We're in a recession (actually a depression), but Warren Buffet and Charlie Munger at Berkshire can't find major things to invest in? That shows something is seriously wrong. Everything's out of whack, it's financial Never Never Land. All traditional rules are out the window, and the entire economy, and especially asset prices, are complete riding on The Fed's continued drops of new money into the system, and buying garbage assets (corporate bonds, mortgage backed securities, and student loan backed SLABS??, etc.)
Today's paradox: If The Fed STOPS the massive money creation ($120B a month, plus 3/4 trillion dollars every 2 days in Repo/Reverse Repo market, asset purchases, etc.), then stocks, real estate, and most all asset prices fall off a cliff, immediately. The economy tanks in another huge drop. If The Fed KEEPS GOING with the current level (or larger) of new money creation, then asset bubbles continue to grow (though more slowly), and we have high inflation in 2021, really high inflation (20%-40%?) in 2022, and on into hyperinflation. Then they try to throw a NON-blockchain, black box hidden, digital dollar at us, and most people bail off into crypto. Two bad choices. Average people lose either way. Somebody give Janet Yellen and Jay Powell a coin to flip. Best 2 out of 3 wins which lame fate we all get...
This pretty much sums up where I see the economy going in the next 1 to 5 years. We are now one year into what I call The Phoenix Great Depression. I've spent three months trying to figure out how things will play out, in the Big Picture, over the next 4-5 years. But no one wants to hear bad news. So I'm just going to give a quick outline on where I see things going, and leave it here. I'm going to focus more on building new ideas, the economic collapse will happen as it happens. We'll see how things actually play out... "Oh the humanity..."
Late October 2020- The Fed buys everything possible in a frenzy to keep propping up the U.S. stock markets to help President Trump win the election. This is being combined with voter suppression efforts of an epic scale. I'm one of the tens of thousands (or more) American citizens who have been removed from the voter rolls, for no apparent reason (except how I'm expected to vote). The stock markets MIGHT stay at near record levels until the election. But the month of October has this thing for the stock markets, for some reason. Let's just say things will be tense. A big slide down, before the election, would not surprise me. The Republican Party us older folks grew up with has been replaced by the openly racist "Trumpublican" Party. As this power structure continues to blow apart, like the Hindenburg above, the drive to prop up stock markets, at any cost, will fade. If you look at the tail of this once mighty (looking) airship, you'll see a reference to the mentality that's been dominating U.S. politics on the Right, for quite a while now...
November 3rd, 2020- In the most corrupted and manipulated U.S. election in modern history (which is a high bar, after the 2016 and 2000 elections), I think Joe Biden still manages to win, despite a myriad of voter suppression attacks by the Right, like we've never seen before. As the national election results become clear (perhaps over a few days), The Fed can no longer keep the stocks propped up. There would be a major stock crash no matter who wins, but you can only create so many fiat dollars (as a long history has proven) before things start to implode. The stock markets begin to slide dramatically in November/December 2020. They drop to about Dow 18,600 and Nasdaq 7,000. The Fed rushes in (even more than now, because they are continually "rushing in" already). The markets bounce back 20% to 40% from those numbers, then largely stagnate for a year or two. There's nothing left to prop them up. Trillions of dollars in wealth disappear over the winter of 2020-2021.
Late 2020/Jan.-June 2021- We see a massive second wave of Covid-19 spring back up, during the traditional flu season, this winter. The Student Loan Asset Backed Security Market (SLABS), the Commercial Mortgage Backed Securities market (CMBS), and the Collateralized Loan Obligation market (CLO) collapse, because anywhere from 10% to 90% of the underlying loans are not being repaid now. These are our "subprime mortgage" markets this time around, providing a trigger like in 2008. We get a 2008-like collapse event that brings the world banking system (even farther down) to its knees. There is little The Fed and other central banks can do to slow this crisis, at that point, because they created the damn crisis in the first place, and have done everything possible to prop the economy up for 12 years now, since 2008. Ultimately, economic "gravity" wins, and inflated prices and propped up markets inevitably collapse at some point. We reach that point, in early to mid 2021.
January 2021- September 2021- Commercial real estate collapses. Credit markets tighten, it becomes almost impossible for anyone to get a loan, private individual or businesses. Then residential real estate markets collapse, starting in major, tech heavy cities, and then spreads nationwide. Yet rents stay high, in major cities. Millions of Americans struggle on the verge of homelessness. Massive protests rise up to forgive student loan debt, and for rent strikes. Meanwhile, another 200,000 Americans, or more, die after contracting Covid-19. Our initial abysmal response to the pandemic, combined with the lack of simple precautions by millions of people, and the traditional flu season, lead to a severe second waves of infections of Covid-19, and deaths, during the winter of 2020-2021.
The Democratic led White House, Senate, and House of Representatives approve massive relief bills for the actual American people. Calls for a real world healthcare program follow. (If I'm wrong, and Trump somehow gets re-installed, America collapses in this period, much like the Soviet Union in 1989).
May 2021- December 2021- Amid the other turmoil, at some point in this period, most likely, a safe, viable vaccine for Covid-19 comes out, mass inoculations begin. By late 2021 or more likely mid-2022, the vast majority of Americans have been inoculated. But the economy is still in turmoil. There will be a wave of consumer spending as business (those still in business) "goes back to normal." This helps, but is far from the innovation and true growth needed to get the economy going again.
2022- We begin the long, slow "rebirth," out of the ashes of the worst economic crisis since the Civil War. Several major, well known corporations have collapsed by this point. Newer, younger start-ups are vying to take their places . Those who have some money, or can come up with creative financing solutions, snap up bargains in real estate. A handful of colleges and universities will collapse in 2021, this trend grows into the College Apocalypse, as higher education tries to figure out a viable model, that students can afford, going into the future. At least 30% to 40% of current colleges go out of business, or merge with other schools, in the 2020's.
2023 to 2025- The long, slow, rebuilding continues. A few of today's tech giants (Facebook/Instagram excluded, they turn into the new "MySpace," and are being replaced at this point), and a whole bunch of young tech start-ups lead the economy into the future. Millions of people, unable to find any "normal" jobs for months or years, turn to creating micro and small businesses. Most struggle for while, but many begin to gain traction as the U.S. economy rebuilds, from the ground up. With any luck, The Fed is toast at this point, and some currency that is actually Constitutional is created. That's unlikely, but we can hope.
OK, that's where I see things going... in a nutshell. Have a nice day. ; )
Blogger's note, 6/7/2021- The Fed is still throwing $2 to $3 Trillion a year at the economy to prop it up, so my predictions will be delayed. Another 20% to 40% stock crash WILL come, and real estate nationwide will tank, maybe late 2021-2022.
The main thing to remember for the remainder of 2021, 2022, and 2023 is "a little inflation, inflation, high inflation and then hyper inflation. Then they'll try to shove a "crypto" dollar at us, that no one will want. Remember, blockchain has value because the blockchain itself can be searched and checked, but they'll try to hide the actual crypto dollar blockchain in a "black box."
Yes, it seems totally counter-intuitive, but a lot of businesses, including several major ones, got started in recessions and depressions. Chrystie at AppSumo talks about a few of them, mostly recent tech companies.
Daniel Kwak interviews commercoal real estate investor/developer Jerome Maldanado on where commercial real estate is right now. Again, it's hard to get good information on today's fast changing markets, so here's an up-to-date look at commercial real estate.
As the Covid-19 period dragged on over the past 6-7 months, so many things have been happening so fast, economically, that it's been hard to get good information on things like regional real estate markets. So I started looking for local people doing videos. Christian at Wire Associates puts out solid videos, taking a look at the Los Angeles and Orange County markets. Here's the latest update on residential real estate here in SoCal. Surprisingly, the market is still pretty hot. Will it stay that way? What the video to get his thoughts.
Have we begun "The Next Great Depression?" Personally, I think we are in what will ultimately be a Great Depression, and we have crossed the threshold (10%+ GDP drop) that makes this offically an economic depression. But will things get as grim as this video depicts? I'll let you decided. This is a really depressing comparison between our world today, and the Great Depression of the 1930's.
According to this CNBC article, from October 7th, only 11% of people with federal student loans are paying those loans back, on time, right now. Due to the forebearance offer, 89% of people are not paying back their federal student loans. So what happens to the SLABS investments being funded by the payments of those millions of student loans (see previous post)? Good question.
